Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Refusing to Execute the Documents

    Songwriters Daniel Cohen and Julie Didier owned their own publishing company, Bayou Blanc Music Company, which owned the copyrights in their songs. When they divorced in 1985, the divorce decree incorporated an agreement that Didier would continue to own Bayou Blanc but she would transfer Cohen’s pro rata share of the copyright ownership in all songs to any publishing company designated by Cohen. The agreement also provided that both parties would execute all necessary documents to effectuate the purposes and transactions in the agreement. Cohen set up his own publishing company and asked Didier to execute the copyright assignment but she didn’t.

    So 25 years later Cohen decided to do something about it. He filed a “Petition to Enforce Final Decree or in the Alternative to Modify Final Decree as to Copyright and Royalties,” and as a result the circuit court ordered Didier to execute the copyright assignment. She still didn’t, so the court had the county clerk execute the assignment. Didier appealed.

    Tennessee has a ten-year statute of limitations on “actions on judgments and decrees of courts …,” so Didier argued that the duty to assign the copyright was time-barred. There was, however, an ERISA case, Jordan v. Jordan, that distinguished enforcing a judgment, which is time-barred, from performing a ministerial act, which is not.

    Under ERISA, the plan administrator needs a Qualified Domestic Relations Order before the administrator can make changes to a pension. The wife didn’t prepare the QDRO for more than ten years but the court nevertheless approved it. The husband objected that it was time barred but the court of appeals disagreed, finding that the approval of the QDRO was “adjunct to the entry of the judgment of divorce and not an attempt to enforce the judgment. It is an essential act to bring to fruition the trial court’s decree regarding a division [of the husband’s marital property].”

    Didier argued that Jordan was limited to ERISA cases, but the appeals court disagreed: “The act of executing the copyright assignments on behalf of Bayou Blanc, the owner of the rights to the songs, falls squarely in the category of ‘mere ministerial task necessary to distribute funds previously allocated’ in the divorce decree.” The divorce decree was a decision on how the royalties would be divided, but it can’t be enforced until Didier executes the copyright assignments. Therefore, ordering the clerk to sign the documents on behalf of Didier is adjunct to the entry of the judgment of divorce and not an attempt to enforce the judgment.

    And now comes the fun of actually getting to the enforcement phase and trying to get the back royalties paid.

    Cohen v. Didier, No. M2013-01370-COA-R3-CV (Tenn. App. Ct. Aug. 19, 2014).

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  • A Short Lesson on Trademark Coexistence Agreements

    The restaurants in the Benihana chain have two different owners, divided by territory. Defendant Benihana, Inc. (“BI”) owns the BENIHANA trademark in the United States, Central America, South America, and the islands of the Caribbean, the “Territory.” Plaintiff Benihana of Tokyo, Inc. (alert! noisy autoplay link) (“BOT”) owns the rights to the BENIHANA trademark outside of the Territory. The Amended and Restated Agreement and Plan of Reorganization (“ARA”) described their mutual obligations:Section 7.10 of the Benihana agreement

    If you can’t read it, it says:

    [E]ach of BOT and [BI] agree that, without the prior written consent of the other, neither will make any use of the Trademarks which could reasonably be expected to reduce the value or usefulness of the Trademarks to the other party. In addition, each of BOT and [BI] shall be responsible for the proper registration and maintenance of the Trademarks and the prosecution of infringements or potential infringements of the Trademarks in the territories where such party has an interest in the Trademarks.

    The agreement also provided that there would be irreparable damage if any provisions of the agreement were not performed and that the parties would be entitled to specific performance.

    BI, through its subsidiary defendant Noodle Time, Inc., filed an application for an International Registration extending to Iceland, Iran, Monaco, Singapore, Ukraine, Vietnam and Zambia—you will notice these are not in the Territory. BOT sued, BI filed a “Request for the Recording of a Renunciation” for the BENIHANA trademark and another logo registration, and told BOT it would not pursue registration in any countries in BOT’s territory. Nevertheless, BOT proceeded with a claim for recission of the ARA.

    And here’s the simple lesson: registration ≠ use

    The agreement didn’t say the parties couldn’t register outside of their territory, just that they couldn’t use the mark outside of the territory, so there was no breach. In the context of the entire contract, “the plain meaning of ‘use’ is unambiguous and does not encompass ‘registration’ or ‘attempts to register’ Trademarks.” So if you’re dividing ownership, include a provision prohibiting registration outside of the party’s territory too.

    Benihana of Tokyo, Inc. v. Benihana, Inc., Civ. No. 10-1051-SLR (D. Del. July 22, 2014).

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  • Schooling on Unincorporated Associations

    The Ninth Circuit has given us a lesson on unincorporated associations and two different legal concerns when one is involved in a trademark infringement lawsuit: the association’s capacity to own trademarks and to bring a lawsuit for infringement.

    The plaintiff is the Southern California Darts Association (“SoCal”), which promotes darts competitions and coordinates leagues. It had incorporated many years ago but its corporate powers were suspended by the state in 1977 for nonpayment of corporate franchise tax. Defendant Dino Zaffina was a member of SoCal but there was a falling out. (“Zaffina and SoCal feuded in July 2010 over whether Zaffina’s middle initial would be used in SoCal’s weekly scoring reports, and Zaffina’s membership in SoCal came to an end.” Wow. One suspects there were more issues than just a middle initial.) Zaffina had the not-too-bright idea* to form his own corporation (“SoCal Inc.”) and register the the domain name “southerncaliforniadartsassociation.com.” Zaffina and SoCal Inc. then wrote to SoCal’s host pubs to tell them of their existence and ultimately sued multiple defendants. SoCal then sued Zaffina and SoCal Inc. for trademark infringement. SoCal ultimately prevailed in the suit in the district court, against Zaffina on the merits and by default against SoCal Inc., when it failed to retain new counsel after its original counsel withdrew. Zaffina appealed pro se.

    Zaffina’s first challenge on the appeal was subject matter jurisdiction, quickly put the bed because there is federal jurisdiction for unregistered trademark infringement under § 43(a). Then we get to the interesting stuff with unincorporated associations.

    First is capacity to sue. Under California law, a delinquent corporation whose powers have been suspended may not bring suit or defend a legal action. However, capacity to sue in federal court is governed by Federal Rule of Civil Procedure 17(b). While indeed the Rule ties the capacity to sue back to capacity under state law, there is a relevant exception, which is that an unincorporated association that lacks capacity to sue under state law may “sue or be sued in its common name to enforce a substantive right existing under the United States Constitution or laws.” The lower court correctly held that the SoCal corporation, although delinquent as a corporation, met the definition of an unincorporated association and therefore had capacity to bring a federal claim, that is, the Lanham Act claim.

    But can an unincorporated association own trademarks? The court wasn’t particularly clear about why they might not have the capacity—after all, California state law allows unincorporated associations to own property, so that doesn’t seem to be the issue. It seems to revolve around the concept that unincorporated associations may not be commercial. But, since they can engage in commercial activities (the NFL is relieved to hear), there is no reason to categorically exclude them from trademark ownership.** In two earlier trademark cases the court implicitly held that unincorporated associations could own them, so here the court “expressly adopt[s] the implicit holding of Idaho’s High Desert.” This decision is consistent with the Sixth and Seventh Circuit, as well as decisions by the District Courts for the Eastern District of Wisconsin and New Jersey.

    And a bonus legal discussion: While only lawful use in commerce creates trademark rights, there must be a nexus between the unlawful behavior and the use of the mark in commerce. Not paying corporate franchise tax is “collateral and immaterial” to the purpose of federal trademark law and therefore did not make SoCal’s use of its trademarks unlawful.

    Southern California Darts Association v. Zaffina, No. 13-55780 (Aug. 11, 2014).

    * “Not-too-bright” because at the end of the day, this feud cost Zaffina more than $100K in damages, plus costs.

    ** Implicit in the court’s analysis is the court’s underlying assumption that non-profit or non-commercial enterprises don’t have use of a trademark “in commerce,” which is just flat wrong.

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  • Yikes

    Whether a license provision is categorized as a “condition” or a “covenant” will determine what remedies are available. Noncompliance with a covenant of the agreement is a merely a breach, so you get contract remedies. If the noncompliance means you failed to satisfy a condition, then you have no license and are subject to infringement remedies, most notably injunctive relief.

    There are a couple of leading cases that discuss the distinction, MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928 (9th Cir. 2010) opinion amended and superseded on denial of reh’g, 09-15932 (9th Cir. Feb. 17, 2011) and Jacobsen v. Katzer, 535 F.3d 1373 (Fed. Cir. 2008). But the most thorough explanation, albeit with what I believe is a troubling outcome, is in a recent district court opinion in Sleash, LLC v. One Pet Planet, LLC. It’s a trademark license case, but really applicable to any license interpretation.

    Plaintiff-licensor Sleash and defendant-licensee One Pet Product (OPP) had a manufacturing and distribution agreement that included the grant of a trademark license. This is the language in question:

    Sleash license agreement clip

    If you can’t read it, the relevant portion is:

    Licensor hereby grants to Licensee an exclusive, sublicensable, irrevocable worldwide license to use the Licensed Marks on or in connection with the manufacture, marketing, promotion, sale and distribution of Licensed Products during the Term. … Specifically, Licensee agrees to maintain commercially reasonable quality standards as shall be prescribed by Licensor in writing or as otherwise reasonable under the circumstances in the conduct of the business operations with which the Licensed Marks are used. Expressly under this license, Licensee shall use the Licensed Marks only in conjunction with Licensed Products that are offered for sale or sold by Licensee in accordance with the terms of this Agreement. The Licensee hereunder expressly conveys no ownership interest in the Licensed Marks, which shall at all times under this Agreement be retained by Licensor.

    OPP never made products that were satisfactory to Sleash. There was a failed attempt at terminating the agreement (folks, give notice as described by the terms of agreement AND use words like, I dunno, maybe “terminate”). The backup theory was that OPP’s failure to meet quality standards meant that the products sold were not licensed and therefore infringing. It was a question of whether the license grant was the first sentence only with the rest of the paragraph stating covenants (as argued by OPP) or whether the subsequent provisions in the paragraph were also conditions of the grant (as argued by Sleash).

    Here’s the court’s explanation of how you tell conditions and covenants apart (internal quotation marks and citations omitted):

    A covenant is a contractual promise, i.e., the manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made. No special form of words is necessary to create a promise. Instead, a court determines from a fair interpretation of the language of the instrument whether the parties intended a promise.
     
    In contrast, a condition precedent constitutes facts and events, occurring subsequently to the making of a valid contract, that must exist or occur before there is a right to immediate performance, before there is a breach of contract duty, and before the usual judicial remedies are available. The intent of the parties, to be ascertained from a fair and reasonable construction of the language used in light of all the surrounding circumstances, determines whether a provision in a contract is a condition or a covenant….
     
    Although promises and conditions are different, the distinction can be blurred, and the determination whether a provision states a promise, a condition, or both, can be difficult. Given this difficulty, the Oregon Court of Appeals noted that the following analysis is helpful:

    (1) a promise is always made by one of the parties to the contract whereas an event can be made to operate as a condition only when the parties to the contract agree that it shall operate as such, except in those cases where conditions are created by law; (2) the purpose of a promise is to create a duty in the promisor, whereas the purpose of a condition is to postpone a duty in the promisor; (3) when a promise is performed, the duty is discharged; but where a condition occurs, the quiescent duty is activated; and (4) when a promise is not performed, a breach of contract occurs and the promisee is entitled to damages.

    A court will not imply that a covenant is a condition unless the parties use clear and unambiguous language. This canon of construction avoids the harsh effect of forfeiture which may result from a failure of a condition precedent, and does not result in a minor failure to perform exactly as called for, wholly destroying all rights under the contract. Another reason contract conditions are generally disfavored is that promises set the parties’ liability from the outset—and conditions therefore will not be found unless there is unambiguous language indicating that the parties intended to create a conditional obligation.

    Applying this standard, the court held that the quality control provisions in the agreement were a covenant by the defendant, not a condition of the license. Sleash argued that everything in the paragraph had to be performed “in accordance with the terms of this Agreement,” but that was too far a stretch:

    The relevant full sentence reads: “Expressly under this license, Licensee shall use the Licensed Marks only in conjunction with Licensed Products that are offered for sale or sold by Licensee in accordance with the terms of this Agreement.” The most natural and reasonable reading of this text is that OPP may only use the Licensed Marks on Licensed Products, which both parties concede OPP did in this case. Moreover, this sentence uses text indicating a promise and not a condition. … OPP is simply promising not to use the Licensed Marks on anything other than Licensed Products as defined by the License Agreement.
     
    Second, .. the limiting clause cited by Sleash does not expressly reference Section 5.4. Sleash argues that grant clause in the License Agreement is conditioned on OPP’s compliance with Section 5.4 of the License Agreement which governs the “Input on Materials” and provides that the parties “jointly approve the materials to be used in manufacturing the Licensed Products.” Nowhere in Section 2.2, however, is Section 5.4 referenced ….
     
    Third, Sleash’s argument is further undermined when considered in light of the surrounding context. A sentence in the middle of Section 2.2 and not cited by Sleash explicitly references quality standards. That sentence reads: “Specifically, Licensee agrees to maintain commercially reasonable quality standards as shall be prescribed by Licensor in writing or as otherwise reasonable under the circumstances in the conduct of the business operations with which the Licensed Marks are used.” The phrase “agrees to maintain” constitutes a promise and does not condition OPP’s use of the Licensed Marks on Sleash’s prior approval….

    The court also considered a defensive naked license argument, that is, a claim by Sleash (and I may be rewriting its argument here, but it’s how it makes sense to me) that Sleash must have imposed quality control standards as part of the grant or else it would risk naked licensing. The court didn’t agree though; one can avoid a naked license by actually exercising control, so the failure to include quality control terms as part of the license grant wasn’t fatal to the license agreement.

    I agree this is suboptimal drafting, but it’s not THAT bad, particularly if written by a general business lawyer instead of a licensing lawyer. I think it’s too fine a distinction to say that a fundamental aspect of a trademark license, quality control, isn’t a condition of the license because of some hypertechnical distinction between, for example, the words “agrees to maintain” and “provided you maintain.” I also think the naked licensing argument was on the right track although perhaps not understood by the court: the point is that the doctrine of naked licensing is a demonstration that quality control is part and parcel of the license grant because, taken to an extreme, in its absence there is no trademark to grant a license to.

    But lesson learned—always make your grant clause one very long sentence and use the words “subject to” a lot.

    Sleash, LLC v. One Pet Planet, LLC, No. 32:14-cv-00863-ST (Aug. 6, 2014).

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  • A Primer on Michigan State Trademark Law

    There aren’t a lot of cases about state trademark law, so a state appeals court decision—here, Michigan—is worth a mention, if for no other reason than it is about the most thorough explanation of the fundamentals of trademark law that I’ve read in a long time. If you have someone just beginning to study trademark law, give them this case to read.

    It is a restaurant surname case, “Travis.” The name was first used in 1944 and the trademark was registered with the state in 1996. The plaintiff used the name with “various” family-owned restaurants during that time, but we don’t know how many or whether they are all still family-owned.

    In 2011 the defendant bought the “Travis of Chesterfield” restaurant, which had been licensed to use the plaintiff’s TRAVIS mark, but didn’t “negotiate” (the court’s word) the right to keep the license. The defendant then changed the name to “Travis Grill” and continued to have the “famous Travis burger” on its menu.

    The analysis is straightforward. The state registration is prima facie evidence of distinctiveness, which the defendant did not adequately rebut. There was one paragraph on likelihood of confusion, but then there’s not a lot to say about the difference between a burger joint called “Travis” and one called “Travis Grill,” particularly when the latter sells the “famous Travis burger.”

    Unfortunately the lower court documents aren’t online; I’d like to know more about the acquisition of the premises and why there wasn’t a trademark license as part of it—it wouldn’t be unusual to keep a restaurant name, so it would be interesting to see how willful the defendant’s actions might have been. The Court of Appeals said, on one hand, that no license was “negotiated,” suggesting perhaps awareness of the need to obtain a license, but then also immediately thereafter says “it is unclear if defendant checked with the Michigan trademark office before or at the time it purchased its restaurant, as defendant could have easily discovered plaintiff’s registration of the ‘TRAVIS’ mark,” suggesting that the defendant was not otherwise aware of the need for a license. But nothing in the case suggests there was any effort to make an implied license defense, so I’m having a hard time understanding how not only did this happen at all, but that it even got as far as the appeals court. Seems like a slam-dunk.

    Janet Travis, Inc. v. Preka Holdings, L.L.C., Docket No. 315560 (Mich. App. Ct. July 31, 2014).

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  • Who Owns an Academic Journal?

    For decades Duke University published an academic journal called Social Science History that was edited by The Social Science History Association. At the time of the dispute, the two were parties to an “Editing and Publishing Agreement,” which provided that:

    SSHA v. Duke Editing and Publishing Agmt snipIf you can’t read it, the agreement was for five years and auto-renewed every year until one party provided notice that it “wishes to discontinue its participation in the journal.”

    The Social Science History Association gave timely notice that it “wishe[d] to discontinue its participation with Duke University Press in publishing its journal “Social Science History.” Duke responded that, should The Social Science History Association terminate the agreement, in Duke’s opinion Duke would become the owner of the journal:

    The Social Science History Association filed a motion for declaratory judgment on the contract, essentially asking for a determination on ownership of the journal.

    The court conceded that “if considered in isolation, such language could be interpreted to have the effect posited by Duke.” But, under Michigan law, the court could consider the contract as a whole:

    The 1996 agreement clearly indicates that, irrespective of the financial arrangement, plaintiff remained the owner and editor of the content of the journal. The journal was to be published by Duke expressly “on behalf of [plaintiff],” and upon termination of the agreement, ownership of all extant issues, all contracts with third parties relating to extant issues, and all copyrights in extant issues would return to plaintiff. Paragraph six of the agreement expressly reserves to plaintiff “ownership and copyright in all issues of the journal produced by Duke during the lifetime of this Agreement.”
     
    … [H]aving considered the contract as a whole, including the clearly expressed intent that the rights to the journal and its contents remain with plaintiff, the above-referenced language is properly interpreted to refer to either party’s intent to withdraw from participation in the terms of the agreement, without effect on plaintiff’s ownership of the journal.

    It is odd language for a termination provision, but the express statement that the Association was and would remain the owner of all the copyrights in the journal after termination is a hard provision to get around.

    The next question after copyright, though, is who owns the the title of the journal? The Association indeed made a claim for trademark infringement, but Duke stated that it had “no immediate intention of publishing a journal under the name Social Science History in 2014.” Therefore “plaintiff has presented no evidence that Duke is currently engaged in use of its mark, and in this posture plaintiff’s trademark claim for false designation of origin is not ripe as there is no live issue currently before the Court.”

    Social Science History Ass’n v. Duke Univ., No. 5:13-CV-157-BO (E.D.N.C. July 11, 2014).

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  • Standing Without Ownership — If It’s a Trade Secret

    Trade secret is a bit of the odd man out in intellectual property law. Trade secret arises under state law, not federal, and has no formalities: no recording of an interest or filing of an application is required. Something is a trade secret just because it’s a secret.

    There aren’t a lot of a cases about ownership of a trade secret; in fact I only write about one post a year on trade secret. So here is this year’s post.

    The question is who has standing to claim misappropriation of a trade secret, whether it is the owner only or also lawful users of the trade secret. In Advanced Fluid Systems, Inc. v. Huber, plaintiff AFS created trade secrets as part of a government contract for a rocket hydraulic motion control system. The government contract provided that the government would get “legal ownership to all inventions or works,” but AFS still had physical possession of the trade secrets and used them in a confidential manner to fufill its obligations. Defendant Huber, a former employee, was accused of misappropriating the trade secrets.

    The defendants moved to dismiss the trade secret claim on the theory that AFS was not the owner of the trade secrets and therefore did not have standing. The court did a thorough rundown on the subject and followed the 4th Circuit decision in DTM Research, LLC v. AT&T Corp., 245 F.3d 327 (4th Cir. 2001), as a number of other courts have done (including Metso Minerals Industries, Inc. v. FLSmidth-Excel LLC, blogged here). The AFS court quoted DTM Research thus:

    [T]he question of whether “fee simple ownership” is an element of a claim for misappropriation of a trade secret may not be particularly relevant in this context. While trade secrets are considered property for various analyses, the inherent nature of a trade secret limits the usefulness of an analogy to property in determining the elements of a trade-secret misappropriation claim. The conceptual difficulty arises from any assumption that knowledge can be owned as property. The “proprietary aspect” of a trade secret flows, not from the knowledge itself, but from its secrecy. It is the secret aspect of the knowledge that provides value to the person having the knowledge. While the information forming the basis of a trade secret can be transferred, as with personal property, its continuing secrecy provides the value, and any general disclosure destroys the value.

    “In other words, it is the possession of the secret, not the possession of some abstract or academic legal right of ownership in the secret, which is proprietary and which entitles the possessor to trade secret protection.” Motion to dismiss the trade secret claim was denied.

    Advanced Fluid Systems, Inc. v. Huber, No. 1:13-CV-3087 (M.D. Pa. June 18, 2014).

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  • A Sensible Decision

    Fairway Fox logoJohn Welch at the must-read site The TTABlog published a post about a recent ownership decision, Conolty v. Conolty O’Connor NYC LLC. The gist is that two women started a business without any formal business structure, one of the women, O’Connor, formed the defendant LLC as a single member limited liability company, and the LLC filed the trademark application for the mark FAIRWAY FOX. The TTAB held that the trademark was owned by the two women as partners and that there was no evidence that the partnership had transferred the trademark to the LLC, and so the application was void.

    I like this decision, a precedential one, for a couple of reasons. First, it states clearly that ownership—well, nonownership, to be more accurate—is a claim that is distinct from likelihood of confusion. The Trademark Trial and Appeal Board Manual of Procedure says so, listing in § 309.03(c) the basis for opposition “That defendant is not (and was not, at the time of the filing of its application for registration) the rightful owner of the registered mark.” But, the online filing form doesn’t have a checkbox for it, so one has to enter it under the “Other” field. In this case the opposer made the same choice many would probably make in the same situation, that is, instead checked “Priority and likelihood of confusion” as the basis for the claim. Thereafter the opposer proceeded down the path of likelihood of confusion and priority, which, while similar to a claim of nonownership, isn’t quite the same. The Board nevertheless found enough statements about ownership in the Notice of Opposition it concluded nonownership had been pled, or alternatively that the nonownership basis was tried by implied consent. So, folks, you can plead nonownership per se as a legal theory before the TTAB.

    I also like the simplicity of the decision—sometimes analytically it really is this easy. Two people started a business together as a partnership; an LLC is formed by one; the LLC provided no evidence that the partnership assets were or should have been transferred to the LLC;* therefore the LLC is not the owner of the trademark. QED.

    The messy part was that the first use of the mark was after the LLC was formed, but the evidence showed that

    Ms. Conolty and Ms. O’Connor were, by any practical measure, partners, who jointly controlled the quality of FAIRWAY FOX products and who were both, together, perceived as the source of FAIRWAY FOX products…. In short, Applicant [i.e., the LLC] is solely controlled by Ms. O’Connor, who has but a joint interest in the FAIRWAY FOX mark with Mr. Conolty. Because Applicant is not the sole owner of the mark, the application is void.

    Conolty v. Conolty O’Connor NYC LLC, Opp. No. 91206045 (TTAB July 3, 2014).

    *A couple of footnotes of note: “12. The evidence belies Applicant’s claim that ‘As of June 2011 the Founders [Ms. Conolty and Ms. O’Connor] ceased doing business under the mark and the business was taken over by the corporation,” and “13. The evidence reveals that applicant did not ‘take over’ the business in June 2011. Rather, following Applicant’s formation, the business continued as it had ….”

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  • Is It a Sublicense If It’s For All Licensed Rights Except One Day?

    Those who draft patent licenses take note. MDS (Canada), Inc. v. Rad Source Technologies, Inc. is a state court opinion from the Supreme Court of Florida distinguishing an assignment of a patent license from a sublicense.

    MDS (Canada), now “Nordion,” was a licensee of technology from Rad Source. The license could not be assigned absent consent from Rad Source, although Nordion could sublicense the patents.

    Nordion wanted to get out of the business and assign the license agreement to Best Medical, but couldn’t get Rad Source to consent. So instead Nordion sublicensed the technology to Best for a term that was one day less than the term of the original license (which terminated on expiration of the last patent). Exactly all of the same rights were sublicensed. But, Nordion couldn’t delegate its responsibilities to Best, so they did some work-arounds of those. Nordion retained some kind of liability to Rad Source (exactly what wasn’t clear to the Supreme Court) so Best indemnified Nordion for it. Nordion also wasn’t obliged to pay Rad Source until Best had paid Nordion. Nordion sold everything to Best and conveyed this sublicense to Best so that when all was said and done, Nordion had no ability to operate a business using the licensed technology.

    The lawsuit was filed in the Southern District of Florida. After a bench trial, the appeal went to the 11th Circuit (if you’re interested, the 11th Circuit opinion explains why it had jurisdiction over the appeal rather than the Federal Circuit). The status of the agreement—assignment of a license or a sublicense—was a question of state law and the 11th Circuit decided that it was uncertain about the answer. It therefore certified a question to the Supreme Court of Florida, which as rephrased by the Supreme Court was:

    DOES FLORIDA RECOGNIZED A “BRIGHT-LINE” RULE TO DISTINGUISH AN ASSIGNMENT OF A LICENSE AGREEMENT FROM A SUBLICENSE?

    The “bright-line” is the difference between giving up all rights and duties without a reversion, or a grant of less than all rights and duties. Here, the agreement used the artifice of term-minus-a-day, used to for cases involving real property. Under real property law, quoting an opinion of the Arkansas Supreme Court

    “[t]he doctrine established in England is quite simple: If the instrument purports to transfer the lessee’s estate for the entire remainder of the term it is an assignment, regardless of the form or of the parties’ intention.” However, under this doctrine, “if the instrument purports to transfer the lessee’s estate for less than the entire term—even for a day or less—it is a sublease, regardless of its form or of the parties’ intention.”

    But the Florida Supreme Court concluded:

    For the reasons explained in this opinion, we conclude that under Florida law, there is no “bright-line rule” that distinguishes an assignment of a license agreement from a sublicense. Instead, this case-by-case determination requires courts to consider numerous factors, including the language of the license agreement and its subject matter, the substance of the interest that was actually transferred by the licensee, and whether the licensee retained any substantial rights in the license agreement. We therefore answer the rephrased certified question in the negative and return this case to the Eleventh Circuit to apply our legal holding to the facts of this case.

    And what case law would help in reaching that conclusion? “[C]ases construing patents, such as those relied on by the federal district court, are instructive in providing guiding principles for the type of interest at the heart of this case.”

    So back to the federal courts to weigh all the facts and decide what this was. The district court originally said assignment and the 11th Circuit agreed, albeit also certifying the question to the Florida Supreme Court. It doesn’t look good for Nordion.

    MDS (Canada), Inc. v. Rad Source Techs., Inc., No. SC13-1215 (Fla. July 10, 2014).

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    MDS (Canada), Inc. v. Rad Source Techs., Inc., No. 11-15145, 720 F.3d 833 (11th Cir. July 1, 2013).

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  • A Patent Assignment Isn’t Rescinded Just Because You Say So

    In December, 2010, plaintiff Dominion Assets assigned its patents to non-party Acacia Patent Acquisition, LLC, a subsidiary of the notorious non-practicing entity Acacia Research Corp., for Acacia to monetize. Below is the operative assignment language:

    Dominion Assets v Masimo Corp Agreement clip
    If you can’t read the image, it says:

    Effective immediately upon the date of Acceptable Completion as set forth in Section 1.3 below, Assignor assigns, conveys, transfers and sells to APAC, or APAC’s designated Affiliate (as defined below) if APAC transfers or assigns its interest in this Agreement per Section 9.2 herein, the entire right, title, and interest in and to the Patents, including without limitation, all rights of Assignor to sue for past, present and future infringement of the Patents…. Assignor shall execute and deliver to APAC (or APAC’s designated Affiliate) a separate Assignment, which is attached hereto as Exhibit B, and such other documents as APAC (or APAC’s designated Affiliate) shall reasonably require in order to comply with the terms set forth in this Agreement.

    The Agreement also provided in paragraph 9.7 that “Upon termination of this Agreement, the rights granted to APAC shall automatically terminate and such rights shall revert to Assignor.”

    There was no dispute that Acacia provided notice of Acceptable Completion but Exhibit B, which said “For USPTO Recording” at the bottom, was never executed. For those interested in the practice of hiding the true ownership of patents acquired by patent assertion entities, the opinion noted it wasn’t executed because Acacia told Dominion “to hold off on that part as we will provide an updated copy when the time is appropriate.”

    Dominion was unhappy with Acacia’s performance so about 15 months later, on March 30, 2012, it wrote to Acacia and said it was “terminating the agreement effective immediately.” In April, Acacia offered termination language, but Dominion had to accept encumbrances Acacia placed on the patents (i.e., licenses granted to Oracle, Microsoft and Samsung), and a release by Dominion of all claims against Acacia. Dominion wouldn’t sign the termination agreement with this language.

    The next event in time, on May 30, 2012, was filing of the instant patent infringement lawsuit. Dominion and Acacia finally executed a Termination and Assignment Agreement effective on April 18, 2014.

    So you should have noticed the argument defendant Masimo Corp. raised—who owned the patent when suit was filed on May 30, 2012? If it wasn’t Dominion, then Dominion didn’t have standing for the lawsuit.

    Dominion had three arguments why it, not Acacia, owned the patent on that date. First Dominion claimed that Acacia never owned the patents in the first place because Exhibit B was never executed. That was a no-go; the operative assignment was in the main agreement and it was language of present assignment, “effective immediately upon the date of Acceptable Completion … Assignor assigns, conveys, transfers and sells to APAC … the entire right, title, and interest….” (Emphasis in original.) The fact that there was a trigger, the Acceptable Completion, did not change this into an agreement to assign in the future because the assignment was automatic upon Acceptable Completion, which had been performed. Exhibit B was not the operative assignment but rather one of “such other documents as APAC … shall reasonably require in order to comply with the terms set forth in this Agreement.” (Emphasis in original.)

    Next Dominion argued that it had unilaterally rescinded the Agreement due to Acacia’s breach, but that’s an easy argument to defeat—under Texas law, one cannot unilaterally rescind a contract, it requires a court order.

    Finally, Dominion argued that the parties had agreed to terminate the agreement sometime before the lawsuit was filed. This is the legal concept of mutual rescission, where, under Texas law, “parties may rescind their contract by mutual agreement and thereby discharge themselves from their respective duties.” But,

    based on this evidence, the Court can at most infer that as of May 30, 2012 the parties had an agreement to negotiate a termination agreement.
     
    The devil is in the details ….

    First was the theory of verbal rescission. Under Texas law a mutual rescission doesn’t have to be in writing but there must be clear evidence of an express oral agreement or a tacit agreement inferred from the parties’ course of conduct indicating a mutual understanding that the agreement is terminated. The court acknowledged that, given that patent assignments must be in writing, there was a legal question whether a patent assignment could be rescinded verbally, but assumed without deciding that it could be.

    But Dominion’s testimony wasn’t enough to establish that there had been a verbal agreement to rescind, “I don’t remember, I mean, it was just too long ago. He [an Acacia representative] just acknowledged the—the termination. And probably on more than one occasion. I don’t remember exactly what he said.” This wasn’t good enough for verbal rescission.

    And the parties’ conduct belied that the contract had been rescinded before the termination agreement was finally signed:

    It is evident that Acacia insisted on written termination agreement throughout the discussions regarding termination. Moreover, Acacia’s termination proposal included material terms above and beyond mere rescission of the Assignment Agreement ….

    Finally a drafting tip: if you’re going to write a document confirming an event that happened in the past, don’t write it in present and prospective terms with no mention of that prior agreement or rescission. The recitals for the Termination Agreement stated that Acacia “desires to transfer and convey to Dominion all of its interests [in the covered patents],” that the “Parties desire to terminate the Patent Assignment Agreement” and that the Assignment Agreement was terminated on the “Effective Date” of the Termination Agreement, in 2014. That’s pretty much the nail in the coffin of your claim that there was an earlier effective termination.

    There’s no hint in the case, but you can sort of see the back story here. Dominion was aware of defendant Masimo’s infringement and unhappy that Acacia wasn’t pursuing it, so wanted to pursue the case itself. That was the urgency in filing suit before the ownership situation was more cleanly managed. But it didn’t pay off.

    Dominion Assets LLC v. Masimo Corp., No. 112-cv-02773-BLF (N.D. Calif. June 27, 2014)

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