Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • When is a Trademark License Not a License?

    Butternut specimenThe legal significance of a “license” to the BUTTERNUT trademark has been in dispute for ten years now. I put “license” in quotes because while the document in question is called a license, it’s not your typical trademark license.

    In 1996, in settlement of an antitrust suit brought by the Justice Department, defendant Interstate Bakeries Corporation (IBC) had to divest itself of some Bread Assets (land, buildings, fixtures, equipment, vehicles, customer lists, etc.) and Labels, which included “all legal rights associated with a brand’s trademarks, trade names, copyrights, designs and trade dress.”

    Plaintiff Lewis Brothers Bakeries (LBB) was the company that acquired the rights Interstate Brands had to sell. The judgment was reduced a transaction that had both an Asset Purchase Agreement and a License Agreement. One of the assets being transferred in the APA was:
    Lewis Bros APA snipIf you can’t see the image, it says “the perpetual, royalty-free, assignable, transferable exclusive license to use the trademarks as described in Schedule 1.2(e)(the “Trademarks”) pursuant to the terms of the License Agreement (as described in Section 3.6) …” Section 3.6 described a “trademark license agreement substantially in the form of Exhibit G hereto ….”

    So we have what is a very unusual trademark license agreement. Most trademark license agreements aren’t assignable, transferable or perpetual, and when you add in “exclusive” you get an agreement that looks much more like a transfer of all rights rather than a license.

    In 2004 defendant Interstate Bakeries filed for Chapter 11 bankruptcy. As part of its reorganization plan, it identified the license agreement as an executory contract that it was going to assume.

    The bankruptcy court, the district court, a panel of the Eighth Circuit and the Eighth Circuit sitting en banc have all now opined. The fundamental question is whether this license agreement is an executory contract. If it is, Interstate Bakeries can assume the agreement, perhaps assigning it to someone else—which it did, assigning it to Flowers Foods during the pendency of the case. A decision that the agreement is not executory, as explained by the court, “would affect the value of LBB’s exclusive, perpetual, royalty-free license by removing uncertainty about the status of the License Agreement. A judgment in favor of LBB also would allow the company to plan its ongoing business without the potential that Flowers Foods or any other successor or assign of IBC could reject the License Agreement in a later bankruptcy proceeding.”

    The bankruptcy court held that the license was executory because both parties had material, outstanding obligations. LBB’s obligation included the duty to maintain the character and quality of the goods sold under the trademark, what all trademark lawyers recognize as a fundamental duty of a trademark licensee. Interstate Bakeries’ obligations included the typical duties of a trademark owner, like maintaining and defending the trademarks and refraining from using the marks itself in the territory.

    The district court and the 8th Circuit panel both agreed that the license agreement was executory, with a dissenting judge on the panel. The court of appeals decided to hear the case en banc.

    And LBB finally has its relief. Rather than looking at the license agreement alone, as all three previous opinions had done, the full court considered the the transaction in its entirety, as an asset purchase:

    Applying these principles, the Asset Purchase Agreement and the License Agreement should be considered together as one contract. IBC and LBB entered into the Asset Purchase Agreement and the License Agreement contemporaneously on December 28, 1996. The Asset Purchase Agreement lists the license as an asset sold to LBB pursuant to the sale. It directs the parties to enter into the License Agreement “[u]pon the terms and subject to the conditions contained in [the Asset Purchase Agreement].” Both documents memorializing the agreements define the “Entire Agreement” as including both agreements. The Asset Purchase Agreement’s definition includes “the exhibits and schedules hereto,” and a model for the License Agreement is included as an exhibit to the Asset Purchase Agreement…. To treat the License Agreement as a separate agreement would run counter to the plain language of both the Asset Purchase Agreement and the License Agreement, which describe the two as one piece, and would ignore the valuable consideration paid for the license.

    And, looking at the two agreements as the whole instead of the license agreement alone, the court found that the license agreement was not executory because the transaction, the asset purchase, was substantially performed:

    The essence of the agreement here was the sale of IBC’s Butternut bread and Sunbeam bread business operations in specific territories, not merely the licensing of IBC’s trademark. The agreement called for LBB to pay $20 million for IBC’s assets. The parties allocated $11.88 million for tangible assets, such as real property, machinery and equipment, computers and licensed computer software, vehicles, office equipment, and inventory. They allocated another $8.12 million toward intangible assets, including the license. IBC has transferred all of the tangible assets and inventory to LBB, executed the License Agreement, and received the full $20 million purchase price from LBB.

    IBC’s remaining obligations concern only one of the assets included in the sale—the license. They involve such matters as obligations of notice and forbearance with regard to the trademarks, obligations relating to maintenance and defense of the marks, and other infringement-related obligations. When considered in the context of the entire agreement, these remaining obligations are relatively minor and do not relate to the central purpose of the agreement to sell the Butternut and Sunbeam bread operations and assets to LBB in certain territories.

    Despite my discomfort with the concept that a trademark license is not categorically executory, I agree with this outcome. In the bankruptcy court there was testimony from the former GC of Interstate that Interstate’s intent was to sell the BUTTERNUT trademark to LBB within LBB’s territory. The vehicle of a trademark license was used because Interstate continued to own the trademark in other territories. So fundamentally, there shouldn’t have been a license at all, but instead a territorial division of ownership. Which is what the Court of Appeals for the 8th Circuit has effectively now accomplished.

    Lewis Bros. Bakeries Inc. v. Interstate Brands Corp., No. 11-1850 (8th Cir. June 6, 2014).

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  • The Photography Suits In a Nutshell

    I’ve been writing for some time (recursive link) about numerous lawsuits between photographers, or their agencies, and textbook publishers that have used photographs in excess of what they originally licensed for their books. Mostly I’ve been writing about challenges to standing, which are early in the cases on a motion to dismiss.

    But some of the cases have gone further, one of which is Grant Heilman Photography, Inc. v. McGraw-Hill Companies. The “bellwether trial,” as described by the court, is currently scheduled for September 15, 2014. And if you read one opinion about these photography cases, read this one.

    There are several issues the court writes about, and does it so well that you are better off just reading the opinion rather than any summary I can write. There are three agreements between the photographers and the agency, one of which is adequate for standing and one that is not. The court gives us some insight into how the industry operates and a thorough, heavily cited, explanation of when there is an implied license to use photographs, meaning that the textbook publisher only has to pay the ordinary licensing fee, and when there is not, meaning that the textbook publisher is an infringer and subject to copyright damages.

    And finally, the case shows how churlish McGraw-Hill is. McGraw-Hill raises a statute of limitations defense based on the theory that it was so obviously a wrongdoer for so many years that the plaintiff was on inquiry notice of the infringement, and therefore its claims were barred. I can’t fault anyone for raising a legitimate defense, but I wonder how many bridges the textbook industry is burning with all these cases.

    Grant Heilman Photography, Inc. v. McGraw-Hill Companies, No. 12-2061 (E.D. Pa. June 26, 2014).

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  • It’s So Hard to Value Trademarks

    It always gets interesting when an owner has incentive to make inconsistent claims about the same intangible asset in different venues. Say, for example, where you claim that copyrights are part of your deceased spouse’s estate to keep them out of bankruptcy and then try to claim you are the owner for purposes of a copyright infringement suit.

    ZIG ZAG BAIL BOND specimenToday, we have the story of Zig Zag Bail Bonds. The business was started by Margie Cohen in 1965, then sold to Richard Wader in 1977. In 1988, Richard Wader sold the business to his daughter, Reagan Anne Hubbard, and her husband, defendant Glen Hubbard. Whether Wader sold the trademark too becomes part of the story, although as we’ll see everyone acted like the Hubbards owned the name for years.

    In 1990 the Hubbards formed Glen Hubbard, Inc. to operate the Zig Zag Bail Bond business. In 1992, 1996, 2003 and 2005 Glen Hubbard signed various documents that allowed his sister, co-defendant Lynn Simon, to use the trademark in a defined geographic area in exchange for a fee.

    In 2006, Glen Hubbard filed an application to register the ZIG ZAG BAIL BOND mark in his own name, which registered in September, 2007. In 2010 there was a spat between Hubbard and Simon about whether she had breached their agreement, therefore terminating her license, but Hubband and Simon both agree (the enemy of my enemy is my friend) that the license wasn’t cancelled.

    We’re now up to 2011 and Glen and Reagan Hubbard file a voluntary joint Chapter 7 petition for bankruptcy. The petition lists the ZIG ZAG BAIL BONDS mark as community value with no property. When the trustee tried to sell the mark along with some other assets, the story starts to shift. The Hubbards now claim they don’t own the trademark, that they only licensed it from Reagan’s dad Wader, and if he had known about the registration he would have opposed it. (The Hubbards submitted two declarations from Wader to that effect, although perhaps their weight was undercut by Wader’s deposition testimony that he sold the entire business including the mark, that he had never seen the declarations before, that he had not authorized anyone to sign them on his behalf, and that he disagreed with their substance.)

    The Hubbards claimed that the registered mark “is most likely valueless and is a likely candidate for a motion by the Debtors to have the asset declared valueless and that it should be abandoned by the Trustee as opposed to being sold.” Note that the abandonment would mean that Glen Hubbard gets to keep the trademark. (I’ll note also that the court very correctly interpreted this statement as a concession that the mark is not validly registered, rather than doesn’t exist at all. Yaay bankruptcy court!) After a couple more hearings, Hubbard conceded through counsel that he owned the trademark  and that the mark was licensed, but that “it’s a nonincome-generating license” and there were all sorts of infringing uses out there. The court thereafter granted the trustee’s motion to sell assets and the trademark was sold (for the princely sum of $4,000) “as is, where is” to the plaintiff in this case.

    Which brings us to the present case for trademark infringement, brought by the successor to the purchaser in bankruptcy, Zig Zag Holdings LLC, against Simon and Hubbard, each of whom continued to do business as Zig Zag Bail Bonds.

    Despite the bankruptcy proceeding, Hubbard and Simon revert to the arguments that Wader owns the mark and licensed it to Hubbard, who sub-licensed it to Simon, and that the trademark registration wasn’t valid. Plaintiff Zig Zag Holdings LLC cries “issue preclusion” (specifically, “offensive non-mutual collateral estoppel”) and wins.

    The requirements for offensive non-mutual collateral estoppel are whether “(1) there was a full and fair opportunity to litigate the identical issue in the prior action; (2) the issue was actually litigated in the prior action; (3) the issue was decided in a final judgment; and (4) the party against whom [collateral estoppel] is asserted was a party or in privity with a party in the prior action.”

    Here, the bankruptcy court had several hearings and the Hubbards had argued that Wader owned the mark, but in overruling the Hubbards’ objection the bankruptcy court

    necessarily found that Glen Hubbard owned the mark in order to approve the sale of the service mark. “A bankruptcy court may not allow the sale of property as ‘property of the estate’ without first determining whether the debtor in fact owned the property.”

    Selling the trademark “as is, where is” is doesn’t alter the fact that the bankruptcy court has to determine there is some ownership interest before it can sell the asset. The “as is, where is” statement in the court’s view “likely referred to the fact that the Hubbards had repeatedly represented to the Bankruptcy Court that the service mark had no value.” I would argue that it means that it was sold subject to any licenses, although I also note that the bankruptcy court appears to have been misled about the true nature of the licenses as income-generating and having, in the past, generated over $550,000 in revenue for Hubbard.

    But the court agreed that likelihood of confusion wasn’t suitable for a motion for summary judgment because of all those squirrely license agreements to sort out. In a subsequent order denying Zig Zag Holdings’ motion for reconsideration, the court pointed out that the original opinion only addressed the plaintiff’s argument that Hubbard terminated the licenses, finding there was a question of fact. Still to come is whether Zig Zag Holdings can terminate the Simon licenses.

    So we have a debtor who is incentivized to minimize the value of an asset in bankruptcy, it appears in the hope that he can keep ownership of it, by claiming that there are a lot of infringements and some valueless licenses. Suddenly, in an infringement case, those licenses become pretty darn valuable—without them, Hubbard and Simon have to start all over with a new name.

    Zig Zag Holdings LLC v. Hubbard, No. C 13-2643 SI (N.D. Cal. June 12, 2014), order denying motion of reconsideration (N.D. Cal. June 23, 2014).

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  • I Hate Copyright Termination

    I mean, I hate to write about it. It’s convoluted, tedious, and the cases don’t generally tell the good juicy stories that I like so much. Luckily for all of us though, there is someone who loves to write about copyright termination, Dave Fagundes. He has a blog devoted to the topic  and it’s awesome.

    The Copyright Terminator, covering termination so I don’t have to.

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  • The Wrist-Rocket Factors

    Small businesses or community organizations, like restaurants or well-meaning citizens running a charitable fund-raising event, often don’t have many formalities around their operation, so when there is a dispute over the ownership of the name it’s bound to be very messy. But I don’t think there is any more vexing trademark ownership situation than that of a musical band’s name.

    Bands are different from other types of loosely-organized relationships because bands have another layer of identity, those of the individual members. The New York Philharmonic was still the “New York Philharmonic” after Leonard Bernstein died, but can there be a “Rolling Stones” when Mick Jagger is gone? What exactly is the goodwill associated with the band’s trademark when individuals are also strongly identified with the band?

    That’s the conceptual problem, then add in the mix pro se litigants who don’t have any understanding of the substantive law, how to make legal arguments, what kind of evidence is relevant, or how to get that evidence admitted, and you have the trademark opposition Rosa v. Vargas.

    FULANITO drawing The mark in dispute was FULANITO for live musical performances and other Class 41 services. For evidence, there were three short depositions (one inadmissible), all taken the same evening, some flyers and computer screenshots used as exhibits during the depositions, and a lawyer’s letter.

    The disputed application was filed by Rafael Robert Vargas, a former brother-in-law of the Opposer, Winston Rosa. The original band started in 1997 and consisted of Opposer Rosa, Applicant Vargas, Rosa’s father (who was a renowned performer in his own right), and a varying roster of other family members and close friends over time. In 2004 Vargas left the band and started performing as FULANITO as a solo act (autoplay AND undulating scantily clad women alert!), while the Rosa family also continued to perform as FULANITO (autoplay only alert), both using this same logo.

    After some advice from the interlocutory attorney that a surname refusal didn’t look right, Rosa filed an Amended Notice of Opposition claiming that he has

    50% ownership of the mark FULANITO on the grounds that I no longer work with Mr. Vargas, we co-created the musical band FULANITO using our equal 50/50 partnership Windose International, a music company established in 1994 and registered in the state of New Jersey …

    If Mr. Vargas obtains the rights to the mark by himself, surely he will cause confusion since the most popular songs performed by the band have been known by the public to be produced majorly by our equal partnership Windose International.

    To decide what was therefore eventually pled as an ownership dispute, the Board applied a modified set of Wrist-Rocket factors, as described in a Trademark Reporter article I wrote some years ago (INTA login required). The factors are:

    (a) which party invented and first affixed the mark onto the product/service; (b) which party’s name appeared with the trademark on packaging and promotional materials; (c) which party maintained the quality and uniformity of the product, including technical changes; (d) which party does the consuming public believe stands behind the product, e.g., to whom customers direct complaints; (e) which party paid for advertising; and (f) what a party represents to others about the source or origin of the product.

    Rosa was the only one who submitted any evidence in the case. Rosa had testimony that his father thought of the name and an exhibit showed that all the albums, except for one (which the Board highlighted with a red star) depicted Fulanito as four, five or six men, all wearing matching suits and fedoras:

    Rosa v. Vargas Amazon page

    The highlighted album was one made by Vargas alone after he left the group.

    As to the legal legal entity Windose, there was no evidence that it had any formal claim on the group’s name and mark, but there was evidence that Rosa and Vargas, as  individuals, shared equally in the costs of the Fulanito musical group and were responsible for the quality and uniformity of the group’s performances and recordings.

    Rosa’s theory was that he and Vargas were 50/50 owners of the name, a claim that was supported by a Facebook post from Vargas to Rosa:

    Rosa v Vargas Facebook postIf you can’t read it, it says in part “I never denied your involvement in Fulanito in its inception and never will.”

    The Board therefore concluded that

    neither Opposer nor Applicant had exclusive rights in the Fulanito mark in connection with any goods or services before this family musical group was dubbed “Fulanito.” Given the pivotal role that Opposer’s birth family played in the formation and history of this musical group, the absence from Applicant’s performances and albums of all the members of the De La Rosa family would suggest a very different musical experience. Finally, we agree with Opposer that after years of multiple De La Rosa family members appearing together on album covers and in public concerts, always wearing matching suits and fedoras, it seems likely that most consumers of Fulanito’s public performances and musical recordings would anticipate that Fulanito would be a small group of men, but never a solo act.

    Vargas’s partial ownership wasn’t enough to satisfy the statutory requirement that only the owner may file the application for registration:

    Applicant was not the sole owner of this mark as of the filing date of the involved use-based application. At best for Applicant, he was a co-owner of the mark with Opposer, and possibly others, who have not provided their consent to Applicant’s registration of the mark. Hence, the involved application is void ab initio.

    Rosa v. Vargas, Opp. No. 91205076 (TTAB June 27, 2014).

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  • Joinder of an Unwilling Co-owner

    On the left we have a disinterested patent owner; there was a mixup about the status of an inventor, Bruce Draper, so he assigned his rights in what ultimately became the ‘321 patent to the University of New Mexico (UNM) rather than his employer, Sandia. UNM realized the mistake and assigned to Sandia “those rights and interests previously assigned to [UNM] by Bruce Draper … and to any and all Patents which may issue thereon … and to any and all divisions, reissues, continuations, and extensions.”

    On the right we have plaintiff STC.UNM (STC), a successor-in-interest to the ‘321 patent and another patent filed by UNM, the ‘998 patent. Draper made no inventive contribution to the invention in the ‘998 patent and was not listed as an inventor. Although the application for the ‘998 patent originally didn’t claim any priority to the ‘321 patent, it was corrected after issue to claim that it was a continuation-in-part of the ‘321 patent and it was subject to a terminal disclaimer with the ‘321 patent.

    STC sued Intel for infringement of the ‘998 patent.

    Sandia has never claimed an interest in the ‘998 patent, including during discovery, and STC has consistently held itself out as the sole owner of the ‘998 patent. When Intel pointed out that STC couldn’t enforce the ‘998 patent because it didn’t have the same owners as the ‘321 patent, STC decided that Sandia was, in fact, a co-owner of the ‘998 patent. Which meant that Sandia had to be a party in the lawsuit, but there was a hitch with that too: Sandia wasn’t interested in joining the suit, “preferring to take a neutral position with respect to the matter.”

    According to Ethicon, Inc. v. United States Surgical Corp., 135 F.3d 1456 (Fed. Cir. 1998), “as a matter of substantive patent law, all co-owners must ordinarily consent to join as plaintiffs in an infringement suit.” Indeed, Ethicon recognizes that “one co-owner has the right to impede the other co-owner’s ability to sue infringers by refusing to voluntarily join in such a suit.”

    STC challenged the district’s court conclusion that Ethicon meant that Sandia could not be joined as an indispensible party on the theory that Ethicon didn’t involve Rule 19(a), the rule of involuntary joinder.

    But according to the Court of Appeals for the Federal Circuit, “Rules of procedure, such as that in Rule 19(a), must give way to substantive patent rights.” The only situations where involuntary joinder has been allowed are where an exclusive licensee is bringing suit and where a co-owner has by agreement waived it right to refuse to join a suit. Neither was the case here nor was this situation similar to those two situations:

    Each of the recognized exceptions relies predominantly on an absent co-owner who has in some way affirmatively given up its substantive right to refuse to join the suit. In this case, Sandia has—at the other end of the spectrum—affirmatively retained this right by consistently expressing its desire to not join the case.

    Judge Newman disagreed in dissent: “The panel majority offers the anomalous rationale that when an infringement suit is brought by an exclusive licensee, the patent owner can be joined; but when an infringement suit is brought by a co-owner, the other co-owner cannot be involuntarily joined.”

    STC.UNM v. Intel Corp., No. 2013-1241 (Fed. Cir,. June 6, 2014).

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  • Happy Birthday!

    To this blog. Five years, 530 posts.

  • Executing on Copyrights to Satisfy a Judgment

    I previously reported on the matter of Hendricks & Lewis PLLC v. Clinton, that is, a law firm versus George Clinton of Parliament-Funkadelic fame. Clinton owed Hendricks & Lewis a lot of money but didn’t pay. In the opinion I previously covered, the lower court appointed a receiver who was given the authority to maximize the value of some Clinton sound recordings to satisfy the Hendricks & Lewis judgment. in order to do so, the district court had to opine on a provision of the Copyright Act, section 201(e), that prohibits the transfer of copyright by a governmental agency except in bankruptcy. The district court held that the section didn’t apply.

    The Court of Appeals for the Ninth Circuit has affirmed the district court’s interpretation, as well as the conclusion that the intangible property of copyrights were subject to execution to satisfy a judgment under the law of the State of Washington and that the district court had not abused its discretion in appointing a receiver.

    Hendricks & Lewis PLLC v. Clinton, No. 13-35010 (9th Cirl. June 23, 2014).

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  • Righthaven, the Gift that Keeps on Giving

    I’ve written before (recursive link) about copyright registrations by photo agencies. Rather than individual photographers registering their own works, it is common practice for a photo agency to periodically register the works of many photographers en masse.

    As described in a recent 9th Circuit opinion, the process was created collaboratively by a photography trade association and the Copyright Office. As described in an article written by the trade association, “the agreement must grant the agency legal title in the individual photographs contained in the catalog solely for purposes of copyright registration.” A subsequent clarification adds “the copyright can be reassigned to the photographer after registration.”

    Some agencies did just that. In Bean v. McDougall Littell, the court ratified the validity of this arrangement for purposes of standing. Photographer Bean assigned his copyright to Corbis in order to register the works, and once the works were registered the copyright ownership reverted back to Bean. He then sued McDougall Littell for copyright infringement. As explained by the court:

    Thus, the question becomes: was the language of the contract transferring ‘legal title in the undersigned’s images … solely for the purpose of copyright registration‘ (emphasis in original) adequate to transfer ‘all rights under the copyright’ to Corbis? The Court holds that it was.

    But some agencies have riffed on the process, which brings us to the current case. In DRK Photo v. McGraw-Hill Cos., DRK Photo entered into assignment agreements with photographers. Let’s start with the difference between this case and the Bean case; in Bean the photographer was the plaintiff, but here the agency is the plaintiff. So the assignment language was tweaked to say this:

    The undersigned photographer, the sole owner of the copyrights in the undersigned’s images (“the Images”) selected by DRK PHOTO (“DRK”) and included in DRK’s collection, hereby grants to DRK all copyrights and complete legal title in the Images. DRK agrees to reassign all copyrights and complete legal title back to the undersigned immediately upon completion of the registration of the Images, as evidenced by DRK’s receipt of a Certificate of Registration from the United States Copyright Office for such Images, and resolution of infringement claims brought by DRK relating to the Images.

    The undersigned agrees and fully transfers all right, title and interest in any accrued or later accrued claims, causes of action, choses in action—which is the personal right to bring a case—or lawsuits, brought to enforce copyrights in the Images, appointing and permitting DRK to prosecute said accrued or later accrued claims, causes of action, choses in action or lawsuits, as if it were the undersigned.

    Any proceeds obtained by settlement or judgment for said claims shall, after deducting all costs, expenses and attorney’s fees, be divided and paid 50% for the undersigned and 50% for DRK.

    The court held that this language was not adequate to give DRK Photo standing, adopting the reasoning of an earlier suit involving these same assignment documents:

    [I]n “substance and effect,” Righthaven, 716 F.3d at 1169, they conveyed to DRK nothing more than the “bare right to sue.” Wiley, 2014 WL 684829, at *16 (citing Minden I, 929 F.Supp.2d at 968).

    I don’t buy it, and in my opinion this case is a victim of the Righthaven series of cases (p. 11). Because Righthaven was a copyright troll, its agreements were judged harshly, creating questionable precedent, and now we have the fallout.

    I believe this agreement is a pretty easily read to say that DRK Photo might well be the current copyright owner. It was assigned “all copyrights and complete legal title,” not just a “bare right to sue.” The ownership reverts to the photographer “upon completion of the registration of the Images … and resolution of infringement claims brought by DRK relating to the Images.” Thus there are two conditions before the copyright reverts to the individual photographers, registration AND resolution of infringement claims.

    As mentioned above, we know that one district court has blessed the concept of assigning the copyright for purposes of registration, followed by reversion upon successful registration. There is another, Alaska Stock, LLC v. Pearson Education, Inc., which held that an assignment of the copyright along with accrued claims for the purpose of bringing infringement suits, with a reversion the photographer after the suit is over, is also perfectly fine. The reasoning bears repeating:

    The Ninth Circuit has never suggested that the reason an assignment is made—even if that reason is simply to facilitate litigation—or an assignment’s temporary nature will transform an otherwise effective assignment of ownership into an assignment of the bare right to sue. Rather, the problem arises where the assignor labels an assignment a transfer of ownership, but expressly reserves the exclusive rights in the copyright to itself. Those are not the facts presented here.

    The DRK Photo court claims to distinguish the Alaska Stock decision but I don’t know how—it says “The court in Alaska Stock explained that standing would not be established ‘where the assignor labels an assignment a transfer of ownership, but expressly reserves the exclusive rights in the copyright to itself.’ These fact are not present here.” Yes they are; the language of the assignment agreements is exactly the same in both cases. To the extent the DRK Photo court relies on emails from DRK Photo to the photographers that talk about the purpose of the assignment (for some reason the court quotes them in the background portion but never mentions them again), it would be improper to use the emails to alter the plain meaning of the written agreement. Instead though, the court relies on Minden Pictures, a case involving the assignment of joint ownership rather than sole ownership, for its rationale.

    In DRK Photo, presumably the certificates of registration have issued and the first condition met, but we don’t have any information about the second condition. The assignment agreements were executed in 2008 and early 2009, and the lawsuit filed in 2012, but we have no information about whether there were any known claims at the time of the assignment. If there were, then the second condition wasn’t met and DRK Photo still the owner. If there weren’t, then the ownership of the copyright would have reverted to the photographers upon receipt of the Certificates of Registration.

    The language of the assignment agreements suggests there were known claims and the assignment was in contemplation of pursuing those claims. There’s nothing wrong with that; it’s well-settled that one can assign the copyright as well as accrued claims, which the language of these agreements did. A reversionary right on a conditions subsequent doesn’t mean that the original assignment wasn’t valid, as properly held in Alaska Stock.

    But the fear of Righthaven lives on.

    DRK Photo v. McGraw-Hill Cos. No. CV 12-8093-PCT-PGR (D. Ariz. June 10, 2014).

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  • The Role of a Board of Directors

    I don’t write much about patent ownership because there just isn’t a lot of interesting stuff going on. There are two major ways it goes wrong for a plaintiff: there is a missing patent owner uncovered or the conveyance assigned less that all rights to the plaintiff. These two situations are litigated so commonly I generally don’t write about a district court opinion on patent standing, Judge Posner sitting by designation notwithstanding.

    In Patriot Universal Holdings, LLC v. Formax, Inc. though we have a different theme, which is corporate authority and formalities. There are three patents in suit with different chains of title, but I’ll only write about one, the ‘650 patent.

    First the players: non-party Progressive Technology of Wisconsin, Inc. (“PTI”) originally owned the three patents in suit. Non-party Paul Gehl was an investor in PTI and later became the sole shareholder of the company in settlement of a dispute with PTI’s then-president.

    The first challenge was to the formalities of an assignment from PTI to plaintiff Patriot. The defendants challenged the assignment on the theory that Gehl hadn’t executed the agreement on behalf of PTI. The defendant’s argument was that the assignment document said that if the assigning party was a legal entity, the person executing the document should “type or print the name of the above person authorized to sign on behalf of ASSIGNOR,” and Gehl hadn’t done that.

    The court didn’t care:

    This is an overly technical argument…. Because the assignor is the only party entering into obligations, it is clear that Gehl was signing on behalf of the assignor, since that is the only party whose clear consent would need to be obtained in order to make all the representations, etc., found in the assignment. The fact that he did not fill in part of the form does not undermine the assignment’s legitimacy.

    In addition, it must be remembered that Gehl controlled both PTI (the assignor) and Patriot (the assignee). Thus, he conceivably could have been signing on behalf of both entities. The point is that there can be no suggestion that the actual consent of the parties is somehow at issue here, because Gehl was on both sides of the transaction.

    Next the defendants challenged the assignment on the theory that under state law Gehl couldn’t act without the approval of his board of directors, which he didn’t have. The court wasn’t buying this either:

    Again, however, this is a highly technical argument. Although it is true that corporations act under the direction of their boards of directors, PTI in 2008 was an entity solely owned by Gehl. As a general principle, owners of companies are entitled to take action on behalf of their companies….

    It is true that companies are generally run under the power of their boards of directors, but the Defendants take this too far. Even if the Defendants were right that board approval was technically required, their argument is premised on corporate law rather than contract law, which is what governs assignments. At best, Defendants have shown that there is some question about whether PTI had a board of directors and whether (if it did) corporate formalities were followed. Although we may not be able to unearth whether there were technically other members of the board of directors, or whether a board even existed, or whether such board held a meeting to approve the assignment of the patent from one Gehl-owned entity to another, that does not mean Patriot, the assignee, lacks standing to enforce the assignment. An assignment is an agreement like any other, and if there is a meeting of the minds then the agreement may be enforced notwithstanding any corporate formalities. Here, there is no question that there was a meeting of the mind, not minds, because Gehl was transferring a patent from one of his companies to another.

    Ultimately, when the company in question is wholly owned by a single man, it will take more than speculative questions about the board’s role to undermine an ostensibly legitimate patent assignment….

    Corporate formalities aside, the only parties potentially injured by an unapproved, ultra vires act would be the shareholders themselves. If the individual performing the act is the shareholder, and the only one, it would make no sense to conclude that his actions should be undone because he failed to seek approval of a board of directors, a board whose role is to represent his own interests.

    There were some ugly facts involving fundamental misunderstandings about which of Gehl’s companies owned what rights—a company that didn’t own the patents had originally granted the license to co-defendant Tomahawk, but “one company cannot wrest legitimate patent rights from another simply by saying it has them.” The plaintiff successfully sorted it all out in a new license agreement executed shortly before suit was filed: “There is little doubt that the 2010 agreement is an ex post facto effort to solve the problems identified above, and as such it is not the most elegant of instruments. But what’s clear is that as of April 2010 there is a meeting of the minds between Patriot, the patent owner, and Tomahawk, the licensee, and that is enough to grant standing.”

    The court concludes thus:

    The Defendants are understandably frustrated by what they view as Gehl’s disregard for corporate form and recordkeeping, which led to the unfortunate yet substantial questions about standing that have been addressed herein. However, I am satisfied that the Plaintiffs have established standing to pursue the claims in this action.

    Patriot Universal Holdings, LLC v. Formax, Inc., No. 10-C-355 (E.D. Wis. June 4,2014).

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