Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Are Social Media Accounts Property? We Don’t Know Yet

    In writing about control of the social media accounts used by wedding dress designer and defendant Hayley Paige during her now-terminated employment with JLM Couture, the court outlined the following areas of dispute:

    JLM and Gutman agree that the Disputed Accounts are property belonging to one of them, but they disagree vigorously about whose accounts they are. JLM contends that Gutman created the Disputed Accounts in her capacity as an employee, that they are therefore owned by the company, and that JLM merely gave Gutman wide discretion as its agent to operate the accounts as she saw fit. In contrast, Gutman argues that she created the Disputed Accounts in her personal capacity, that JLM did not acquire them simply by virtue of investing in the Hayley Paige brand, and that she did not cede ownership to JLM by agreeing to use her accounts to market Hayley Paige products or by occasionally giving other JLM employees direct access when it was in her interest to do so. The parties also disagree about who had ultimate authority over posts, whether any such authority derived from ownership or from some power or duty under the Contract, whether either party recognized the other as the Accounts’ true owner during their course of dealing, the extent to which JLM was responsible for the growth of the Disputed Accounts, and which of these factors matter for identifying the Disputed Accounts’ true owner.

    That’s a lot to disagree over.

    JLM Couture argued conversion and trespass to chattels theories to claim right to the accounts (Hayley Paige had locked them out). The district court declined to address the theories, but nevertheless on a preliminary injunction transferred control of the accounts to JLM Couture, its reasoning unclear.

    The Court of Appeals for the Second Circuit noted that the transfer of the accounts, and the remedy sought, sounded in property, not contract. However, the district court expressly declined to consider the property implications. If the transfer was instead based on contractual obligations, the transfer of the accounts was beyond the scope of JLM’s contractual rights. The appeals court vacated the portions of the preliminary injunction relating to the social media accounts, although giving discretion to the court in how to revise it:

    We do not attempt to decide for the first time on appeal–without full argument from the parties–the correct framework for answering who owns the Disputed Accounts or what result that framework would dictate. On remand, the district court could choose to answer directly the question of JLM’s likelihood of success on the merits of its conversion and trespass claims, properly weigh the relevant injunction factors, and grant or deny injunctive relief accordingly. Alternatively, the court may prefer to decide that the balance of equities favors denying any property-based injunction and thereby avoid the merits question, leaving Gutman in control of the Disputed Accounts (subject to the strict conditions of the remainder of the injunction). Finally, the district court may choose to modify the vacated portion of the injunction to provide JLM with relief for JLM’s breach-of-contract claims that stems from Gutman’s obligations under the Contract. In any event, we conclude that the district court exceeded its discretion by effectively assigning valuable assets to JLM without first determining whether the company likely owns them. We therefore vacate the portion of the PI concerning the Disputed Accounts and remand for further analysis and clarification.

    Judge Lynch, concurring, would have held that the preliminary injunction was proper, in that it only restored the status quo where both parties were able to use the account.

    JLM Couture, Inc. v. Gutman, No. 21-870 (2d Cir. Jan. 25, 2022).

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  • Quiz: Was There An Assignment?

    Caracol Television, S.A. and Telemundo Television Studios co-created a telenovela called “El Señor de los Cielos,” referred to as “the Series.” The parties agreed that if either party wanted to create a derivative work, i.e., another season, the other would have the option to become a co-producer. Telemundo wanted to make another season of the Series but Caracol did not, so they reached an agreement, embedded below. Telemundo went on to create even more seasons without any involvement of Caracol. Caracol claimed that Telemundo had breached their agreement and Telemundo responded that it acquired all rights to the original Series in their subsequent letter agreement and therefore did not need to involve Caracol any longer. Did or didn’t Caracol assign away its rights? Extra credit for explaining your theory.

    Caracol Television v. Telemundo term sheet

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  • You Have to Use a Mark to Own It

    The main lesson here is be careful who you go into business with, or at least have an agreement that keeps them from backstabbing you.

    Defendant William Brady was the president of a company called Xponential, Inc. d/b/a EKR. EKR was a consulting firm that assisted startups with business strategy, marketing, creative services, and technology infrastructure.

    Entrepreneur Stephen Dalby had an idea for a nationwide cellular network and smartphones safe for children and teenagers. He hired EKR to assist with his new business and invited Brady and EKR to participate as founding partners. Dalby, Brady and two others became the officers and directors of newly formed Tyndale Technology.

    Tyndale hired EKR to come up with possible names for the new company. EKR proposed “Gabb” and “Troomi.” Tyndale chose “Gabb” and rebranded Tyndale as “Gabb Wireless.” Sometime after the naming engagement, Tyndale entered into an agreement with EKR for website development that said that “all selected materials, artwork, and/or digital deliverables produced by EKR, its employees, agents or assistants” would be “work for hire.” This language is according to the complaint. From what I can see, the agreement is not of record in the litigation, which may have made all the difference.

    Brady later cut ties with Gabb and formed defendant Troomi Wireless. On May 5, 2020, Brady filed a trademark application for TROOMI for “Cell phones; Smartphones; Tablet computers.” Gabb later discovered Brady’s new business, which competed directly with Gabb Wireless.

    Gabb filed its own trademark application for TROOMI for “Downloadable electronic game software designed for kids for use on wireless devices, mobile and cellular phones, and smart watches,” on the basis that Gabb had intended to keep Troomi as a name that it could use for related goods and services. Gabb then filed a lawsuit against Troomi Wireless, Brady and others. The complaint alleged causes of action under § 43(a) of the Lanham Act, the Computer Fraud and Abuse Act, and for a declaratory judgment that Gabb Wireless owns the mark TROOMI. Troomi filed a motion to dismiss the Lanham Act claims for the failure to state a claim.

    The court easily granted the motion. There was a fundamental problem with Gabb’s claim – it didn’t own any trademark rights in the word TROOMI as a simple matter of priority. Troomi Wireless filed an intent-to-use application before Gabb filed an application. Gabb’s application was on an intent-to-use basis and Gabb admitted that it wasn’t using the mark yet.

    As to the “work for hire” agreement, Gabb had a novel theory:

    While an independent creator of the mark might have a superior claim to Gabb if it began using the mark first in commerce, efforts Brady undertook to use the mark were done on behalf of Gabb, and subject to an assignment. By creating this mark for hire, and agreeing to assign ownership of it to Gabb, Brady cannot simply re-create the mark for Defendants and act as if he were the first user.

    Well, I guess yes he can. Gabb cited Lurzer GmbH v. American Showcase, Inc., 75 F. Supp. 2d 98 (S.D.N.Y 1998) for the proposition that a court can assign a trademark, but in that case it was a remedy for infringement. The Gabb court begged to differ that it was applicable here: “Gabb does not allege any facts showing it has a trademark for the court to protect. Accordingly, the remedy provided in Lurzer is not an appropriate remedy under the circumstances pled here.”

    I don’t know what the website design agreement might have said, although I assume nothing helpful. The agreement was after the naming occurred and appears to be directed at copyrightable content, not trademarks. So it may not have been helpful anyway, but the fact that it wasn’t incorporated into the pleadings meant that it essentially could be ignored.

    This case strikes me as trying to use a screwdriver to drive in a nail. Brady may have been a wrongdoer, but neither he nor Troomi were trademark infringers. There might have been a breach of contract, or a breach of fiduciary duty, but not a trademark infringement. But only trademark infringement and CFAA (for Brady’s access to documents) were pled.

    A breach of contract claim would be an interesting animal, too. Suppose that the trademark had clearly been assigned, but Troomi used it anyway – what then? There wasn’t any infringement. A breach of contract claim requires damages, but what damage did Gabb suffer from Brady’s use of the TROOMI mark?

    So what do you think is a better name for the business, GABB or TROOMI? I am curious about Brady’s motive. I assume he thought he could do better than Gabb with the business idea.

    Gabb Wireless, Inc. v. Troomi Wireless, Inc., No. 2:21-cv-253-TC-DAO (D. Utah Jan. 14, 2022)

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  • Can Only One Member of a Collective Abandon Their Share of a Mark?

    There’s something that doesn’t seem right about this case, but then it’s a band case. Those are in their own trademark world.

    This one is about The Rascals. The original members of The Rascals (originally known as The Young Rascals), formed in 1965, were Felix Cavaliere, Gene Cornish, Eddie Brigati and Dino Danelli:

    (Dig the outfits. This was at the time of the British Invasion, so even though they were Americans I guess looking British was the way to go.)

    Brigati left the Rascals in 1970 and Cornish left in 1971. Wikipedia says that the band broke up in 1972.

    Fast forward to 1988 when Cavaliere produced a reunion tour, in which Cavaliere, Cornish, and Danelli participated, but Brigati did not. Danelli and Cornish then wanted to continue performing without Cavaliere but Cavaliere objected, with the three ending up in a lawsuit. The lawsuit ended with Danelli and Cornish performing under the name “The New Rascals, featuring Dino Danelli and Gene Cornish” and Cavaliere could perform as “Felix Cavaliere’s Rascals.” Brigati was not a party to this agreement.

    In 1990 Brigati entered the picture again, filing a lawsuit over the rights to recordings and other band assets. The case settled in 1992 with a written agreement signed by all four members. The agreement covered the allocation of proceeds from the sale of Rascals recordings and included procedures for future decision-making about the disposition of Rascal assets, but did it not address live performances. To implement the agreement, the four band members formed a “pass through” partnership in New Jersey that distributed revenues and “owns the rights to the RASCALS and YOUNG RASCALS marks for musical sound recordings.” Registrations aren’t mentioned in the opinion, but there are registrations for RASCALS and YOUNG RASCALS for “musical sound recordings” owned by a New Jersey partnership called “The Young Rascals” and listing the four band members as the partners.

    Cavaliere toured in the 1990s and 2000s. In 2012 and 2013, the four performed together in a musical,

    but it was cancelled because it was unprofitable.

    In 2017 Cavaliere proposed a final tour with all four original band members. Cornish agreed, Brigati declined, and Danelli initally agreed but ultimately backed out. Cavaliere and Cornish formed plaintiff Beata Music, LLC and the two transferred to it “any rights they had in the RASCALS mark for live performances.” Beata Music filed a trademark application for the mark, which has been opposed by Brigati and Danelli.1 After negotiations with Brigati and Danelli, the tour was named “Felix Cavaliere and Gene Cornish’s Rascals.”

    Beata Music filed a declaratory judgment against Brigatti and Danelli asking for a declaration of non-infringement and a declaration that Brigati and Danelli did not have any rights to the trademark THE RASCALS for live performances and related merchandise. Danelli dropped out of the suit, so the decision is only about Brigati’s rights.

    The parties agreed that the Young Rascals partnership owns the trademarks for sound recordings but the movants argued, as described by the court, “that Brigati has abandoned his interest in the RASCALS mark” – presumably meaning the mark as used for live performance. After reciting the standard for abandonment, the court reached the unsurprising conclusing that Brigati, who had not performed as part of The Rascals since 1970 except for the short-lived musical, had abandoned the RASCALS trademark.

    Let’s put aside the concept that it’s possible for the trademark for sound recordings and performance to be owned by separate entities. It seems counterintuitive but I suppose: the records are for a band that existed in the past but no longer exists and the live performance is for a “new” band, although it’s playing the original music (or else the band would have chosen a different name). So I’m not buying it, but the USPTO apparently does—the currently existing and presumably valid registrations owned by the New Rascals partnership for sound recordings were not cited as likely to be confused with the Beata application for live performances and the Beata application was published. I think that’s pretty questionable, but, as a I mentioned, trademarks for band names are different.

    But is Brigati’s own non-use the right way to think about it? Doesn’t the court’s analysis suggest that each of the four original members have independent rights in the trademark THE RASCALS, that they each can abandon, one by one? That seems to be the only way to reach a conclusion that Brigati’s cessation of use was a trademark abandonment, but only as to Brigati. That’s not how trademark abandonment works, though. The mark THE RASCALS was for a collective, one that was even formalized as a partnership for purposes of the trademark rights for the musical recordings. For an abandonment the entity has to cease use, not just one individual member.

    Maybe a better way to think about it is that THE RASCALS mark for live performances has been abandoned altogether. Splinter bands generally use qualfiers to distinguish themselves from the original, often as the result of a lawsuit. One could argue that consumers aren’t confused that they’re seeing a splinter band because of the naming convention, understanding that it is not all (or maybe any) of the original members. A decision that THE RASCALS was abandoned for live performances because no one had performed as THE RASCALS for years would have made sense, and reached the same outcome. But saying that Brigati alone abandoned his rights was an expediency, not a legally justifiable decision.

    Beata Music LLC v. Danelli, No. 18-cv-6354(JGK) (S.D.N.Y. Jan. 6, 2022)

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    1. Oddly, although the opposition is filed in the names of Brigati and Danelli, the New Rascals Partnership trademark registrations were listed as a basis for the opposition. The Notice of Opposition somehow skips past the fact that Brigati and Danelli don’t actually own those trademark registrations, saying only that Brigati filed the application on behalf of the partnership (he did, in fact, sign it). ↩
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  • Terminating the Copyright in a Trademark

    The Copyright Act gives a great deal of power to the original creators of works. For works created after 1977, the original author of a work can terminate any grant of rights roughly between 35 and 40 years after the date of the grant and provided that at least two years’ notice of the termination has been given. The right of termination cannot be forfeited: “Termination of the grant may be effected notwithstanding any agreement to the contrary.”

    The termination right was in recognition of the imbalance of power between a creator and an intermediary that commercializes the work. It gives creators a second opportunity to negotiate the terms for exploitation of their work after the creator becomes more well-known. However, the right can become disproportionally coercive when the copyrighted work is also a trademark.

    The Phillies v. Harrison/Erickson is a master class in exercising the termination right for maximum exploitation of a work. In March 1978, defendants Bonnie Erickson and Wayde Harrison d/b/a Harrison/Erickson (“H/E”) entered into an agreement with The Phillies to create a mascot for the team, the “Phillie Phanatic.” The agreement said that H/E would own the copyright and license it to The Phillies. A later agreement in July 1978 also licensed the copyright. H/E registered the copyright in the design.

    Within a year H/E sued The Phillies in the Southern District of New York for breach of the license and settled the claim in November 1979. On October 31, 1984, H/E assigned the copyright to the Phillies, “everywhere and forever.” H/E continued to do work for The Phillies; between the assignment and the subsequent work H/E performed, The Phillies paid H/E about $1 million.

    On June 1, 2018 H/E sent a termination notice to The Phillies, notifying The Phillies that it was terminating the 1984 assignment effective June 15, 2020. Shortly thereafter a lawsuit ensued, with multiple attacks and counterattacks by both parties.

    The Phillies was not entirely at the mercy of H/E though. Section 203 provides that “A derivative work prepared under authority of the grant before its termination may continue to be utilized under the terms of the grant after its termination . …” Upon receiving the termination notice, The Phillies set about creating a derivative work of the original Phillie Phanatic, shown below (original on the left, new design on the right):

    Phanatic side view

    Phanatic front view

    Phanatic back view

    The Phillies debuted the new Phillie Phanatic, “P2,” in February 2020 at spring training.

    Although The Phillies floated a number of different long-shot theories in its defense, whether P2 was a derivative work was “the heart of this case.” If it was, The Phillies could continue to use P2 as the mascot. If not, then H/E could successful extract even more rents from the work it did on the original mascot.

    In deciding whether P2 was a derivative work, the magistrate made a helpful point:

    Derivative works “make[] non-trivial contributions to an existing” work and “retain[] the ‘same aesthetic appeal’ as the original work, [which] render the holder liable for infringement of the original copyright if the derivative work were to be published without permission from the owner of the original copyright.” Eden Toys, Inc. v. Florelee Undergarment Co., 697 F.2d 27, 34 (2d Cir. 1982) (emphasis added) (the “Paddington Bear case”) …

    …

    H/E argue that P2 is not original because it is the “same old Phanatic” or a “slavish copy” of P1. But a derivative work is supposed to “retain[] the ‘same aesthetic appeal’ as the original work.” Id. at 34. Indeed, if the derivative work of Paddington Bear was not recognizable as Paddington Bear, then it would not be derivative – it would be an entirely new creation. If The Phillies had designed something so dissimilar from the Phanatic that it would no longer be recognizable as the Phanatic, then, by extension, it would not be a derivative of the Phanatic, and instead would be a completely different mascot. To be sure, the changes to the structural shape of the Phanatic are no great strokes of brilliance, but as the Supreme Court has already noted, a compilation of minimally creative elements, “no matter how crude, humble or obvious,” can render a work a derivative. Feist Publ’ns, 499 U.S. at 345.

    Thus, The Phillies was successful in its claim that P2 was a lawful derivative work that it could continue to use post-termination. Nevertheless, while a legal victory, the success has limited business value. P2 was an authorized derivative work, but nothing created after termination, including all of the fan merchandise, would be a lawful derivative work. The Phillies would be locked in to the rights it had established before termination and couldn’t expand.

    But the parties have settled. The consent judgment states that P2 was a derivative work according to the terms of the 1984 agreement and can continue to be used “even if one or more of the provisions of the Confidential Settlement Agreement and Assignment are invalidated or terminated.” And according to news reports, The Phillies will resume use of the original Phanatic, presumably an agreement reached in the Confidential Settlement Agreement, also presumably with another payment to H/E.

    There were also some interesting claims at the intersection of copyright and trademark, but the magistrate was able to recommend dismissing them without any substantive analysis. H/E had threatened to license the Phillie Phanatic to other teams, so The Phillies brought a declaratory judgment action for trademark infringement. The magistrate found that there was not a controversy of sufficient immediacy and reality that The Phillies had standing for declaratory judgment, so dismissed the claim. There is nevertheless a lesson that a copyright owner terminating the rights in a work also used as trademark may not to have a resale market for their work.

    The Phillies also brought state law claims for unjust enrichment and for breach of the covenant of good faith and fair dealing. The Phillies claim for unjust enrichment was premised on the theory that it paid $215,000 in 1984 for a term of “forever”; thus the termination would be an unjust enrichment. H/E argued that the 1984 agreement implicitly contained an unqualified termination of rights. Summary judgment was denied since it is a question of fact. I hope The Phillies’ theory isn’t right; if not, then an unjust enrichment claim can be used to subvert the intention in the Copyright Act that an author will have an inalienable right to terminate grants. A copyright will be terminated precisely because it is still a productive asset, which means that any terminating author will be at risk of an unjust enrichment claim.

    However, where the copyrighted work is also used as a trademark, as here, the reclaiming author will also be acquiring the goodwill in the mark, something that H/E threatened to exploit. Certainly it would be an unjust enrichment for H/E to take advantage of that value in its exploitation (assuming they can find a buyer). But we won’t get to the state law claims, since the case has settled.

    The Phillies v. Harrison/Erickson, No. 19-CV-7239 (VM) (S.D.N.Y. Aug. 10, 2021)

    Excellent information on termination here.

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  • Jus Tertii is Disfavored Except When It 100% Works

    This is a litigation strategist’s dream. I don’t think the outcome is right, but I will say it was really excellent lawyering.

    Plaintiff Business Moves Consulting, Inc. owns a trademark registration for:

    for a long list of clothing items. It sued Collegiate Licensing Company, LLC and others for trademark infringement.1 CLC is a licensing agent for colleges and universities, licensing the institutions’ trademarks to third parties who want to make licensing goods. Business Moves also sued Thaddeus Reed, one of CLC’s customers and a licensee of university trademarks, specifically Jackson State University trademarks.

    So what makes this case something out of the ordinary? CLC claims that the phrase “Thee I Love” “has been the alma mater [sic, slogan?] for Jackson State University” since the 1940s. It has two Mississippi state trademark regstrations for the slogan and two pending federal applications. JSU “is in the process of” petitioning to cancel the Business Moves registration, although I could not find a cancellation pending. The defendants claim that JSU’s rights are superior to Busines Moves’ rights.

    But JSU is not a party, making this a jus tertii defense:

    The defense of jus tertii arises when defendant raises the right of a third party. In a trademark infringement suit, a claim by defendant that a third party has rights in the mark superior to plaintiff is in effect, a jus tertii defense.

    J. Joseph McCarthy, Defining Jus Tertii, 6 McCarthy on Trademarks and Unfair Competition § 31:157 (5th ed.).

    Many cases described it as “unfavored.” McCarthy’s opinion on the defense?

    As a matter of policy, jus tertii should not be allowed as a defense in any trademark case. So long as plaintiff proves rights superior to defendant, that is enough. Defendant is no less an infringer because it is brought to account by a plaintiff whose rights may or may not be superior to the whole world. The plaintiff’s speculative dispute with a third party does not concern the defendant.

    To permit a jus tertii defense would be unwise judicial policy because it would expand many trademark disputes far beyond a mere two-party conflict. Before plaintiff could prevail, it would have to prove that it was not an infringer of one or more third parties that the defendant can conjure up.

    If the defense were allowed, would the court then declare that the third party is an indispensable party to the case, require the third party to intervene, or would it permit defendant to act as surrogate advocate for the third party’s rights? By raising jus tertii, a defendant could effectively divert attention from its own alleged infringement and become a vicarious avenger of another’s purported rights against plaintiff (and assumably not against itself). A case could be expanded beyond reasonable bounds and effectively slowed to a crawl.

    J. Joseph McCarthy, Jus Tertii Is Not a Defense, 6 McCarthy on Trademarks and Unfair Competition § 31:160 (5th ed.)

    Professor McCarthy nailed it and CSC took it up a notch. CLC filed a motion to dismiss under Rule 12(b)(7) on the basis the that JSU is an indispensibe party but one that cannot be joined because, as an arm of the state, the university has sovereign immunity. Which worked.

    As to whether the University is a required party:

    Defendants are correct that JSU’s possession of “an interest relating to the subject of the action may as a practical matter impair or impede the person’s ability to protect the interest.” F. R. Civ. P. 19(a)(1)(B)(i). JSU claims a trademark owner’s interest in the phrase “Thee I Love,” and engaging the merits of plaintiffs’ complaint absent JSU’s participation in the case would, as a practical matter, hinder JSU’s ability to protect its interest. This is particularly true in light of the ongoing petition process between JSU and plaintiffs [Where! Nothing has been filed, what’s the hold up? – Ed.] over the trademark.

    I’m not buying it; the case should not implicate JSU’s rights at all. The legal question is whether CSC has rights superior to Business Moves and the answer is no, it doesn’t have any rights at all. CSC itself pointed out (to bolster the claim that JSU was required) tht it’s just an agent who doesn’t own the mark.

    JSU’s sovereign immunity is clear, followed by the court’s conclusion that the case could not proceed without JSU:

    Though plaintiffs insist that the case is about their federal trademark, not about JSU’s state or alleged common law trademark to Thee I Love, those marks are not so clearly distinguished.… JSU’s interest in the lawsuit is implicated not only by potential judgment or the form of relief, but by the necessary inquiry into ownership of the trademark itself.… Plaintiffs in the instant case would not be fully without recourse if the instant case were dismissed. Rather, as defendants suggest, plaintiffs could challenge “JSU’s applications for THEE I LOVE at the United States Patent and Trademark Office.”

    And so the case was dismissed.

    CSC characterized Business Moves as a “trademark pirate,” the court finding it sufficiently relevant to quote CSC: “the latest example of a long-running pattern of abusive conduct, whereby Mr. Bordenave seeks to register trademarks to which he has no prior connection in the hope of converting or holding for ransom goodwill created through efforts, traditions, and creativity of others.” Query how much this gloss affected the outcome. What if the trademark owner was instead a church with no relationship to collegiate apparel, would the court allow dragging JSU in then?

    But what a pièce de résistance. Well done, CSC. This case is not limited to just JSU either – CSC has just succeeded in establishing a successeful defense for every single suit it receives based on infringement of a public college or university’s trademark. Not sure it’s going to survive appeal, though.

    Lee v. Learfield Comm., LLC, No. 20-839 (E.D. La. Sept. 15, 2020).

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    1. It actually sued Learfield Communications, LLC. The court states “Collegiate was incorrectly identified in the complaint as Learfield Communications, LLC.” ↩
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  • The Standing of an Exclusive Trademark Licensee (or not)

    July 7, 2020: Updated to add footnote 2.

    Section 32 of the Lanham Act is for infringement of registered trademarks. The section says that the liability for infringement is to the “registrant.” That category undisputedly includes a successor-in-interest, such as an assignee. A minority of courts have also held that “registrant” encompasses an exclusive licensee, where the licensee has property rights that amount to those of an assignee. Upper Deck Co. v. Panini America, Inc. takes this one step further, though.

    The parties are both trading card companies. Upper Deck is an exclusive licensee of Michael Jordan. Panini America had licenses from other NBA players, including Scottie Pippin and Dennis Rodman. Panini published a card for Pippen and then republished it with Jordan in the background. You can see a very small Jordan in the bottom right corner of the card:

    Original images available at https://www.blowoutcards.com/blog/upper-deck-panini-lawsuit-examines-michael-jordan-cameos/

    Panini also published a card of Rodman with Jordan in the background:

    Original image available at https://www.blowoutcards.com/blog/upper-deck-panini-lawsuit-examines-michael-jordan-cameos/

    Upper Deck sued Panini for the kitchen sink of claims and Panini filed a motion to dismiss. Of interest here are the claims for infringement of a federally registered trademark, federal dilution, and the common law and statutory right of publicity under California law. They are of interest because for all of the claims, the plaintiff has to be the owner of the rights infringed.

    Upper Deck had pleaded that it was an exclusive licensee of Jordan’s rights to his “image, name, likeness, marks, and other rights” in only some fields of use, that is, “among other products, trading cards.” Jordan owns, and has owned since 1988, the trademark in his name.12 Upper Deck also pled that the agreement assigned to Upper Deck the “right to commence an action relating to a third party’s infringing use of Jordan’s rights granted under the agreement.” And based only on those allegations, the court bought Upper Deck’s argument that it had standing for claims for these causes of action.

    I’m not so sure. The concept as I understand it is that, for standing, the rights granted must be equivalent to an assignment in all but name. “The [] question is whether [the plaintiff’s] exclusive license was tantamount to an assignment.” Innovation Ventures, LLC v. Pittsburg Wholesale Grocers, Inc., No. C 12-05523 WHA, 2013 WL 1007666, at *5 (N.D. Cal. Mar. 13, 2013). “An ‘assignment’ of a mark … is an outright sale of all rights in that mark, [and] a ‘license’ of a mark … is a limited permit to another to use the mark.” Id. at *3 (quoting 3 McCarthy on Trademarks and Unfair Competition § 18:1 (4th ed.)).

    If there is such a thing as an exclusive license that is in effect an assignment,3 that’s not what happened here. Upper Deck did not allege that it had all rights to the MICHAEL JORDAN mark, just a subset, for trading cards. The opinion acknowledges that there is no trademark registration for trading cards. The only potentially relevant registration I could find is a registration for MICHAEL JORDAN for “promoting the goods and/or services of others through the issuance of product endorsements” (Class 35, for those of you interested). Upper Deck did not claim that it has the exclusive right to grant licenses to Michael Jordan’s endorsement rights, so it is not an exclusive licensee of this registration.

    The court did not cite to any opinion where an exclusive licensee had standing for only a subset of the goods or services with which a mark was used, and in fact ignored the cases holding that a licensee of the right to use the mark for only some goods does not have standing. Lasco Fittings, Inc. v. Lesso Am., Inc., No. EDCV 13-02015-VAP(DTBx), 2014 WL 12601016, at *4 (C.D. Cal. Feb. 21, 2014); Nova Wines, Inc. v. Adler Fels Winery LLC, 467 F. Supp. 2d 965, 974 (N.D. Cal. 2006). The opinion upon with the court relied most heavily was a territorial license, for the entire territory of the United States, including allowing the licensee to register the mark. Ultrapure Sys., Inc. v. Ham-Let Grp., 921 F. Supp. 659, 665 (N.D. Cal. 1996).

    While it’s an interesting extension of standing for registered trademarks, I don’t think the decision withstands scrutiny, and may only have survived a motion to dismiss because the license agreement was not part of the pleadings. Federal dilution and the state right of publicity claims also require ownership, so these claims were not dismissed either.

    Upper Deck Co. v. Panini Am., Inc., No. 20CV185-GPC(KSC) (S.D. Cal. Jun 29, 2020).

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    1. The owner of the registration is “Jump 23, Inc.” Throughout the opinion the court referred to Michael Jordan only, not mentioning Jump 23. ↩
    2. A sharp reader pointed out that there does not appear to be any allegation of infringement of Jordan’s name, only his image. I could not find a registration for Michael Jordan’s image. The complaint alleges “Based on the above examples [the trading cards], there can be no doubt that Panini uses Jordan’s distinctive and valuable marks in its product, i.e., Jordan’s picture, his famous jersey number“23,” his most recognizable team name Bulls, and the distinctive color patterns red or red/white associated with Jordan” without mention of his name. ↩
    3. McCarthy even disagrees that an exclusive licensee, even if “tantamount to” an assignee, can have standing. J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 32:3 (5th ed. June 2020 update). ↩
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  • Luckily, Recording a Security Interest Does Not Assign a Patent

    This is a situation I don’t recall seeing before, but perhaps that is because it took some chutzpah to make the argument. At any rate, the decision covers some interesting legal history.

    The decision is about is security interests. In Raffel Systems LLC v. Man Wah Holdings Ltd. Inc., the plaintiff-patentee had granted security interests in its patents before suing. A non-issue, I expect most of us would think. But the defendant saw an opening.

    The defendant thought it hit pay dirt with Waterman v. Mackenzie, 138 U.S. 252 (1891), which likened a security interest in a patent to a mortgage on real estate, where, upon granting a mortgage, the mortgagor can no longer lease the property, accrue rents, etc. Waterman held that, by analogy, the recording of a security interest at the patent office is the “equivalent to a delivery of possession, and makes the title of the mortgagee complete towards all other persons, as well as against the mortgagor.” Thus, the Waterman court held that the patent owner did not have standing for suit, only the owner of the security interest did.

    But enter UCC Article 9, which changed the law regarding security interests. A security interest no longer required a transfer of ownership: “except as otherwise provided … the provisions of this article with regard to rights and obligations apply whether title to collateral is in the secured party or the debtor.” U.C.C. § 9-202.

    Defendant Man Wah didn’t disagree that the UCC changed the law of security interests generally, but argued that, per Waterman, in the case of a patent an assignment was created by granting a security interest, which was then perfected by recording at the patent office, so that Waterman and § 261 of the Patent Act preempt Article 9 of UCC to the extent they conflict.

    Points for creativity, but the court points out “Courts that have addressed this issue have consistently found that the Patent Act does not address perfection of security interests—it addresses assignments of title. … The Patent Office is concerned with the recording of transfers of title only. … [T] failure of the Patent Act to include security interests within its scope means that the Patent Act does not preempt state regulation of security interest in patents.”

    The court cited by analogy to various cases that supported this conclusion, concluding that Raffel had standing to bring the patent infringement claim. Which is a result I’m sure every bank and patentee is very happy to hear.

    Raffel Systems, LLC v. Man Wah Holdings Ltd., Inc., No. 18-CV-1765 (E.D. Wis. June 15, 2020).

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  • One Work or Two?

    I read the headlines about Johnson v. Nike with passing surprise, because the case was decided of on a motion to dismiss. The designs aren’t that different and what crossed my brief attention led me to think that it was a copyright infringement case about the similarity of these two designs:

    But it is really a contract case, and a fairly simple one at that, thus the resolution on a motion to dismiss.

    Leonard and Nike had a contract which said:

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

    1. OWNERSHIP OF NIKE MARKS, DESIGNS & CREATIVE. [Kawhi Leonard LLC] (a) acknowledges that … NIKE shall exclusively own all rights, title and interest in and to any logos, trademarks, service marks, characters, personas, copyrights, shoe or other product designs, patents, trade secrets or other forms of intellectual property created by NIKE (and/or its agents), [Kawahi Leonard LLC] or [Kawahi Leonard, an employee of Kawahi Leonard LLC] in connection with this Contract …

    So the language is clear – Nike will own all rights, including copyright, in any work created by either Nike or Leonard during the term of the agreement.

    Which means that in order to win, Leonard has to argue that his design, which everyone agrees predated the endorsement contract, was the same as Nike’s ultimate final design, the “Claw Design.” If Nike’s design is not created during the contract, but instead existed already, then Leonard would own it, not Nike.

    Just eyeballing them, you would say they are different works. The K and L are created using different fingers and the hands are quite different in proportion and style. But the pleading also didn’t help Leonard’s cause:

    While Nike asserts that this case is a tale of two images, Mr. Leonard refers throughout the pleadings and his briefings to a singular “Leonard Logo.” See, e.g., Resp. [ECF 57] at 5. As discussed extensively at oral argument, this is because Mr. Leonard’s theory is that no new intellectual property was created during the term of the Nike Contract; rather, the “Claw Design” is a mere modification of a preexisting logo that Mr. Leonard designed and created independent of Nike and the Nike Contract. See id. I rejected that theory at oral argument and do not retread my analysis here. See Tr. [76] at 39-40. I supplement my remarks only to demonstrate that Mr. Leonard’s own pleadings—which I must accept as true for the purposes of this motion—reveal that, as a factual matter, the above two images are the relevant images in play.

    First, there is no dispute that Mr. Leonard conceived of the idea for a logo involving his initials and his hand prior to entering the Nike Contract. Compl. [ECF 1] ¶ 17.

    Second and third, Mr. Leonard describes that “[i]n late December 2011 or January 2012, Leonard refined a logo he had been creating for several years that encompassed his large and powerful hands, his initials and his jersey number” and that, at some point prior to Spring 2014, he sent this logo design to Nike. Id. ¶¶ 18, 25-26. This logo design is the only physical expression of Mr. Leonard’s idea that Mr. Leonard alleges he sent to Nike. While Mr. Leonard refers to this logo design as the “Leonard Logo,” his answers to Nike’s counterclaims reveal that, at this point, the factual image we are talking about is the “Leonard Sketch” copied above. Nike Countercl. [16] ¶ 26; Leonard Answer [26] ¶ 26 (admitting that during the term of the Nike Contract, Mr. Leonard sent Nike the “Leonard Sketch”).

    Fourth, after Mr. Leonard sent Nike the Leonard Sketch, the Nike design team reviewed the Sketch and sent Mr. Leonard proposals for a “modified” version of the Leonard Sketch in Spring 2014. Compl. [1] ¶ 26. Mr. Leonard rejected those proposals. Id. ¶ 27. “In early Summer 2014, Nike provided additional proposals to Leonard using the [Leonard Sketch].” Id. ¶ 28. “Leonard accepted one of the June 2014 proposals and granted Nike permission to affix that logo, based upon the [Leonard Sketch], on Nike merchandise during the term of the Nike Agreement.” Id. ¶ 29 (emphasis added). “[T]hat logo” is the “Claw Design.” Nike Countercl. [16] ¶ 28-29; Leonard Answer [26] ¶ 29 (admitting that the “Claw Design” was affixed to Nike merchandise that was worn and endorsed by Mr. Leonard). And for the reasons stated at oral argument, the Claw Design constitutes a new, distinct piece of intellectual property. Tr. [76] at 6-9, 39-40.

    So it’s not a question of whether Nike infringed Leonard’s copyright in his sketch; Nike had permission to use Leonard’s sketch. And it’s not a question about whether Leonard may freely use his sketch – he can, but he presumably doesn’t want to, preferring to use the trademark associated with him, the Claw Design. The legal question is only whether there are two works or one, and there was sufficient evidence of two to decide the case on a motion to dismiss.

    The court also denied Nike’s motion for a judgment on the pleadings for most of its various counterclaims, granting it only on ownership of the Claw Design and that Leonard breached the forum selection clause in the agreement.

    Leonard v. Nike, Inc., No. 3:19-cv-01586-MO (D. Or. May 18, 2020).

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  • Second and Ninth Circuits Split and Also Agree

    I have long disagreed with the Ninth Circuit on a standard that I think is unduly crabbed. I’m talking specifically about the cause of action, and therefore remedies available, when the obligations in an agreement that include a copyright license are not met.

    The courts are in agreement that the obligations can be put into two categories, conditions and covenants. Quoting today’s case:

    Generally, if the licensee’s improper conduct constitutes a breach of a covenant undertaken by the licensee and if such covenant constitutes an enforceable contractual obligation, then the licensor will have a cause of action for breach of contract, not copyright infringement. However, if the nature of a licensee’s violation consists of a failure to satisfy a condition to the license, it follows that the rights dependent upon satisfaction of such condition have not been effectively licensed, and therefore, any use by the licensee is without authority from the licensor and may therefore, constitute an infringement of copyright.

    However, the 9th Circuit takes it one step further:

    [W]e have held that the potential for infringement exists only where the licensee’s action (1) exceeds the license’s scope (2) in a manner that implicates one of the licensor’s exclusive statutory rights. See, e.g., Sun I, 188 F.3d at 1121–22 (remanding for infringement determination where defendant allegedly violated a license term regulating the creation of derivative works).

    MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928, 940 (9th Cir. 2010).

    In Sohm v. Scholastic Inc., the Second Circuit hasn’t specifically disagreed with the Ninth Circuit approach, nor did it even cite to MDY Industries. But the court also didn’t look at the nature of the obligation, only how the agreement was worded. Briefly, Sohm is a photographer who claimed that Scholastic printed more copies than it was licensed for. The district court held that the result of the overrun was a breach of contract only, not a copyright infringement. Reversing the district court, the appeals court said:

    New York respects a presumption that terms of a contract are covenants rather than conditions and conditions precedent are not readily assumed. Nevertheless, though conditions precedent must be expressed in unmistakable language, specific, talismanic words are not required. Linguistic conventions of condition—such as “if,” “on condition that,” “provided that,” “in the event that,” and “subject to”—can make plain a condition precedent. It is for the court to decide, as a matter of law, whether a condition precedent exists under the terms of a contract.

    These license agreements granting Scholastic the right to copy Sohm’s photos contain unmistakable language of conditions precedent, and therefore Sohm properly pleaded claims of copyright infringement. The Terms and Conditions incorporated into and attached to the 2004 PVA state that “[a]ny license granted by Corbis is conditioned upon (i) your meeting all conditions and restrictions imposed by Corbis, and (ii) Corbis’ receipt of full payment by you for such use as invoiced by Corbis.” The Terms further state that “[u]nless otherwise specified in a separate writing signed by Corbis, your reproduction of Images is limited to (i) internal evaluation or comps, or (ii) the specific use described in your invoice, which together with these terms shall constitute the full license granted.” The Terms also explain that “[e]xcept as specified in the Corbis invoice, Images obtained from Corbis are licensed on a non-transferable, one-time, non-exclusive basis, and are strictly limited to the use, medium, time period, print run, placement, size of image, territory, and any other restrictions indicated in the invoice.” The invoices, in turn, specified the quantity and uses that were licensed. The Terms also explicitly warned that “[u]nauthorized use of these Images constitutes copyright infringement and shall entitle Corbis to exercise all rights and remedies under applicable copyright law.”

    …

    These provisions are replete with the conditional language of conditions precedent – “unless,” “conditioned upon,” “except where specifically permitted” – thereby directly refuting the conclusion that the license agreements created only contractual covenants, the violation of which sounds in breach of contract. Sohm asserts that Scholastic exceeded print-run limitations contained in the invoices forming part of the license agreements, and thus he properly pleads that Scholastic has violated a restriction upon which the license is conditioned.

    (A kajillion quotation marks, brackets, ellipses, and citations omitted. You’re welcome.)

    I believe this approach is eminently more sensible. The 9th Circuit’s addtiional step, first, overcomplicates the analysis – not only do you have to figure out if something is worded as a condition or covenant but also whether it “implicates the licensor’s statutory rights.” That may not be as easy as it sounds. In Sohm, the trial court held that the overrun was only a breach of a covenant. But reproduction is an exclusive right, so why wasn’t exceeding that a copyright infringement?

    Second, I also disagree as a matter of policy – a party to a license may have business reasons for tying the license to something unrelated to the exclusive rights of copyright. For example, I may be willing to allow you to reproduce a chapter of my book in exchange for being given credit, but credit is not an exclusive right of a copyright owner. In the Ninth Circuit my only remedy for the failure to get credit is breach of contract. But my entire consideration was getting credit. Am I supposed to be content with a remedy that consists of some artifical construct of the financial value of the missing credit? I don’t think it is a court’s place to question the business judgment the copyright owner made in the way it structures its deal.

    But the Second Circuit did agree with the Ninth Circuit that Sohm’s copyright registrations were valid. In the photography industry, photographers assign their copyright to an aggregator, like Corbis, for purposes of registration, and then the copyright is assigned back after the work is registered. By agreement with the Copyright Office, the aggregators were not listing every author of the works in the registrations. The 9th Circuit held that’s perfectly fine and the Second Circuit agreed.

    Prior post on district court case here.

    Sohm v. Scholastic, Inc., Nos. 18-2100, 18-2245 (2nd Cir. May 12, 2020).

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