Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • 9th Circuit Agrees

    When does a claim of copyright ownership accrue for purposes of the statute of limitations?

    Although this is an issue of first impression in our circuit, we are guided by the Second and Sixth Circuits. Our sister circuits have held that, where the gravamen of a copyright infringement suit is ownership, and a freestanding ownership claim would be time-barred, any infringement claims are also barred. See Kwan v. Schlein, 634 F.3d 224, 229-30 (2d Cir.2011); Ritchie v. Williams, 395 F.3d 283, 288 n. 5 (6th Cir.2005); see also Roger Miller Music, Inc. v. Sony/ATV Publ’g, LLC, 477 F.3d 383, 389–90 (6th Cir.2007). “When claims for both infringement and ownership are alleged,” according to the Sixth Circuit, “the infringement claim is timely only if the corresponding ownership claim is also timely.” Roger Miller Music, Inc., 477 F.3d at 389–90. Or, as the Second Circuit puts it, “[w]here … the ownership claim is time-barred, and ownership is the dispositive issue, any attendant infringement claims must fail.” Kwan, 634 F.3d at 230….

    We join our sister circuits in holding that an untimely ownership claim will bar a claim for copyright infringement where the gravamen of the dispute is ownership, at least where, as here, the parties are in a close relationship.

    Seven Arts Filmed Enter. Ltd. v. Content Media Corp., No. 11-567-59 (9th Cir. Nov. 6, 2013).

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  • “Dope” Is Not Language of Acceptance

    You probably don’t need to be told this, but just in case you had any doubt: “dope!” is not “clear, unambiguous and unequivocal” acceptance of an offer as required under New York law. The court didn’t say it categorically, but I’m going out on a limb here and say no matter what the context, an answer like that probably deserves a follow-up, something like “when you say ‘dope!,’ are you giving me a license to use the copyright, or were you just referring to your right of publicity?”

    The case, Beastie Boys v. Monster Energy Co., isn’t really that interesting from a substantive law perspective, but it’s huge fun as a what-could-they-have-been-thinking case. Sorry Monster — but then, you did choose to litigate it.

    In 2012 Monster Energy sponsored a snowboarding competition called “Ruckus in the Rockies.” The event was organized by Nelson Phillips, director of marketing for Monster’s Canadian business unit. The court pointed out a number of times that Phillips wasn’t the most legally sophisticated; he “completed one semester of college” and was “a former forestry and ski-industry worker with no evident legal expertise.”

    The event included an after-party where DJs, including defendant Z-Trip, performed. Z-Trip had a history with the Beastie Boys; they had once hired him to create a remix, the “Megamix,” of Beastie Boys’ songs that fans could download for free.

    Monster created a video of the Ruckus in the Rockies. Phillips verbally asked Z-Trip if Z-Trip had any music Monster could use for it. Z-Trip said the Megamix was on his website and could be downloaded for free. Monster used the Megamix in the video and Phillips showed it to Z-Trip with this exchange:

    Hey Zach,
    Please have a look at the video from this past weekend and let me know if you approve. (I think we’ll remove the logo[ ]s at the end since they’re redundant and the rest will get cleaned up just a little bit more.)
    Thanks again for an amazing weekend!!
    Once you approve, we’ll post on youtube and notify our 16M fans on fb [Facebook]. the password is: ruckus
    http://vimeo.com/41825355

    Z–Trip replied:

    Dope!
    Maybe at the end when you put up the info about my Beasties mix, you could post below it “Download the mix for free at http://ztrip.bandcamp.com”
    That way people can pause it and go get it if they want … Also maybe a proper link on the description they can click thru once it’s posted proper?
    Dope though … Love the can at the end.
    No 45 footage?
    And, btw … Thanks again for everything … still high off the weekend! Z

    The video went up, Beastie Boys sued Monster for copyright infringement, and Monster third-party claimed against Z-Trip for breach of contract and fraud.

    (Beastie Boys music removed and replaced with music by the band Swollen Members.)

    This opinion is on Monster’s claims against Z-Trip. On the breach of contract claim, the court walked through offer, acceptance and consideration and, as you can imagine, couldn’t find any. Phillips and Z-Trip had four brief interactions about the music and none could be considered an offer of the rights Monster claimed it was getting, that is, “to reproduce, for its own commercial purposes, including on various websites, the original recordings and songs of the Beastie Boys contained on the Megamix.”

    If there’s no offer then there can be no acceptance. But even assuming there was an offer, “Dope!” is too ambiguous to be an acceptance:

    In proper context, the word “Dope!” could certainly be taken as an expression, albeit unorthodox, of approval and acceptance of another’s antecedent offer. But here, Z–Trip’s exclamation, “Dope!” was in response to Phillips’s query, “Please have a look at the video from this past weekend and let me know if you approve.” Viewed in this context, Z–Trip’s response of “Dope!” plainly communicated that, in some sense, he “approve[d]” of “the video.” But such approval is quite distinct from conveying assent to a mutual exchange of promises or other consideration. And it certainly did not convey that Z–Trip had authority to approve, on behalf of the Beastie Boys, a free license to Monster to use the Beastie Boys’ recordings and songs. There is no fair reading of the facts under which Z–Trip, by exclaiming “Dope!,” accepted such a contractual offer.

    Leaving no chance that the decision could be reversed, the court also found there was no consideration. I’m sorry to report that the court didn’t discuss apparent authority — I’m curious what Monster claims the Beastie Boys did to suggest Z-Trip had authority to license their music.

    So Monster lost the breach of contract claim. But Monster also had the temerity to accuse Z-Trip of fraud, for failing to disclose the fact that he didn’t have the authority to license the Beastie Boys tracks. The court didn’t see it the same way:

    Viewed in light of the factual record assembled in discovery, Monster’s claim of fraud is risible…. Viewed charitably to Phillips, his assembled communications with Z–Trip are instead consistent at best with a miscommunication. Phillips did not make at all clear to Z–Trip, and Z-Trip plainly did not appreciate that Phillips might not be aware, that Monster needed certain licenses in connection with its creation and intended use of the promotional video. Nor did Phillips make clear to Z–Trip that Monster believed that Z–Trip had authority to convey such licenses on the Beastie Boys’ behalf, and that he had done so by his idiomatic shorthand “Dope!” Alternatively viewed, Monster’s decision to delegate to Phillips alone the responsibility by which Monster was to acquire, for commercial exploitation, various intellectual rights presumptively belonging to an iconic band was reckless. On the record before the Court, Monster had no business entrusting such matters to Phillips. It is, in fact, quite unseemly for Monster, rather than taking responsibility for its own lack of care, to argue now that any liability it may have to the Beastie Boys in copyright was somehow a product of a fraud perpetrated by a disk jockey, Z–Trip.

    …

    Phillips, being apparently uninformed about copyright and the need for appropriate licensure, conceivably may have believed, after his brief exchanges with Z–Trip, that all was well. But that is not the pertinent inquiry. The standard for reasonable reliance is not measured by the effect on an employee with no apparent qualifications to negotiate complex matters of licensing and copyright law. The two conversations and one email exchange between the two men—short, casual, and vague—did not supply a reasonable basis on which Monster, a major corporation, could conclude that it had obtained the necessary license to make use for its own purposes of the Beastie Boys’ original recordings. Monster has not made any credible argument why it was reasonable to rely on Z–Trip’s colloquialisms as a basis to conclude it had obtained from him the necessary licenses.

    That’s the flavor; not surprisingly, all throughout the opinion the court was quite clear it is not altogether enchanted with Monster’s behavior.

    Beastie Boys v. Monster Energy Co., No. 12 Civ. 6065 (PAE) (S.D.N.Y. Nov. 4, 2013).

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  • “Abandoned” Means It’s Not Yours Anymore

    What a mess. Add up ugly facts and a court that bought a frivolous and completely wrong argument (made without citation – because there aren’t any) and you end up with a fiasco. Here’s to appeals.

    Non-party Herb Burkhalter had a yellow pages directory business he sold to co-defendants Steven M. Brandeberry and American Telephone Directories Inc. in 1994.  Bradeberry and the company were jointly listed as “Purchaser” in the agreement. The agreement transferred customer lists, sales records, and the goodwill of the business.

    All the assets of the business were to return to Burkhalter if the Purchaser defaulted. The unregistered “distinctive name, insignia and logo, entitled ‘AM/TEL’” was not immediately assigned, but rather was licensed to the Purchaser until the amounts due under the asset purchase agreement and trademark license were paid in full.  Brandeberry and American Telephone Directories paid everything in full and therefore became the owners of the trademark.

    The business fell on hard times, so in 2002 an entity called “Amtel Directories, Inc.” sold the assets to P.B.J. White Directories, LLC.  There was no Amtel Directories, Inc.; the entity was still legally American Telephone Directories, Inc. The defendants tried to make hay out the wrong party name but the court held this was an agreement with American Telephone Directories. In a one page Contract for Sale of Assets without any representations or warranties, the agreement transferred “all assets, in their entirety . . . and the right to use the name ‘AM-TEL DIRECTORIES’”:

    The agreement was signed for “Amtel Directories, Inc.” by Brandeberry.

    So do you see the problem?  The trademark was originally assigned to two purchasers, Brandeberry and American Telephone Directories, but only American Telephone Directories assigned its assets to P.B.J. White Directories. (I note that the plaintiff argued that the license agreement was part of the assets transferred. The license contained the operative assignment for the trademark; thus the assignment of the trademark from Burkhalter to Bradeberry and American Telephone Directories was further assigned to P.B.J. White Directories, which seems like it should have taken care of the problem. But the court didn’t address this in its decision.)

    In 2007, P.B.J. White Directories, LLC sold the business to plaintiff Yellow Book USA, Inc., including “all of the Company’s right, title and interest to the names ‘Amtel Directories.’”

    In 2009, Brandeberry went back into the “Amtel Directories” business, making mockups of the directories, business cards, envelopes and stationary using the Amtel mark:

    Yellow Book sued him for trademark infringement and related claims.

    It’s not an unreasonable position that the assignment of the mark was originally to two joint owners, American Telephone Directories and Brandeberry.  I maintain that further investigation into whether indeed the trademark was owned by one or both was merited; looking at various factors relating to trademark ownership might disclose that over the course of time one or the other was actually controlling the quality of the goods and services and was the true owner.

    Nevertheless, I can’t fault the court for holding that the assignment from so-called “Amtel Directories, Inc.” didn’t include an assignment of Brandeberry’s rights too. But correctly, Yellow Book also pointed out that Brandeberry didn’t use the mark from 2002 to 2009, so he abandoned any trademark rights he might have had. Sounds pretty slam-dunk, right? But the court goes well off the rails – I can only show the full injustice by quoting it:

    Brandeberry asserts that abandonment of a trademark by an owner can cause the owner to lose his right to sue a new user for infringement, but it does not deprive the owner of the right to use. However, Brandeberry has cited no caselaw in support of this assertion and the Court is unable to find any.

    Courts have determined that trademark rights derive from the use of the trademark in commerce and not from the registration of the mark. Sands, Taylor & Wood Co. v. The Quaker Oats Co., 978 F.2d 947, 954 (7th Cir.1992). Further, the owner of a mark will lose the exclusive use of a mark if the owner fails to actually use the mark. Id. at 954-55. But it is not Brandeberry, in this case, who is claiming exclusive use of the AM/TEL name, marks and related assets. It is Yellow Book.

    Further, courts treat the abandonment of a trademark as a defense to an infringement claim. See Saxlehner v. Eisner & Mendelson Co., 179 U.S. 19, 31 (1900). And, again, it is not Brandeberry who has brought the infringement claim in this case. Abandonment is not Brandeberry’s defense.

    Thus, while Yellow Book’s argument that it is entitled to exclusive use of the AM/TEL name, marks and related assets because Brandeberry has abandoned the use of AM/TEL, may be relevant as a defense to a trademark lawsuit brought by Brandeberry, it is not relevant to a lawsuit that Yellow Book has brought. Yellow Book is not entitled to exclusive use of the AM/TEL name, marks and related assets because Brandeberry is also entitled to the use of these same AM/TEL names, marks and related assets.

    No. No. While abandonment often comes up as a defense to trademark infringement, abandonment is a loss of all rights entirely, for every purpose. The court said it was “unable to find any” case law – did the court not have a copy of Callman’s?

    Abandonment is “in nature a forfeiture.” It destroys the trademark; it involves the “loss not only of the right to exclude others but also of the … right to use the name in trade.” The mark does not revert back to the assignor of the one who abandoned it; that assignor is in no better position than any other member of the public. . . .
    Once a mark has been abandoned, “any other person has the right to seize upon it immediately … and thus acquire a right superior, not only to the right of the original user, but of all the world.” . . .

    The issue of ownership after abandonment should be considered without reference to the prior ownership, whether the mark is thereafter appropriated by a stranger, or re-appropriated by the prior owner or the assignee of the prior owner. Thus, priority goes back only to the time the prior owner or his assignee re-appropriates the mark. Resumption after abandonment does not reinstate the abandoned rights. Therefore the rights of an intervening user are superior to those of a previous owner who abandoned and then resumed.

    3 Callmann on Unfair Comp., Tr. & Mono. § 20:75 (4th ed.)

     (emphasis added). Or McCarthy’s?

    A party cannot claim that use subsequent to abandonment of a mark has revived the rights obtained by the earlier use. The Court of Appeals for the Eleventh Circuit has held that where a party did not use the mark for 48 years from 1932 until 1980, its use in 1980 did not retroactively cure its past abandonment. Rights lost as a result of abandonment are not revived by such subsequent use. Once a period of nonuse results in abandonment, a resumption of use thereafter cannot cure the preceding abandonment. Such a resumption represents a new and separate use with a new date of first use.

    3 McCarthy on Trademarks and Unfair Competition § 17:3 (4th ed.).

    Once the court found that Brandeberry was entitled to use the mark, Yellow Book’s likelihood of confusion claim failed.

    In this case, as determined above, Brandeberry has not given up his right to use the AM/TEL name, marks and related assets. Thus, Yellow Book cannot show that it is entitled to protection of the AM/TEL name, marks and related assets from their use by Brandeberry.

    Oh, where do I start?  Of course Brandeberry abandoned the mark, he sold the company and stopped using the name because he fully intended that the business, including the trademark, be completely transferred.

    Further, the court clearly has no concept of what a trademark is, that is, a SOLE source identifier.  It is simply not a divisible asset. To allow two unrelated parties to use the same mark for the same goods in the same territory without one controlling the other is the very situation that trademark law is meant to prevent.  The court’s conclusion is therefore necessarily wrong – whether because the mark was indeed fully assigned, or because Brandeberry abandoned it, but the outcome is entirely inconsistent with legal theory and policy.  Yellow Book, please appeal.

    Bonus question: Yellow Book purchased “all of the Company’s right, title and interest to the name ‘Amtel Directories’ . . . ”  and the Seller warranted that it owned “valid title to all of the assets to be sold by the Company pursuant to this Agreement . . . .” 

    Is there a claim for breach of warranty?  I say not – the Company was only selling whatever “right, title and interest” it had and warranted that it had valid title to only that – it didn’t warrant that it owned exclusive rights to the transferred assets.  This is a quitclaim, not a warranty deed.  Check the indemnification clause yourself, but I don’t see any separate IP indemnification. I think the only claim is for breach of warranty, which isn’t going to work.  Let me know if you think I’m wrong.

    Yellow Book USA Inc. v. Brandeberry, No. 3:10-CV-025 (S.D. Ohio May 3, 2011).

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  • Litigation as Commercial Strategy

    In Complex Systems, Inc. v. ABN AMRO Bank N.V., plaintiff CSI licensed its Banktrade software to an ABN AMRO (“ABN”) information technology subsidiary (“IT”) for use by the entire ABN enterprise. The case arose because ABN sold IT, along with the license, to Bank of America but ABN nevertheless continued to use the software. IT could have transferred the license to ABN before it was sold but the court ultimately concluded it hadn’t.

    The court has now addressed ABN’s three remaining defenses. The decision starts with this fairly unusual confession:

    This Opinion & Order seeks to provide both clarity and finality on the issue of liability in this long-pending and confused copyright infringement action. For a time, the Court itself was a victim of the confusion that has been rather pervasive in this action. Finally, however, the parties’ numerous submissions have provided the Court with much-needed clarity. The proverbial light bulb has finally been illuminated.

    Defense #1 is that IT was actually a co-author of the software. Although the original license agreement for the Banktrade software was clear that CSI owned the copyright, there had also been a Professional Services Agreement between CSI and IT whereby CSI would customize the Banktrade software for IT. The agreement said this:

    CSI v. ABN AMRO Professional Services Agreement

    If you can’t read it, it says:

    Unless otherwise provided in a specific Work Order, Company [i.e., CSI] agrees that all materials, information, and deliverables (“Work Product”) including, without limitation, software, modified software … that is created, developed, or modified by Company or any Consultant pursuant to Work Orders hereunder, shall be and remain the sole property of the Company. Company grants to [IT] an unrestricted, perpetual, fully-paid license to use such Work Product. To the extent that any such Work Product falls within the definition of [“]work made for hire” under 17 U.S.C. § 101, such Work Product shall be deemed [“]work made for hire” and [IT] shall be deemed the author and sole, exclusive owner thereof, including the sole, exclusive owner of all copyrights therein. To the extent any Work Product does not fall within the definition of [“]works made for hire” under 17 U.S.C. § 101, Company hereby assigns, all its rights, title, and interest in and to such Work Product to [IT] and shall assist [IT] in all reasonable ways to protect and defend its rights in and to the Work Product.

    Everyone seems to concede that IT owned the copyright in some code that eventually made it into the Banktrade software and we’ll just go with it,* because none of it actually matters. ABN argues that “the record is clear and uncontradicted that [IT] is a co-author of a joint work in BankTrade,” but the court finds, in several different ways, that “even if this were so, it would not change the outcome of the instant motion.”

    First, the court didn’t agree that modifications that might be owned by IT and ultimately included in the Banktrade software made the software a work of joint authorship—the amount was too small and the characterization of it as “work made for hire” meant it was just that, not a joint authorship.

    Second, an ownership claim by IT would have been time-barred. CSI had registered the copyright as sole owner in 2008, putting IT on constructive notice that IT was not an owner at that point in time. Further, IT knew about CSI’s ownership claim as early as 2001 when the original license agreement was amended for “significant additional consideration.” Had IT been a joint owner, “one would not expect a one-way license agreement such as that here, but something akin to a cross-license, or other commercial arrangement.” Therefore, IT was on notice in 2001 that CSI claimed copyright ownership of the entire work, so a claim of joint ownership this late in the game was time-barred. (The case has a lengthy discussion of when a claim of ownership is time-barred, if you’re interested.)

    Third, it wasn’t ABN’s place to raise the argument: “The law is clear that a party accused of infringement cannot defeat that claim by pointing to rights that another may have to the work in question.”** I don’t really get this; ABN was raising a license defense, i.e., IT was a joint author and it was a licensee of IT. If that had all been true, isn’t that a legitimate defense to raise?

    ABN therefore lost on the joint authorship theory. Defenses #2 & 3 were that it was a direct licensee of CSI or IT, either expressly or impliedly, but the court wasn’t buying any of it. I don’t understand the reasoning, other than the one based on the fact that IT’s license wasn’t sublicenseable, so you’ll just have to figure it out for yourself.

    What a mess. The opinion is confusing, in my opinion because ABN’s arguments border on frivolous. The court refers frequently to ABN’s ever-changing and inconsistent legal theories and the court struggles trying to reconcile the various arguments made at different times in the litigation.

    The non-assignment of the license was just a flat-out business mistake and ABN is stretching legal arguments to their limits to try to avoid the clear intention of the parties at the time they entered into the original agreement, its several amendments, and the Professional Services Agreement. While the contractual documents are not models of clarity (and they often aren’t), CSI is undoubtedly the copyright owner of the software with a carve-out that IT, in theory, could own the copyright in a small piece of custom work. That’s it. At the time the contract was formed, and as reflected in many, many documents the court cites, no one would have thought there was any joint authorship or ownership of the entire product because of some minor customization. Arguments about joint ownership, implied licenses from CSI and sublicenses from IT are just hindsight litigation strategy almost entirely removed from the facts of the case. What bothers me is that the court did some overreaching to try to escape the contorted arguments, which will be vulnerable on appeal. And there are still damages to go too, so we could be seeing this case for a long time.

    Complex Systems, Inc. v. ABN AMRO Bank N.V., No. 08 Civ. 7497(KBF) (S.D.N.Y. Oct. 25, 2013).

    * There is also this footnote: “First, there is no evidence in the record suggesting that IT contributed to BankTrade 8 .0 in any substantial way; in fact, ABN’s Motion to Dismiss undermines such an assertion insofar as it argues that BankTrade 8.0 is largely derived from prior versions of the software. Second, ABN asserts (on behalf of IT) full co-authorship of BankTrade 8.0, yet IT only made specific, discrete modifications under the PSA. ABN fails to specify the extent to which these modifications impacted the Work as a whole.”

    ** This appears to be a modified application of the Billy-Bob Teeth defense, which is a theory that a defendant may not attack the plaintiff’s standing by alleging that there is a defect in the assignment of the copyright by a third party to the plaintiff. Here though, it’s a predecessor to the defendant itself that the defendant claims is the owner, so I don’t think the theory is apropos.

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  • Who Can Enforce the Mark?

    I previously wrote about an unusual case in Florida, where a state agency alleged infringement of registered trademarks. The lawsuit was dismissed for lack of standing, with the district court reaching the conclusion that the enabling statute for the agency didn’t grant it the right to enforce its trademarks.

    According to the statute, Florida VirtualSchool is authorized to

    acquire, enjoy, use, and dispose of … trademarks and any licenses and other rights or interests thereunder or therein…. Ownership of all such … trademarks, licenses, and rights or interest thereunder or therein shall vest in the state with [Florida VirtualSchool] having full right of use and full right to retain the revenues derived therefrom.

    Fla. Stat. § 1002.37(2)(c).

    You see the problem—Florida VirtualSchool has broad rights that appear to be those of an owner, but the statute says expressly that the state nevertheless owns the trademarks (as well as patents and copyrights). If the state owns the trademarks, then only the Department of State can sue for infringement. The district court went with the plain statement of ownership in the statute and dismissed Florida VirtualSchool’s case for lack of standing.

    Florida VirtualSchool has appealed and the 11th Circuit is now asking the Florida Supreme Court for an opinion: “The issue in this case is an important one, as it affects the respective rights of various Florida agencies and departments with respect to intellectual property.” It therefore certified the following question to the Florida court:

    Does Florida VirtualSchool’s statutory authority to “acquire, enjoy, use, and dispose of … trademarks and any licenses and other rights or interests thereunder or therein” necessarily include the authority to bring suit to protect those trademarks, or is that authority vested only in the Department of State?

    Florida VirtualSchool v. K12, Inc., No. 12-14271 (11th Cir. Oct. 10, 2013).

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  • An Indispensable Owner

    We know from Florida Prepaid that a State has sovereign immunity in federal intellectual property cases, so that it can only be required to appear in federal court if it has waived the immunity. This principle has ended a trademark infringement case before it got started.

    It’s an odd fact pattern. Plaintiff Richard Diaz, of Enterprise, Alabama, owns a trademark registration for this mark:

    Diaz mark

    Diaz sued Glen Plaid, LLC for trademark infringement for using this elephant design:

    Original Houndstooth logo

    Bear_BryantThe wrinkle is that Glen Plaid’s use of the elephant logo is pursuant to a license granted by the University of Alabama as part of Alabama’s “Houndstooth Program.” Alabama’s mascot is an elephant, and Alabama claims that the houndstooth check pattern is associated with Alabama because coach Bear Bryant always wore a houndstooth hat. After Diaz filed the lawsuit, the University filed a petition to cancel the Diaz trademark with the Trademark Trial and Appeal Board.

    Defendant Glen Plaid moved to dismiss the case claiming that the University of Alabama is a necessary and indispensable party who cannot be joined. As explained by the court, Federal Rule of Civil Procedure 19

    is designed to deal with whether all appropriate parties necessary for a complete resolution of the controversy have been joined in the case. The rule requires a three-step analysis: first, assessment of whether a non-joined entity is required for a complete resolution of the controversy; second, whether it is feasible to join the entity into the lawsuit; and third, if it is not feasible, whether equity and good conscience requires dismissal of the lawsuit.

    The court was satisfied that, as purported owner of the mark used by the defendant, the University of Alabama is required for complete resolution of the controversy:

    The University’s filing of a challenge in the USPTO to cancel the mark now claimed by plaintiff certainly indicates its claim of ownership to the mark. Although that challenge remains pending and unresolved, it shows that the University’s claim of ownership is not frivolous. For purposes of Rule 19(a), the University’s claim of ownership in the mark makes it a “person” required to be joined in this action. Both plaintiff and the University claim ownership of the mark in question, so it is clear that complete relief between the existing parties cannot be achieved without the presence of the University. Plainly, a determination that plaintiffs are the owners of the mark would “impair or impede” the University’s ability to protect its interest in the mark. An injunction prohibiting infringement by the defendant, who claims the right to use the mark only be way of a license from the University, would be tantamount to a finding that the University has no ownership interest in the mark. Additionally, such a determination would leave Glen Plaid “subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.” An injunction in this action would prohibit defendant from using the mark while subjecting it to an inconsistent obligation to pay royalties under the license agreement with the University. Therefore, the court finds that the University is required by Rule 19(a) to be joined in this action.

    Because the University of Alabama is a state entity, it cannot be joined in a case in federal court. And, balancing the equities, the district court found that the suit should be dismissed largely because there is another forum that might be able to resolve the claim—the Trademark Trial and Appeal Board:

    [P]laintiffs retain an adequate forum for addressing the controversy over its ownership rights. Plaintiffs acknowledge that the University has elected to file a trademark challenge to the plaintiffs’ mark in the USPTO, seeking to cancel the mark. Although it is true that the cancellation proceeding does not directly address the alleged infringement by Glen Plaid, it may ultimately resolve the conflicting claims of ownership between plaintiffs and the University, Glen Plaid’s licensor. Thus, plaintiffs are not left entirely without a remedy. If they succeed in defending their ownership of the mark, they are in a much stronger position to pursue an infringement action thereafter, notwithstanding the absence of the University from such litigation.

    Hmmm. The court treats this as a dispute over the same mark, which it clearly is not. In its Petition to Cancel, Alabama has pleaded a number of logos that include an elephant, but none that are a silhouette similar to that used by Diaz and none that incorporate houndstooth. The TTAB isn’t going to find that one or the other owns “the” mark, but is instead only going to decide whether there is a likelihood of confusion between two separate marks. The TTAB will therefore have done nothing to resolve the ownership claim that the district court believes is at the heart of the infringement lawsuit. I don’t disagree that Alabama is an indispensable party, but to the extent the court’s decision to dismiss the case was because it believes the TTAB is an effective alternate forum, it’s decision was wrong.

    And an interesting choice by Alabama to not agree to be joined in the federal court, given its past unsuccessful history before the TTAB trying to prove that it had rights in the houndstooth pattern (albeit not also with an elephant).

    Diaz v. Glen Plaid, LLC, No. 7:13-cv-853-TMP (N.D. Ala. Oct. 11, 2013).

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  • Check All the Boxes

    When we last visited DeliverMed Holdings, LLC v. Schaltenbrand, plaintiff DeliverMed had lost on all claims, including on some copyright and trademark theories. DeliverMed appealed the holdings that it was not the owner of the copyright in this logo

    Delivermed logo

    and that the copyright registration was invalid.

    The district court was colorful in its description of the case and the appeals court was no less so. This gives you some flavor (and perhaps also gives us an understanding of why this case has lingered against all common sense):

    Soon after the partnership started gaining steam, however, the partners began exploiting their informal arrangement for personal gain. [Plaintiff] Swift, [defendant] Siddle, and [defendant] Schaltenbrand repeatedly requested (and received) profit distributions that far exceeded the amounts to which they were entitled under the agreement. Despite the fact that the partnership was a money-losing enterprise, the partners continually found the funds for distributions. For example, evidence presented to the district court indicated that, from 2005 to 2009, the partnership operated at a net loss of over $400,000. During this same period, however, Swift, Schaltenbrand, and Siddle received nearly $4 million in combined distributions. Swift even persuaded Schaltenbrand to take out loans to facilitate these unjustified payments to the partners. For his part, Swift concealed his excessive demands (which he knew had no basis in the actual profitability of the partnership) by commingling them with DeliverMed’s requests for cost reimbursements. Swift and Schaltenbrand each became aware of the other’s excessive distributions, but neither of them cared. So long as each partner was able to obtain his own unjustified share of partnership funds, no one made a fuss.

    In between raids of partnership coffers, the partners occasionally found time to tend to their mail-order pharmacy business….

    The appeals court affirmed the lower court on the ownership of the copyright, i.e., that the copyright was owned by the independent contractor who had designed it. The appeals court even affirmed the uncommon award of attorney’s fees to the defendant for its defense of the copyright claim. The appeals court reversed on one thing, though: it reversed the court’s invalidation of the copyright registration because of a technicality, the trial court’s failure to comply with a statutory requirement that the Copyright Office be asked to opine in cases where there is an allegation of inaccurate information in the application.

    The requirement was added to the Copyright Act in the Prioritizing Resources and Organization for Intellectual Property Act (“Pro IP Act”) of 2008. Section 411 was amended to add:

    In any case in which inaccurate information described under paragraph (1) is alleged [i.e., inaccurate information was included on the application for copyright registration with knowledge that it was inaccurate and the inaccuracy of the information, if known, would have caused the Register of Copyrights to refuse registration], the court shall request the Register of Copyrights to advise the court whether the inaccurate information, if known, would have caused the Register of Copyrights to refuse registration.

    The DeliverMed court didn’t do this; it simply “relied on its own speculation” that the Copyright Office would have rejected the application. So even though the district court’s reasoning “seems consistent with the Register’s practice,” the case will be remanded solely for the purpose of satisfying this statutory requirement.

    Um – when the Copyright Office learns the trial court’s legal conclusion, affirmed on appeal, that the applicant doesn’t own the copyright? I’m thinking “no” is the pretty clear answer. But the appeals court, having raised the issue sua sponte, points out that “ignoring a clear statutory directive due to the inadvertence of the parties would defeat the purpose of 17 U.S.C. § 411(b)(2) and deprive the Register of its [sic – the Register of Copyrights is a “her,” thank you very much] right to weigh in on precisely this issue.”

    But the case exposes an interesting possibility. Here, there was evidence that the applicant for copyright deliberately misrepresented facts about the conveyance to him, but what if the applicant didn’t know there was a problem in the chain of title? He still wouldn’t own the copyright, but the registration wouldn’t be invalidated. So there would be an existing, valid registration, one of the predicates for standing for a copyright infringement claim, but the registrant wouldn’t own the copyright, another predicate for standing. I suppose no harm, but loopholes make me nervous.

    DeliverMed Holdings, LLC v. Schaltenbrand, Nos. 12-3773, 12-3774 (7th Cir. Oct. 7, 2013).

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  • How to Do a Copyright Assignment So You Can Sue

    I’ve written before about a bunch of copyright infringement lawsuits brought by numerous photo agencies claiming that book publishers exceeded the scope of licenses granted, either by publishing in unlicensed territories or printing more copies than permitted by the license. The photo agency business model presents litigation challenges, though: only the legal or beneficial owner of an exclusive right has standing for the claim, but a licensing agent may not have exclusive rights to the photos.

    In Alaska Stock, LLC v. Pearson Education, Inc., Alaska Stock tried to solve the problem by having the photographers assign their copyrights to it so that it could bring the infringement suit:

    Alaska Stock v. Pearson Education Inc. Copyright Assignments

    If you can’t read the embedded document, it is a number of assignments from various photographers that all say:

    The undersigned photographer, the sole owner of the copyrights in the undersigned’s images (“the Images”) … hereby grants to Alaska Stock all copyrights and complete legal title in the Images. Alaska Stock agrees to reassign all copyrights and complete legal title back to the undersigned immediately upon resolution of infringement claims brought by Alaska Stock relating to the Images.

    The undersigned agrees and fully transfers all right, title, and interest in any accrued or later accrued claims … brought to enforce copyrights in the Images, appointing and permitting Alaska Stock to prosecute said accrued or later accrued claims … 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 as per the photographer contract of 40% for the undersigned and 60% for Alaska Stock.

    Defendant Pearson Education challenged the assignments, claiming they were of only “the bare right to sue.” The problem here was not so much the scope of rights granted—in a grant of “all copyrights and legal title in the Images” the photographer has clearly retained no ownership interest—but that the assignments were for the purpose of facilitating litigation and only temporary.

    But the court didn’t buy that was a problem that affected the validity of the assignment:

    [T]he “substance and effect” of the written assignments in this case reflect a true, albeit temporary, transfer of ownership interest. Indeed, even the copyright certificates themselves list Alaska Stock as the registered owner. Although Pearson points to evidence that the assignments were made for the purpose of facilitating litigation, including the fact that Alaska Stock has agreed to reassign ownership upon completion of the litigation, the photographers’ reasons for assigning ownership does not make the transfer of ownership any less effective. Property rights are transferred every day for any number of reasons and for varying periods of time; copyrights are no different. 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.

    Pearson’s challenge to Alaska Stock’s standing was therefore unsuccessful.

    Alaska Stock, LLC v. Pearson Education, Inc., No. 3:11-cv-00162-TMB (D. Alaska Sept. 11, 2013).

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  • What Doesn’t Work for Copyright Standing

    Screen Media Ventures filed a copyright infringement suit against BitTorrent downloaders of the movie “Infected” and sought leave to subpoena internet service providers for subscriber information. Screen Media claimed this language gave it enough ownership interest to have standing for the claim:

    [Screen Media is authorized] by itself, or in the name of Infected LLC as required by law, or through an appropriate anti-piracy organization to undertake such actions as Screen Media Ventures LLC believes necessary or appropriate to protect against piracy of any of the licensed rights in the “INFECTED” throughout the territory for the agency period and any applicable distribution term, as set out in the agency agreement. Such actions may include registering the motion picture or recording any documents with governmental authorities, sending or having cease and desist letters and notices of infringement sent, and bringing, prosecuting, defending and appearing in all suits, actions and proceedings concerning any piracy, infringement or misappropriation of any of the licensed rights in the motion picture throughout the territory during the agency period or any applicable distribution term.

    Not good enough, according to the court.

    Screen Media Ventures, LLC v. Does 1-48, No. 9:13-cv-845 (S.D. Ohio Sept. 23, 2013).

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  • Pay Attention to This One

    Ok, here’s one every in-house patent attorney should pay attention to. It’s a case from North Carolina state court, but has much wider-reaching ramifications. Maybe it’s a fact pattern that doesn’t arise too often, but the result is pretty eye-opening.

    Plaintiff Robert Morris was the first employee at the defendant company Scenera Research, LLC. There was no written employment agreement and Morris testified that inventing was not part of his regular employment duties. He was, though, a prolific inventor for the company and was compensated for inventions by way of a bonus, $5,000 when the application was submitted and $5,000 when the patent issued.

    In 2007 Morris voluntarily stopped the bonuses with the understanding that the company was coming up with an alternate bonus structure, but he continued to assign his patents to Scenera. They couldn’t come to terms on a new bonus agreement and Morris ended up leaving the company (whether he was fired or quit was disputed). Morris brought a claim under the North Carolina Wage and Hour Act for the unpaid bonuses.

    A jury awarded Morris $210,000 for the bonuses for patent applications filed or issued between January 1, 2008 and June 17, 2009 (the date he left the company) and $675,000 for patent applications pending as of June 17, 2009 (at $10K a pop, “prolific” is an understatement). Morris had prayed that he be allowed to elect between rescission of the patent assignments and damages, but the trial court held that Scenera was the owner of the patents. An appeal followed.

    There was no dispute there was a stand-alone oral “patent-bonus agreement” (PBA) to compensate Morris for his patents. The remedy of recission—”an abrogation or undoing of the contract from its beginning”—is available:

    [W]here there is a material breach of the contract going to the very heart of the instrument, [i.e., a dependent covenant,]…. A covenant is dependent where it goes to the whole consideration of the contract; where it is such an essential part of the bargain that the failure of it must be considered as destroying the entire contract; or where it is such an indispensable part of what both parties intended that the contract would not have been made with the covenant omitted. A breach of such a covenant amounts to a breach of the entire contract; it gives to the injured party the right to sue at law for damages, or courts of equity may grant rescission in such instances if the remedy at law will not be full and adequate.

    Rescission … is allowed to promote justice. The right to rescind does not exist where the breach is not substantial and material and does not go to the heart of the agreement.

    The Court of Appeals found that

    Scenera’s obligation to pay Morris for the patents submitted to and issuing from the patent office was a covenant on which the oral contract between the two parties depended. Failure to fulfill that covenant constitutes a material breach. The fact that Scenera failed to pay bonuses to Morris for eighteen months is relevant only to the extent that it provides a cap on the number of times Defendants breached; it does not affect the materiality of those breaches. Similarly, the adequacy of money damages is not relevant to the materiality of the breach. Our Supreme Court made it clear in Wilson that a party may “elect” to rescind an agreement when there is a material breach of this nature.

    Whether Morris had been “hired to invent” didn’t matter; Scenera failed to pay, which was a material breach of the PBA. The Court of Appeals therefore remanded the case to the district court for reconsideration of Morris’ claim for rescission.

    There’s a lot more going on in this case worth reading, particularly if you administer a bonus program for patents. Whether Morris was entitled to the bonuses after he left the company, whether the damages were “calculable” as defined by the Wage and Hour Act, and whether “calculability” is a question of fact or law were all covered in the opinion.

    Morris v. Scenera Research, LLC, 747 S.E.2d 362 (N.C. 2013).

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