Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Copyright and Divorce

    I recently wrote about a little-used (or so I thought) section of the Copyright Act, Section 201(e). It is a quirky little section that prohibits involuntary government transfer of copyright in certain cases:

    Involuntary Transfer.— When an individual author’s ownership of a copyright, or of any of the exclusive rights under a copyright, has not previously been transferred voluntarily by that individual author, no action by any governmental body or other official or organization purporting to seize, expropriate, transfer, or exercise rights of ownership with respect to the copyright, or any of the exclusive rights under a copyright, shall be given effect under this title, except as provided under title 11.

    It turns out, this section has also recently come up in the context of divorce. In Berry v. Berry, The divorce court awarded half ownership of the husband’s copyrights to the wife. On appeal, the Supreme Court of Hawai’i held that § 201(e) prohibited the transfer to the spouse of any of the exclusive rights granted by the Copyright Act (i.e., the rights to reproduce, adapt, distribute, perform and display). However, the spouse is entitled to a share of the economic interest in the copyrights. The court compared it to a paycheck:

    A paycheck issued by the employer in the name of the employee-spouse alone can be cashed, deposited, or otherwise negotiated only by that spouse; yet, the proceeds of the paycheck, representing earnings of one spouse in community, belong to the community.

    The position taken by the Supreme Court of Hawai’i is contrary to a position taken by a California appeals court. In In re Worth, the court held that while the ownership of the copyright originally vests in the author, the copyright thereafter immediately is transferred by operation of California community property law to both spouses. But In re Worth didn’t mention § 201(e) and the Hawai’i court didn’t buy the logic of Worth:

    Worth’s holding can only be reconciled with the Copyright Act by concluding that the authoring spouse implicitly consented to transfer of his or her copyright to his or her spouse …. [Further], to preserve Worth’s rationale, Nimmer on Copyright suggests “[c]onstitutionally, … the courts must invoke a presumption, at least sub silentio, that the author-spouse consents to” “sharing author status.” To avoid problems raised by traditional co-ownership [e.g. the right to grant licenses], Nimmer advocates “adding to that presumption a complementary presumption” that the “nonauthor-spouse[ ] consent[s] to ceding full authority over disposition of the copyright to the author-spouse.”

    The Hawai’i court chose not to follow the “legal gymnastics” underpinning Worth and instead held that the non-author spouse only has an economic interest in the copyrights, not ownership.

    And the case that got me here: In re Shelton, 2013 IL App (5th) 120274 (April 22, 2013) (following Berry v. Berry).

    Berry v. Berry, 127 Hawai’i 243, 277 P.3d 968 (May 11, 2012).

    In re Worth, 241 Cal. Rptr. 135, 195 Cal. App. 3d 768 (App. Ct. 1987).

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  • The Benefit of the Bargain

    We routinely include arbitration provisions in agreements and I often wonder whether an arbitration is really any easier or cheaper than litigation. But what I didn’t realize before was how much latitude arbitrators have in what they can award, including, in this case, reforming the contract to grant a license far beyond what either party contemplated.

    Plaintiff Timegate Studios entered into an agreement where it would develop a video game called “Section 8” and defendant Gamecock Media Group would distribute the game. The agreement was highly detailed about the parties’ relationship, including design and creation of the game, progress and expenditure milestones, marketing, and reporting and recordkeeping.

    As to intellectual property rights, developer Timegate would be the “exclusive owner” of the intellectual property rights. Distributor Gamecock would have a “non-exclusive right and license … to use the Game Trademarks solely in connection with the packaging, sale, marketing, advertising and distribution” of the game and any add-ons or sequels. Gamecock was prohibited from preparing any derivative works or otherwise exploiting the Section 8 game outside of the terms of the agreement.

    The game was produced but it failed expectations. Timegate sued Gamecock for breach of contract, including a claim that Gamecock misreported sales figures. Gamecock responded that Timegate failed to put forth its best efforts in developing the game and wrongfully unilaterally published a sequel and a version for a different platform. The parties, per the agreement, arbitrated the claim.

    The arbitrator found that “Timegate had actively engaged in a litany of fraudulent misrepresentations and contractual breaches.” In addition to wrongfully pocketing Gamecock’s money and not spending its own, Timegate:

    breached the Agreement by (1) self-publishing the Playstation 3 platform translation, or “port”, of Section 8 and (2) unilaterally developing a game sequel in direct violation of its licensing agreement with Gamecock. Timegate further breached the agreement by (3) failing to provide Gamecock with fully functioning versions of Section 8 downloadable content, (4) failing to provide a Russian translation of the game, and (5) failing to provide Gamecock with the necessary access codes corresponding to Gamecock’s exclusive right to distribute the game electronically via certain third-party websites.

    The arbitrator awarded money damages of over $7 million. The arbitrator also reformed the contract, giving Gamecock a perpetual license to Timegate’s intellectual property, including the right to create sequels, ports and add-ons with no obligation to pay Timegate royalties. Gamecock moved the district court to affirm the award and Timegate objected on the basis that the arbitrator had exceeded his authority.

    Where there is a finding of fraud an arbitrator may fashion an award which conflicts with contractual provisions, but the award still must be “rationally inferable from the parties’ central purpose in drafting the agreement.” The district court concluded that the perpetual license provision “takes what was a temporary licensing agreement, which required collaboration and coordination between the parties, and expands it into a permanent contract under which the parties are able to develop competing products.” It found this inconsistent with the fundamental purpose of the contract and vacated the award. Gamecock appealed.

    An arbitrator’s award is sustained as long as the decision “draws its essence” from the contract, only subject to reversal if it “was so unfounded in reason and fact, so unconnected with the wording and purpose of the contract as to manifest an infidelity to the obligation of an arbitrator…. The remedy lies beyond the arbitrator’s jurisdiction only if there is no rational way to explain the remedy.”

    So the question becomes simply whether granting Gamecock a perpetual license for the development of software, when it had no license even close to that in the original contract, was furthering the aims of the contract. The Court of Appeals for the Fifth Circuit found it was.

    The appeals court held that the purpose of the original agreement was to create a mutually beneficial business relationship to jointly create, market and popularize a video game with each sharing in the financial success. The perpetual license indeed furthered this purpose:

    As Timegate’s counsel conceded at oral argument, we are bound by the arbitrator’s factual findings regarding Timegate’s conduct—findings which identify Timegate’s pattern of deliberate fraud, deception, and willingness to violate its promises. Timegate had breached the Agreement in so many ways and its relationship with Gamecock had become so contentious that the collaborative relationship presupposed by the Agreement was no longer possible. The perpetual license granted to Gamecock represents an attempt by the arbitrator to restore to Timegate and Gamecock the fundamental goal of the Agreement: mutual access to financial benefits derived from their joint creation and distribution of Section 8.

    An adequate remedy in the form of a monetary award was available for Timegate’s breaches to date; however, whether sequels or other iterations of Section 8 would or could be developed successfully and marketed profitably (particularly estimates of the amount of such profit) was so speculative that the arbitrator rationally could have concluded that a monetary award was not an appropriate remedy for those breaches. Under these circumstances, where the relationship of the parties could not be expected to be healed primarily because of the fraud of Timegate, the parties could no longer partner together to market their product jointly. The only way to give Gamecock the opportunity to benefit from the future development of variations of Section 8 was to cut Gamecock loose from Timegate and allow it to independently pursue game marketing efforts. To do this, the arbitrator granted the perpetual license to Gamecock, a remedy that also left Timegate free to develop and promote Section 8 variations on its own.

    I’m good with this decision with respect to the license in the copyright to the software, but I see the possibility of trouble with an undifferentiated name. You can easily see that there now may be two very different “Section 8” games that will confuse consumers as they develop separately. I’m not a fan of disclaimers or uncontrolled use of trademarks by two parties, but here I would have at least required that the parties distinguish their versions of the game.

    Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., No. 12-20256 (5th Cir. April 9, 2013).

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  • Who Owns the Pen Name?

    John Welch recently blogged about a case in the Southern District of New York where a trademark registration was cancelled for fraud. The case has an interesting twist, because the fundamental question really was: who owns a pen name?

    Plaintiff Melodrama Publishing, LLC and defendant Danielle Santiago entered into two contracts for Santiago to write the first two novels about the character “Cartier Cartel.” The novels were to be written under the pen name “Nisa Santiago” and it doesn’t appear that either party used the name before. Santiago only partially completed the novels, the contracts were terminated, and Santiago paid back the advance. Melodrama went ahead with the books with a different ghost writer, ultimately publishing five books under the author’s name “Nisa Santiago.”

    In 2011 Santiago sued Melodrama for copyright infringement but the complaint was dismissed. The day Melodrama filed its motion to dismiss, Santiago filed an application to register the trademark “Nisa Santiago.” (I’m attributing actions here to Santiago, however the acts were actually performed by her lawyer. The court couldn’t figure out who the decisionmaker was, Santiago or her lawyer.) She used the Melodrama book covers for books she did not write as the specimens proving her use of the trademark. She then threatened Melodrama with trademark infringement. Melodrama filed a declaratory judgment action against Santiago.

    That Santiago didn’t have trademark rights in “Nisa Santiago” was a slam-dunk, since she admitted in her answer that she never used the mark in commerce. You be the judge whether there was fraud; as we know, lay people and non-trademark lawyers don’t understand the legal standards for things like “use in commerce.” So decide for yourselves whether the behavior crossed the line from naive to fraudulent. And feel free to discuss below.

    So the court didn’t have to decide who owned the pen name “Nisa Santiago,” only the trademark. When reading the case I assumed that the publisher would own the name — certainly in the case of serial potboilers the publisher will want to use the same pen name for all authors.

    But the contracts tell a different story. First, we have the introductory paragraph:

    Recitals

    It says “… Danielle Santiago using pseudo [sic] Nisa Santiago (the “Author”) …” Thus, the contract defines “Nisa Santiago” as the pseudonym for Santiago, not the name under which the book will be published. This ownership is ratified later:

    Paragraph 1(A)

    “… The Author shall not publish in his [sic] name or pseudonym … any book of the same or similar subject matter …”  The contract continues:

    Paragraph 16

    “Publisher shall have the right to use the name, pseudonym, portrait and picture of and biographical material concerning Author in and on the work …”

    Ah, acknowledgement that Melodrama needs permission to use the pseudonym and a place for Santiago to hang her hat — the contract was terminated, thus Melodrama no longer had the right to use Santiago’s pseudonym.

    So we have a theory, but it’s a contract theory, not a trademark theory. And under a contract theory, there’s no case for damages. Santiago hadn’t used the name before, so it had no value before it was used by Melodrama. De minimis non curat lex.

    But more interesting to me, shouldn’t a publisher have this buttoned up better? When hiring an author to write a series of books under a pen name, isn’t it fairly foreseeable that the ghostwriter might change but the “author’s” name should remain the same? This case would have been very different if Santiago had published the first two books as originally contemplated, because then the hold-up would have worked. Santiago would have had use of the mark and a contract backing up that she, not Melodrama, was the owner. Is this how these contracts are normally written?

    Melodrama Publishing, LLC v. Santiago, No. 12 Civ. 7830 (JSR) (S.D.N.Y. April 10, 2013).

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  • Threatening Those Who Create the Rights

    Go read this story: “Firefly Hat Triggers Corporate Crackdown.” It’s a situation that is just so misguided. I’ll note that I’m taking the facts in the article as true; perhaps, as is often the case, there is more to the story.

    But the article tells the story of a hat, this hat: (more…)

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  • The Alter Ego Owns the Patent

    It’s black-letter law, as black as it gets, that in the United States a patent is initially owned by the individual inventor. As stated by the Supreme Court: “Since 1790, the patent law has operated on the premise that rights in an invention belong to the inventor.” Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., No. 09-1159 (June 6, 2011). The Court elaborates:

    In accordance with these principles, we have recognized that unless there is an agreement to the contrary, an employer does not have rights in an invention “which is the original conception of the employee alone.” Dubilier Condenser Corp., 289 U. S., at 189. Such an invention “remains the property of him who conceived it.” Ibid. In most circumstances, an inventor must expressly grant his rights in an invention to his employer if the employer is to obtain those rights. See id., at 187 (“The respective rights and obligations of employer and employee, touching an invention conceived by the latter, spring from the contract of employment”).

    Consistent with that principle, not too long ago I reported on Informatics Applications Group, Inc. v. Shkolnikov, No. 1:11cv726 (JCC/JFA) (Oct. 11, 2011 E.D. Va.), where the plaintiff sought to have its employee added as inventor to the defendant’s patent. The Informatics court held that, since the employer had nothing to gain if the employee was added, i.e., there was no duty on the employee’s part to thereafter assign the patent to the employer, the employer didn’t have standing for a claim for correction of inventorship.

    But the District Court for the Eastern District of California has added a new wrinkle. It’s held that where the employing company is the alter ego of the inventor, the employing company has standing to sue for correction of inventorship to add the inventor’s name to the patent, with no mention of the need for an assignment or any kind of writing.

    How did it get there?

    The answer is LeFiell v. United States, 162 Ct. Cl. 865 (1963), a decision that the Court of Appeals for the Federal Circuit holds as precedential. See S. Corp. v. United States, 690 F.2d 1368, 1370 (Fed. Cir. 1982) (en banc) (adopting the holdings of the Court of Claims and the Court of Customs and Patent Appeals as precedential). LeFiell held

    where the inventor is “more than a mere employee” and “occupie(s) such a relation to the corporation that he (is) its alter ego, in such a capacity that it is only consistent with good faith that he should recognize its ownership of the patent issued to him”, the entire right and interest in the patent—and not merely a shop right—belong to the company despite absence of a specific contract by the inventor to assign the invention. Dowse v. Federal Rubber Co., 254 Fed. 308, 310 (N.D. Ill. 1918).

    Which brings us to the present case, Gerawn Farming, Inc. v. Rehrig Pacific Co. Rehrig Pacific is a manufacturer of pastic-molded containers for industrial use. A marketing representative for Rehrig was researching and marketing a container for storing and transporting grapes, the “Grape Lug.” While the container was in development, the rep spoke with Ray Gerawan of plaintiff Gerawan Farming about the containers. It doesn’t look like this particular container was the source of the main conflict between the two parties, something called the “Harvest Tote” was, but it did provide federal jurisdiction for the suit.

    Gerawan Farming filed a claim for correction of inventorship, claiming that Ray Gerawan should be added as inventor for the patent to the Grape Lug. Rehrig Pacific responded that Gerawan Farming didn’t have standing to bring a claim for correction of inventorship, since it wouldn’t own the patent even if inventorship was corrected.

    But the court held that under the alter ego theory of LeFiell, Gerawan Farming did have standing.

    In this case, a trier of fact could reasonably conclude that Mr. Gerawan was the alter ego of Gerawan from 1993 to 1994, the time frame when the Grape Lug was allegedly invented. Critically, during this time frame Mr. Gerawan was the most senior officer at Gerawan, a company owned by his family. He was also one of its directors. There is some uncertainty as to how much actual managerial control Mr. Gerawan exercised, but there is evidence from which a trier of fact could conclude that Mr. Gerawan had primary responsibility for product development at the company, which included the designing of harvest containers. Moreover, Mr. Gerawan believed that his work, and any inventions derived therefrom, belonged to the company. In fact, the company, not Mr. Gerawan, received all the royalty payments generated from his work on the Harvest Tote.

    Because a trier of fact could reasonably conclude that Mr. Gerawan was the alter ego of the company, the Court cannot rule as a matter of law that Plaintiff does not have an expected ownership interest in the ‘293 Patent. Accordingly, Defendant is not entitled to summary adjudication on the basis that Plaintiff lacks standing.

    Rehrig Farming cited to the far more recent Stanford v. Roche , but it didn’t carry the day. The Gerwan Farming court noted that “Defendant has not provided, nor has the Court independently found, any cases showing that LeFiell is no longer good law.” Indeed, the Court of Appeals for the Federal Circuit is the only court that can ratify, clarify or reverse LeFiell, which I expect we will ultimately see.

    Gerawn Farming, Inc. v. Rehrig Pacific Co., No. 1:11-cv-01273 LJO BAM (N.D. Calif. Apr. 8, 2013).

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  • The Bankruptcy Court Still Has to Approve It

    Here’s a bankruptcy practice tip—you can’t just go signing documents when your company is in bankruptcy.

    Defendant Deep claimed to own the copyright in the “Aimster” software of yore. He accused plaintiff XAC, LLC, a subsidiary of Xerox, of copyright infringement. Deep had three different theories for why he owned the copyright in the software, one of which was that he was the owner by assignment. BuddyUSA was the original copyright owner (at least for purposes of this particular argument), and Deep, acting as President of BuddyUSA, assigned the copyright to himself personally in an agreement signed on March 20, 2009.

    The problem was that BuddyUSA had filed for bankruptcy in March, 2002. Plaintiff XAC pointed out that the software was part of the estate and could only be assigned by the trustee, not by Deep personally. Deep responded that the written document was simply ratification of an agreement entered into before the bankruptcy and was therefore valid. The court agreed with XAC:

    Clearly, under Second Circuit precedent, an oral agreement that is subsequently memorialized in writing can cure a standing defect. However, the party purporting to transfer its rights under a written agreement cannot effect such a transfer unless it has the authority to do so. Mr. Deep has not come forward with any evidence to show that, at the time that BuddyUSA signed the Master Agreement, it had the requisite authority. Certainly, there is no evidence that either the Trustee or the Bankruptcy Court approved such a transfer and without that approval, the transfer is invalid; a point that Mr. Deep does not dispute. Without evidence that BuddyUSA validly transferred its ownership of the copyright in the Protected Software to Mr. Deep, the only reasonable conclusion that the Court can draw, based on the undisputed facts in the record, is that Mr. Deep is not the owner of the copyright in the Protected Software and, therefore, he does not have standing to bring a claim for copyright infringement.

    Summary judgment granted to XAC.

    XAC, LLC v . Deep, No. 1:07-CV-135 (FJS/RFT) (N.D.N.Y. Oct. 10, 2011)

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  • Correcting Inventorship to Enhance Your Reputation

    To have constitutional standing for a claim, the remedy must provide some redress for the claimant. In the case of correcting inventorship on a patent, it generally means the correction will provide a financial advantage, although in theory it could be a reputational advantage. But Shukh v. Seagate Technology, LLC shows that’s pretty hard to prove. (more…)

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  • A Very Liberal Interpretation of “Registrant”

    Apparently in the Northern District of California, an exclusive licensee can successfully sue under Section 32 of the Lanham Act even though it doesn’t claim to be either owner or registrant. (more…)

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  • One Famous Mark, Two Owners

    You all know that I’ll be having a “what were they thinking!” moment when I see a trademark case with a caption something like Del Monte v. Del Monte. We’ll start with the court’s opinion on the wisdom of the arrangement: (more…)

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  • Blog Moved

    If you previous saw a post that was titled “Blog is Moving,” you have found the new home. Welcome back.

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