Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • But What’s the Scope of the License?

    One of the reasons for creating a written contract is to force the parties to consider the scope of the relationship into which they are entering. In an oral or implied license, though, the parties probably haven’t really fully thought out what their relationship is going to be. Which makes implied contracts litigation fodder.

    In the case of implied licenses to copyrighted works, there is a well-accepted standard, originating in Effects Associates, Inc. v. Cohen, for deciding if the user of the copyrighted content had a license. There will be an implied license if (1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes that particular work and delivers it to the licensee who requested it, and (3) the licensor intends that the licensee-requestor copy and distribute his work.

    In Fontana v. Harra, defendant Carmen Harra, a psychic, asked plaintiff Fred Fontana, a screenwriter and producer, to write a screenplay about her life. Fontana and Harra agreed that Harra would pay an advance of $13,000 for the script, with an unspecified amount to be paid out of the first funds invested in the film. Harra paid the $13,000 and Fontana delivered a satisfactory script. They had also agreed that Fontana would be co-producer; he performed some tasks in that role for which he was paid $5,000.

    So there is no dispute about the first two requirements for an implied license, we have a script that is requested, delivered and accepted. But then the rub — what could the script be used for?

    To Fontana’s unhappiness, Harra had been shopping the script around without him. Fontana claimed that he was due much more money for his screenwriting and production services and sought an injunction preventing Harra from using the screenplay to promote or produce the film.

    So the court had to figure out what Fontana intended that Harra be allowed to do with the screenplay. It’s a question of ascertaining the author’s objective intent, at the time of creation and delivery, about the specific purpose for which the work could be used.

    Framed that way, it’s not hard to see how it comes out on the injunction. Fontana first argued that he never intended that the screenplay be used until he had been paid in full. This was exactly the failing argument in Effects Associates: the failure to provide payment in full doesn’t void an implied license unless, plainly and unambiguously, full payment is a condition precedent. It wasn’t here, so Fontana’s claim for the rest of the payment was a contract claim, not a copyright claim.

    Fontana also argued that, based on the scope of the parties’ business relationship, he never intended that Harra be allowed to create and promote a film without him. He proposed the following test to ascertain intent:

    (1) whether the parties were engaged in a short-term discrete transaction as opposed to an ongoing relationship; (2) whether the creator utilized written contracts providing that copyrighted materials could only be used with the creator’s future involvement or express permission; and (3) whether the creator’s conduct during the creation or delivery of the copyrighted material indicated that use of the material without the creator’s involvement or consent was permissible.

    But the court didn’t agree this was the proper test. It is used in cases deciding whether architectural drawings may be used to build a house without the architect’s further involvement, but it wasn’t necessarily probative in other types of relationships.

    Looking at Fontana and Harra’s relationship more generally, the court found there was an intent to form a license. Fontana hadn’t alleged that the license was only if he produced the film; instead he alleged two separate agreements, one for screenwriting and one for producing. On the scope of the screenwriting agreement:

    Plaintiff alleges that defendant Harra hired him to write a “screenplay about her life story” and that he would be “paid out of the first monies that were invested in the film.” This shows that from the outset of their agreement, the parties recognized that the screenplay was created with the intention that it would be used to create a film. Moreover, plaintiff’s intent is apparent from the fact that he was hired to write a screenplay as opposed to some other form of writing. Screenplays are written to be made into movies, and it would be unusual if plaintiff created the screenplay believing that it was going to be used for some other purpose. If plaintiff wrote, delivered, and received partial payment for the screenplay intending that defendants would make some other use of the document, he must explain what that use is in his complaint.

    His work on the film’s production was further demonstration that he intended that the script be used to make a film. So, Fontana had intent that his script be used to create a film and therefore Harra was licensed for that use. But Fontana was given leave to amend his complaint, so the case may still survive.

    Fontana v. Harra, No. CV 12-10708 CAS (JCGx) (C.D. Calif. March 12, 2013).

  • It’s Hard to Get Copyright Standing Right

    I gotta think that book publisher Pearson Education has lousy recordkeeping. I found 10 reported cases filed against it, not including this one, alleging that Pearson Education exceeded the scope of the license for photographs it uses in books. The plaintiff in Minden Pictures, Inc. v. Pearson Education, Inc. claims “that Pearson has been sued on similar copyright claims by others in at least 15 other federal actions, i.e., that Pearson is a willful, repeat offender.” Here are cases I found:

    StockFood America, Inc. v. Pearson Educ., Inc., No. 2:12-cv-124-JAW (D. Me.)
    Bean v. Pearson Educ., Inc., No. CV 11-8030-PCT-PGR (D. Ariz.)
    Clifton v. Pearson Educ., Inc., No. 5:11-cv-03640-EJD (N.D. Cal.)
    DRK Photo v. Pearson Educ. Inc., No. CV 11-8097-PCT-PGR (D. Ariz.)
    Frerck v. Pearson Educ., Inc., No. 11-cv-5319 (N.D. Ill.)
    Grant Heilman Photography, Inc. v. Pearson Educ., Inc., No. 11-cv-4649 (E.D. Pa.)
    Pacific Stock, Inc. v. Pearson Educ., Inc., No. 11-00423 SOM/BMK (D. Haw.)
    Cole v. Pearson Educ. Inc., No. 10 Civ. 7523 (JFK) (RLE) (S.D.N.Y.)
    Psihoyos v. Pearson Educ., Inc., No. 10 Civ. 5912 (JPO) (S.D.N.Y.)
    Wu v. Pearson Educ. Inc., No. 10 Civ. 6537 (KBF) (S.D.N.Y.)

    Because the photographic industry uses an agency model, Pearson Education has the opportunity to attack standing. Here, Minden Pictures had two theories why it had standing to sue: it had both copyright assignments and documents entitled “Agency Agreements” with its photographers.

    But Minden Pictures had all sorts of problems with the documents. The court threw out the Agency Agreements because of late disclosure, not believing Larry Minden or his lawyer’s claim that they didn’t realize the Agency Agreements were relevant. (The court held this opinion in no small part because, during the litigation, Larry Minden was sending out new agreements for two photographers to sign, saying the new agreements were to “help insure against some nit picking judge from finding fault with” the agreements.)

    So Minden Pictures was left with copyright assignments only, and the agreements didn’t do the job. Here is one of the assignments:

    Minden Pictures Assignment

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

    The undersigned, the sole owner of the copyrights in the undersigned’s images (“the Images”) selected by Minden Pictures, Inc. (“Agency”) and included in its collection, hereby assigns to agency co-ownership of all copyrights in the Images. This assignment authorizes Agency, in its sole discretion, to present, litigate and settle any accrued or later accruing claims, causes of action, choses in action — which is the personal right to bring a case — or lawsuits, brought by Agency to address unauthorized uses of the images by licensees of Agency, as if Agency were the undersigned. Agency agrees to reassign its co-ownership of the Images back to the undersigned immediately upon the conclusion of such litigation.

    Any proceeds obtained by settlement or judgment for said claims shall, after deducting all costs, expenses and attorney’s fees, be divided as provided in the Photographer’s Agency Agreement.

    As we know from RightHaven, the person who sues for copyright infringement has to own a substantive right to exclude; owning the “bare right to sue” isn’t good enough.

    But the court held that it was only a “a bare right to sue” here. Despite having characterized Pearson Education’s interest as a joint ownership in the agreement,

    it’s not the label that the parties put on an agreement — plaintiff’s label cannot serve as a method to subvert summary judgment…. The sole function of the copyright assignment is to grant an exclusive license to bring suit and divvy up any returns; there is no right to participate in any royalties apart from the litigation. Beyond the express terms, the parties’ intent is also evidence from what is missing from the agreement: a term specifying the duration of the license. Instead, the copyright assignment terminates automatically upon conclusion of any litigation with the reassignment of “co-ownership” back to the copyright owners. If the parties genuinely intended to transfer co-ownership, under the terms of the contract Minden would retain that co-ownership in perpetuity if it failed to bring suit. Such a reading would put Minden on coequal footing with the copyright owners. The copyright assignments, however, cannot reasonably be read in this manner. Implicitly, the contracting parties intended for Minden to bring the instant suit and not for it to be a genuine, potentially-permanent owner of any of the exclusive rights under Section 501(b).

    The Agency Agreement is a grant of an exclusive license, so I’m curious what led Minden Pictures to believe that it needed to enter into amendments and assignments with the photographers, and more importantly, why it didn’t produce them in a more timely fashion.

    Minden Pictures is appealing. Maybe we’ll find out more of the story.

    Minden Pictures, Inc. v. Pearson Education, Inc., No. C 11-05385 WHA (N.D. Calif. March 5, 2013).

    Creative Commons License
    The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

    , , , ,

  • Don’t Wait for Termination to Claim Copyright Ownership

    When we last visited Scorpio Music v. Willis, Victor Willis, one of the Village People, was successful in dismissing a suit filed by Scorpio Music, his former music publisher. Scorpio Music claimed Willis couldn’t terminate his copyright grant without his co-authors. In the decision we learned he could and the suit was dismissed, effectively terminating Willis copyright grant to Scorpio Music. But, Scorpio was a given leave to amend to seek declaratory relief on what percentage of the copyright interest Willis was regaining upon the termination. (more…)

    , , ,

  • Patent Ownership Not a Federal Question (at least in this case)

    Is patent ownership a question of federal law? It depends. In the case of Millepede Marketing Ltd. v. Harsley, it’s not.

    The recent Supreme Court decision Gunn v. Minton* provides the analytical framework: a matter is one for federal jurisdiction if (a) federal law creates the cause of action asserted or (b) a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.

    The question was whether Harsley had a duty to assign his patent application to his employer. The federal court didn’t have jurisdiction under (a) because the issue was a question of contract or employment law, not patent law.

    The federal court didn’t have jurisdiction under (b), either. Millepede argued that the federal question was whether the unassigned patent was the same invention as an earlier assigned patent, but that could be resolved as an admission (Harsley claimed priority to the earlier patent) or the question could be decided based on an employment agreement, therefore the claim didn’t necessarily raise patent law. Nor did the claim satisfy the remaining elements 2-4 needed to have federal jurisdiction.

    And there is no such thing as common law equity jurisdiction (last reported in 1960), it’s jurisdiction under 28 U.S.C. § 1338(a) or not at all. Case closed.

    Millepede Marketing Ltd. v Harsley (D.D.C. March 7, 2013)

    * In a footnote: “This Court notes that the Supreme Court’s decision in Gunn, which delineated the four factors applicable to analysis of whether state-law claims ‘arise under’ federal law, and thus satisfy the jurisdictional mandate of §1338(a), issued on February 20, 2013, after the briefing in the case. No party to this case has filed any notice of additional authority since Gunn was decided.” Bench slap?

    Creative Commons License
    The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

    , , ,

  • I Have Never Seen An Ownership Case So Complicated

    I’ve read a lot of cases with convoluted fact patterns, which I guess is how they end up in litigation. But C.F.M. Dist. Co. v. Costantine, an opposition before the Trademark Trial and Appeal Board, is in the stratosphere of convoluted. Not surprisingly, it’s about a family business.

    In a 44-page decision, 4 pages are introductory, 6 relate to procedural matters, and a full 20 pages are dedicated to a recitation of the facts, including a family tree, a family photo of some of the parties, and 5 pages devoted solely to a 50-year timeline (pp. 25-30 if you’re really interested).

    The case is so complicated I’ll describe it only in the most general terms, although that will suffice for the purposes of this post. These are the marks in dispute:

    The marks (applications here and here) are used for restaurant services, although we’ll get into more details about the kind of restaurant services in a minute.

    One of three brothers in the Constantine/Costantine family (apparently there isn’t even agreement on how to spell the name) was the first to use “Maryland Fried Chicken.” Everything after that is a morass of uses by various family members (wives, brothers and sons), assignments, including one nunc pro tunc to a date fourteen years earlier and one done, allegedly, while the assignor was incompetent, corporate mergers, corporations formed by unknown third parties, and informal licenses to somewhere around 30 restaurants. After the recitation of facts, the Board helpfully summarized all the players (you don’t have to pay attention to the names, it’s for illustration):

    And let’s not miss this graphic representation, offered by the Board to try to clarify who owned what and when:


    I confess excitement about this decision because the Board based its analysis on an approach I suggested in a Trademark Reporter article, Who Owns the Mark? A Single Framework for Resolving Trademark Ownership Disputes, 96 Trademark Rep. 681 (2006). That is, the Board said:

    [i]n deciding which party, if any, owns these various composite marks, we look to three separate interests, namely contractual expectation, responsibility for the quality of the goods and/or services, and consumer perception.

    Regarding contractual expectation, no one had a claim to an unbroken chain of title for the marks. Further, despite the number of restaurants using the mark, there was no unified franchising scheme; at most there was an informal effort to ensure that no two stores were located too close together. Opposer C.F.M., who distributed the supplies the restaurants bought, didn’t even claim that it was a franchisor; it’s only business interest was supplying the various stores with their product.

    It gets even more interesting when the Board looks at the quality of the goods and services. I apologize for the lengthy excerpts below, but the you only get the full color in the details:

    [W]e find that since the mid- to late-70s, as the Constantine/ Costantine family was engaged in a frenetic game of corporate/ partnership/proprietorship/joint-grouping musical chairs, no one has really maintained any responsibility for the quality of the food products or services offered at retail under these marks….

    Other than the actual food itself (e.g., chicken, potatoes, cabbage, etc.), C.F.M. provides most everything else that most Maryland Fried Chicken restaurants use day-in and day-out. This includes breading mixes, its proprietary coleslaw dressing, five different sizes of carry-out food containers, pre-packaged meal kits (e.g., napkins, spork/fork, wet towelette, salt packets, etc.), all imprinted with the Maryland Fried Chicken logo, as well as paper towels, toilet paper, chemical cleaners, etc.

    Otherwise, all the Maryland Fried Chicken restaurants are quite different. James Gourley and Paul Dion testified that each one of the thirty Maryland Fried Chicken restaurants can serve whatever its owner desires. There is no requirement that a Maryland Fried Chicken restaurant serve the same fried chicken products. In fact, the taste of the fried chicken products at retail can vary widely. Some restaurants are offering chicken that is crunchier than that of other Maryland Fried Chicken outlets. A customer will notice the chicken as served at various outlets has more or less salt, more or fewer spices, different cooking oils and different styles of marination. Although C.F.M. provides a consistent breading mix product, individual restaurant owners use it quite differently in deriving the house recipe – some using the C.F.M./MFC branded breading mix alone, other using it with its own unique ingredients, while yet others choose not to use a C.F.M. breading mix at all. For example, the owner of the Winter Garden restaurant uses the C.F.M. house brand of breading mix (not that traded by C.F.M. under the Maryland Fried Chicken label) and then adds another completely different mix of his own choosing.

    While most Maryland Fried Chicken restaurants do sell fried chicken, even that is not strictly a requirement. Some sell barbeque chicken, while others specialize in steak, pork, Brunswick stew, pizza or seafood. In fact, a number of Maryland Fried Chicken outlets are known more prominently as “Shrimper Seafood” outlets because an entire chain of seafood restaurant owners decided this was a convenient way to offer chicken in addition to shrimp. The record also shows that some Maryland Fried Chicken restaurants specialize in Greek, Mexican, Chinese or other Asian cuisine. Therefore, consumers can get one product and product selection from one Maryland Fried Chicken restaurant and something entirely different at another Maryland Fried Chicken location.

    As to the external appearance of Maryland Fried Chicken buildings, outdoor painting schemes are quite different, as is the signage. The Albany store has a rooster mural, some chicken logos have the hen with two little chicks, another prominently displays the image of a chef with a hat, while yet another features a large mural of Bob Marley on the outside wall of the restaurant. The internal décor is also quite different among the stores, including some featuring Asian décor. The outlets each display significantly different type of menus, menu boards and internal signage. Some smaller locations have minimal seating, while others are fairly large sit-down restaurants.

    As one travels from restaurant to restaurant, one will notice that there are not similar uniforms provided for staff members. Some owners provide employees with T-shirts from C.F.M., while others create their own artwork and hire a silk-screen artist or local T-shirt company to make whatever designs they want. In some restaurants, employees simply wear regular street clothes, while in yet others they might don aprons. No one provides standardized training for employees from restaurant to restaurant, and the retail prices vary widely from outlet to outlet.

    The third prong, consumer perception, fared no better:

    The members of the public in the southeastern portion of the United States, and especially in Central Florida, have been faced for decades with products and services bearing visually similar Maryland Fried Chicken trademarks and service marks. However, with each outlet having such diverse qualities, we find that these logos have totally lost any of their earlier abilities to identify a sole source. It would seem at this late date that very few members of the consuming public in Central Florida (or elsewhere) still contemplate a single enterprise as standing behind the Maryland Fried Chicken products or services. Those few who do anticipate the consistent quality of the prototypical franchise operation will likely find themselves disappointed as they take their business from one Maryland Fried Chicken outlet to another. Certainly, if one has an unpleasant experience at a particular Maryland Fried Chicken restaurant, there is not one single entity to whom that aggrieved customer could turn with a complaint.

    Concluding:

    Whether or not one relies upon language of abandonment or naked licensing, the uncontrolled use of an alleged mark by many different parties is anathema to the role and function of a source indicator. Through conscious acts of commission taken by various family members, any property rights that existed in the 1960s appear to have been totally splintered. Repeated and inconsistent transfers of alleged bundles of sticks by constantly realigned individuals and groups of persons has created total confusion about who, if anyone, was in charge of this one-time family enterprise. Continuing acts of omission over recent decades on the part of applicant have further caused these alleged marks to lose any remaining significance as indicators of source….

    [W]hatever the designs of Albert Constantine in the early 1960s, the current confusing state of affairs seems to have been accepted by most of the actors, and no one rocks the boat until such point as one party makes a play for exclusivity that threatens the other players. The litigation surrounding these applications seems to have been such an event. Unfortunately, we see no reason to think the pieces of this would-be franchise can ever be put back together. These parties have lost their trademark rights against the world, and thus against each other. Accordingly, despite, for example, C.F.M.’s claims of its priority over that of applicant, we view the several opposers’ actions herein to be less an attempt to claim rights in these marks for themselves, but instead merely wanting to maintain the status quo by keeping applicant from being able in the future to assert a right to which it is not entitled, under the facts of the case.

    The current hodge-podge arrangement that is Maryland Fried Chicken is clearly not optimal. On the other hand, given the state of play, the status quo is preferable to the scenario where a single player, like applicant, is given the imprimatur of a federal registration and the appearance of exclusivity, when in reality – to quote Gertrude Stein’s famous observations about Oakland – “There is no there there.”

    In conclusion, we find that applicant was not the owner of these marks at the time the applications were filed, and consequently, both of these involved applications are deemed to be void ab initio. As discussed throughout this opinion, we find that the traditional concepts of priority and likelihood of confusion are of little help in resolving these disputes, and we do not reach the questions of whether applicant has committed fraud on the United States Patent and Trademark Office by filing these applications.

    What I like most about this decision is that it take the broad view. A mechanical slog through one legal doctrine or another might have allowed the applicant to fall through a crack and get the registration. Instead, we reach a result that comports with reality, which is that there is no sole owner of all these different uses of the mark, but, at most, a number of concurrent owners. I also appreciate the Board’s recognition of the power of a federal registration and its effort to avoid awarding it wrongly.

    Too bad it’s not precedential.

    And a HT to John Welch, who not only sent me the opinion, but is also the person who many years ago critiqued the article I was writing and suggested submitting it to the Trademark Reporter.

    C.F.M. Dist. Co. v. Costantine, Opp. No. 91185766 (TTAB March 20, 2013).

    Creative Commons License
    The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

    , , , , , , , , , ,

  • Sixth Circuit Saves the Day

    A while back I started a post this way:

    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.

    And the appeal is here.  Muuuchhh better!

    Defendant Steven Brandeberry acquired the trademark AMTEL for a phone book business in 1994, signing the agreement on behalf of his corporation and himself personally. He then had financial problems and assigned the mark to non-party White, but the agreement was on behalf of his corporation only, not himself personally. White then sold the business to plaintiff Yellowbook Inc. After White’s state registration for AMTEL expired, Brandeberry resumed using the AMTEL mark and was sued by Yellowbook.

    The district court held that since Brandeberry hadn’t assigned away his personal interest in the mark when assigning the mark to White, all that Yellowbook acquired was a non-exclusive right to use the mark. Yellowbook argued that, even so, Brandeberry abandoned the mark through six years of non-use, but the court found that abandonment was only a defense that did not strip Brandeberry of his right to use the AMTEL mark. Therefore, both parties could use the mark.

    Luckily, we have an appeals court that understands what a trademark is. First the court looked at the 1994 agreement. It didn’t buy that the trademark was assigned to be jointly owned by Brandeberry and his company, but rather found the trademark was assigned only to the company:

    The most basic problem with the district court’s reading is that no part of the contract makes any mention of joint ownership. Brandeberry and his corporation are always collectively referred to as a singular “licensee.” The contract gives no guidance as to whether the trademark rights would be owned jointly or as tenants in common, exclusively or non-exclusively, or be unilaterally assignable, transferrable, or licensable. We could speculate about how the parties intended to structure the joint ownership, but here the language permits a more straightforward interpretation. The natural reading is that the contract transferred a single right—undivided ownership—to Brandeberry’s wholly owned corporation. As 100% owner of American Telephone, Brandeberry had no reason to retain any individual stake. Burkhalter made sure Brandeberry signed the contract in his individual capacity to hold him personally liable for the $50,000 purchase price of the trademark, not to bifurcate the property rights between Brandeberry and his corporation.If the district court were correct that the contract created a joint right, this reasoning would apply with equal force to the 1994 Corporate Asset Purchase Agreement, which transferred various intangibles from Burkhalter to both Brandeberry and American Telephone, referred to jointly as “Purchaser.” No party has argued that Brandeberry is also the joint owner of the AMTEL customer lists, books and records, and goodwill. All of these assets—as intended at the time—were held exclusively on the balance sheet of American Telephone, and we do not read the contract as creating a bifurcated ownership scheme where none was clearly intended or acted upon.Joint ownership is disfavored in the trademark context. See 2 McCarthy on Trademarks & Unfair Competition § 16:40 (4th ed.). By their nature, trademarks derive their value from exclusively identifying a particular business. If customers are confused about which business the mark refers to, one of the users may unfairly benefit from the goodwill of the other, or the goodwill of the mark may be dissipated entirely. Beneficial joint ownership or licensing schemes may be devised, but courts are not well placed to fill in these details, and parties (and customers) are typically best served by exclusive ownership. It is not clear what benefits there would have been to splitting ownership between Brandeberry and American Telephone. Nor in practice did Brandeberry make any such attempts to bifurcate ownership. He never used the AMTEL mark in his individual capacity or for other businesses, but simply through American Telephone and in his role as its President and employee. Further, for any joint-ownership scheme to have been valid, Brandeberry would have to have received some of the AMTEL goodwill: otherwise his trademark rights would be “in gross” and invalid. 15 U.S.C. § 1060. But the 1994 Corporate Asset Purchase Agreement appears to have transferred all of the goodwill and non-trademark assets to American Telephone, leaving it as the party presumptively holding the AMTEL mark. Whether considered invalidated, abandoned, or not transferred in the first place, Brandeberry retained no rights in the AMTEL mark independent of his ownership of American Telephone.

    From here, the court readily found that Brandeberry had subsequently conveyed all his interest in the trademark to White, retaining none for himself. “This was not a sale to carve out a particular business or spin-off certain assets; it was a wholesale transfer from Brandeberry to White of control over American Telephon’s entire business. We will not presume the creation of jointly owned or non-exclusively licensed trademark rights, especially where dissipation of goodwill, and increased customer confusion, is inevitable.”

    Yellowbook also won on the abandonment argument. Noting that while it’s true abandonment is often used defensively in infringement cases, “Brandeberry’s abandonment-as-a-defense-only position would permit trademark users who abandoned their rights impunity from charges of infringement ….”  Brandeberry’s six year period of non-use created a presumption of abandonment that Brandeberry rebutted with only “speculative” evidence, so Brandeberry had abandoned the trademark.

    But who on earth still publishes yellow pages?

    Yellowbook Inc. v. Brandeberry, No. 11-4267 (6th Cir. Feb. 27, 2013).

    Creative Commons LicenseThe text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

    , , , , ,

  • When a Logo Has Two Owners

    The last two posts were about a case, DeliverMed Holdings, LLC v. Schaltenbrand, involving ownership of a logo. In the first post, it turned out that the copyright in the logo was still owned by the designer, not the company using the logo. @WatermarkIAM tweeted a caution: “You must make sure #copyright ownership is clear when #trademark logo’s designed! Not just a US problem…”

    In the second post, about the trademark ownership, there was not definitive answer about who owned the trademark, only a negative holding that the plantiff didn’t. We were left with two potential owners, either the pharmacy using the mark or the joint venture on whose behalf the pharmacy was acting. Which means that DeliverMed, who claimed to own both the copyright and the trademark rights, owned neither and, further, the ownership of the two rights was was split up.

    The EU has a law that serves to avoid this outcome for Community Trademarks.
    Council Regulation 207/2009, Art. 53, 2009 O.J. (L 078) 1 says that:

    2. A Community trade mark shall also be declared invalid on application to the Office or on the basis of a counterclaim in infringement proceedings where the use of such trade mark may be prohibited pursuant to another earlier right under the Community legislation or national law governing its protection, and in particular: … (c) a copyright ….

    So the copyright owner can invalidate a trademark registration, and indeed that happened to the registration for the “halo” logo for Innocent smoothies:

    (It’s not quite so that simple, though; there might be an opportunity for the trademark owner to claim a beneficial interest in the mark, as explained by Simon Stanes on The IPKat blog.)

    I’m not sure that the approach used by the EU solves the problem though, since it defaults ownership in the party who added less value to the asset — that is, the logo itself isn’t intrinsically valuable as a work of art, but instead it’s the goodwill in the mark that is the more significant part of the value of the logo. It also seems disproportionate; a fee dispute (as was the provoking event in the Innocent logo) can result in the loss of a a company’s most valuable asset. But I’d like to think that, because the EU law expressly addresses the potential for disjunctive ownership, the parties are more careful about contracting for ownership at the outset (any opinion on that from EU lawyers out there?)

    It’s a conundrum. Back to WatermarkIAM’s advice, “You must make sure #copyright ownership is clear when #trademark logo’s designed!”

    Creative Commons License
    The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

    ,
    , ,

  • The Tale, Part II

    DeliverMed Holdings LLC v. Schaltenbrand is a dispute about a failed business involving the tagline “Right at Home, the trademark “DeliverMed,” and a “mortar and pestle” logo:

    In the last post we covered the court’s opinion, after a bench trial, on the ownership and infringement of the copyright in the logo. Score one for the defendants: the plaintiffs didn’t own the copyright in the logo; instead the independent contractor who designed it did, and anyway the defendants had an implied nonexclusive license for the time period in which the logo was used.

    On to the trademark rights. As a refresher, in 2005 plaintiff Mark Swift started an on-line pharmacy with defendant Michael Schaltenbrand, owner of bricks-and-mortar Medicate Pharmacy. There was no formal memorialization of the parties’ business relationship, so the court held that the business relationship was an oral general partnership, which the court referred to as the “JV.” Sometime after the JV was formed, Swift’s wife formed plaintiff DeliverMed Holdings, LLC. DeliverMed would provide marketing services to promote the mail order pharmacy services, using direct mailings, call centers and other marketing strategies, and Medicate would provide the mail order pharmacy services to customers attracted by DeliverMed’’s marketing. DeliverMed never itself provided any pharmacy services.

    In 2005, the name “DeliverMed” was used for the first time to identify mail order pharmacy services, used by Medicate in furtherance of the JV.

    In 2008, DeliverMed filed an application to register the trademark “DeliverMed” for “retail pharmacy services.” (The court states that the application was in 2003 or 2004, but that date is for an earlier failed application by Swift.) Swift claimed a first use date of February 1, 2005, even though he had not used the mark in commerce at that time. The mark was registered on the Supplemental Register on February 3, 2009.

    Also in 2008, Swift hired Deeter Associates to design the logo. The court, acting as factfinder, stated

    The placement of the phrases “Medicate Pharmacy DeliverMed” or “DeliverMed Medicate Pharmacy” with the “house and pestle” logo on many of the resulting business and promotional materials at Swift’s request is strong evidence that he obtained the creation of the logo on behalf of the JV, not DeliverMed or himself individually.

    After the lawsuits were filed (there were two filed, one by DeliverMed and one by Swift), DeliverMed filed an application to register the trademark in the logo. It was ultimately registered for “mail order pharmacy services” on February 1, 2011 (claiming an impossible first use date of January 1, 2007). The court found that

    In the summer of 2008, the logo was used commercially for the first time to identify mail order pharmacy services provided by Medicate in furtherance of the JV. The mark was used to distinguish Medicate’s mail order pharmacy services in furtherance of the JV from similar services provided by others. DeliverMed never commercially used the logo to identify pharmacy services it provided because DeliverMed, by itself, never provided any pharmacy services.

    On May 1, 2008 Swift filed an application to register “Right at Home” for “retail pharmacy services” in his own name. It registered on the Principal Register on March 24, 2009.

    The relationship fell apart in a fairly spectacular way, including Swift’s diversion of incoming telephone calls to his cell phone, filing of a false UCC-1 financing statement claiming a secured interest in Medicate’s assets, and falsely informing Medicate’s bank that DeliverMed and Swift had initiated an involuntary Chapter 7 bankruptcy against Medicate. Schaltenbrand wasn’t a boy scout either; he paid personal expenses from company money and increased his own salary from Medicate so that there would be no profits remaining to go to the JV partners.

    Attorneys for DeliverMed sent a cease and desist letter to Schaltenbrand demanding that he and Medicate stop using the “DeliverMed” name, but not mentioning the logo. The defendants stopped using the DeliverMed name and the “Right at Home” tagline after the letter, and stopped using the logo after the lawsuit was filed.

    So who owns the trademarks?

    The court’s statement of the law on trademark ownership was this:

    The first question in a Lanham Act trademark infringement case is “whether someone has used a word or symbol to identify goods such that the word or symbol refers (at least in the eyes of the law) only to that person’s goods.” TMT N. Am., Inc. v. Magic Touch GmbH, 124 F.3d 876, 882 (7th Cir. 1997). The person who first uses a mark is sometimes said to “own” the trademark, although a trademark is an “identifier” rather than an ordinary property interest. Id.; see Heinemann v. General Motors Corp., 342 F. Supp. 203, 206 (N.D. Ill. 1972) (“trade or service mark rights are acquired by appropriation and use””). A trademark gives a seller or supplier of services “a ‘property right’ in his mark of identification, appurtenant to his property rights in the goods [or services] he so marks, enabling the ‘owner’ of the trademark to enjoin [an] imposter from continuing misrepresentations.” Walt-West Enterps., Inc. v. Gannett Co., 695 F.2d 1050, 1057 (7th Cir. 1982). Trademarks are “protected only to the extent that they give consumers information about the origin or quality of products,” TMT, 124 F.3d at 882, or, as the case may be, the origin of services. Trademark infringement law gives sellers or providers of services a way to prevent others from using similar marks to induce customers away by misleading them into thinking they are obtaining goods or services from the mark owner. Id. at 882.

    First up is “Right at Home.” DeliverMed conceded at trial that it did not have rights to the mark. Recall that it was owned by Swift, and Swift had not alleged trademark infringement in his complaint. Whoops.

    Next, “DeliverMed.” A trademark registration on the Principal Register is prima facie evidence of ownership of the mark. “DeliverMed” was on the Supplemental Register, though, so there was no presumption of ownership of the DeliverMed mark. And simply enough, DeliverMed never used the “DeliverMed” mark for pharmacy services so could not be the owner of the mark:

    The preponderance of the evidence shows that DeliverMed does not have an interest in the service mark “DeliverMed” to identify pharmacy services because DeliverMed, by itself, never used the name in commerce in a manner that allowed consumers to identify pharmacy services it provided. In fact, it never provided any pharmacy services but only marketing services to further the purposes of the JV. On the contrary, the “DeliverMed” name was used, often in combination with “Medicate Pharmacy,” to indicate Medicate was the origin of the pharmacy services provided. DeliverMed never used the name “DeliverMed” to identify pharmacy services provided by DeliverMed such that it acquired a service mark for the “DeliverMed” name to identify the source of services. Thus, DeliverMed does not own the service mark “DeliverMed” to identify the source of pharmacy services.

    Moving on to the logo, it was registered on the Principal Register, so there was prima facie evidence that DeliverMed was the owner of the mark. But the presumption didn’t help; like with the DeliverMed mark the court found that DeliverMed had not used the logo to identify mail order pharmacy services.

    Alternatively, the defendants were licensed to use the marks to advance the purposes of the JV. At Swift’s direction, the defendants used the marks on business and promotional materials and on the prescription drugs Medicate provided to customers. When DeliverMed asked the defendants to stop using the marks, they did. Thus, there was no use outside the scope of the license that could be an infringement.

    As the last blow, DeliverMed lost its trademark registration for the logo on the basis of fraudulent registration. Swift had

    knowingly and intentionally misrepresenting that (1) DeliverMed first used the logo before it was actually created, (2) DeliverMed used the logo to provide mail order pharmacy services, and (3) it had the exclusive right to use the logo. He did this in an effort to make it appear that DeliverMed, and DeliverMed alone, used the logo in connection with mail order pharmacy services prior to the JV’’s first use of the logo in connection with such services. He believed registration of the logo by DeliverMed would give it an advantage in this litigation, which had commenced six days before he filed the trademark registration application. Swift deliberately and successfully misled the USPTO into registering the mark. The USPTO would not have registered the logo trademark on the principal register had it known the true facts. Swift’s actions constitute fraud on the USPTO and warrants cancellation of DeliverMed’’s logo registration.

    The registration for “DeliverMed” survived, though: “Swift misrepresented that the name was first used on February 1, 2005, in connection with pharmacy services, but it is plausible to believe that he intended to use the name in connection with such services in partnership with a pharmacy as of that date and that his mistake was a misinterpretation of the application question.”

    It seems like a lot of money spent on litigation with nothing gained, and nothing likely to be gained even at the outset. The DeliverMed domain name is for sale, if anyone is interested. You could probably get a logo cheap, too, I think a guy named Allan Kovin might be selling.

    DeliverMed Holdings LLC v. Schaltenbrand, No. 3:10-cv-00685-JPG-DGW (S.D. Ill. Oct. 15, 2012).

    Creative Commons License
    The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

    , , , ,

  • A Tale of Two Views of a Business Venture

    Sometimes you just can’t do better than the court in setting up a story:

    It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us. . . .

    Charles Dickens, A Tale of Two Cities (1859).

    This is a tale not of two cities, but of two vastly different views of a business venture that, at its inception, had the potential to be extremely profitable but which, during its management –– or mismanagement, as the case may be –– went horribly awry. Because there is no written agreement between the principal characters in this tale, the stories told vary greatly with no grounding in authoritative documents. There is disagreement as to who the real partners in this business venture were and even whether a partnership existed at all. What makes this case particularly puzzling is that the major players in this lawsuit are educated, sophisticated, experienced, savvy business people who, for reasons unknown to this Court, entered into this lucrative (this characterization is also disputed) business venture without a written agreement of any kind.

    I’ve blogged about this case before: when we last visited it the court had dismissed, with leave to amend, the case for failure to plead a federal claim. The parties have now had a bench trial on the fourth amended complaint.

    The case is about the tagline “Right at Home,”  the trademark “DeliverMed,” and a “mortar and pestle” logo:

    Along with a variety of non-IP claims, the parties disputed the ownership of the copyright in the logo and of the trademark rights in the logo, tagline and DeliverMed trademark. I’ll write about the copyright and trademark issues in two separate posts; today on copyright.

    It all started when plaintiff Mark Swift decided to form a mail-order pharmacy services company but needed a pharmacy to fill the orders. He went into business with defendant Michael Schaltenbrand, owner of Medicate Pharmacy. Since there was no formal memorialization of the parties’ business relationship, the court held that the business relationship was an oral general partnership, which the court referred to as the “JV.” Swift’s wife formed plaintiff DeliverMed Holdings, LLC, which would market the mail-order pharmacy services and Medicate would fill the orders.*

    Swift hired a company called Deeter Associates, of which Linda Deeter (“Deeter”) was executive vice president, to create a logo. Deeter Associates didn’t create it though; it hired Allan Kovin, d/b/a Kovin Design, to design the logo. The court describes the relationship this way:

    Kovin did not assign the logo copyright to Deeter or Deeter Associates by oral or written agreement in 2008. Kovin’s testimony that he intended to transfer the copyright in 2008 is not credible. Kovin and Deeter did not discuss or even contemplate the transfer of the logo copyright at that time. Kovin’s and Deeter’s testimony reflected a more pedestrian view of the agreement to develop a logo without consideration of intellectual property technicalities: Kovin would draw a logo and Deeter Associates would pay him for his efforts and allow its client to use it. Additionally, Kovin’s manner while testifying suggested a recent fabrication of old intentions, motivated by a desire to please Deeter Associates, a potential client, that did not truly exist at the time. The preponderance of the evidence shows that the 2008 agreement between Kovin and Deeter Associates was not an agreement, oral or otherwise, to transfer a copyright.

    Subsequently, “On March 20, 2012, Kovin executed a document entitled ‘Copyright Rights Assignment’ purporting to transfer to Deeter all his rights in the copyright of the logo. As evident from his agreement to ‘hereby assign . . . all of his rights of copyright’ (emphasis added) in the logo, Kovin did not view this document as a memorialization of the transfer of a copyright in 2008 but as a measure to transfer in 2012 any copyright interest he may still have retained in 2012.” Kovin wasn’t paid anything in 2012 when he executed the assignment.

    Despite the circumstances of the creation, the copyright in the logo was registered by DeliverMed, who claimed in the application that Deeter was the author of the logo and ownership was transferred to DeliverMed by written agreement.

    So it’s pretty easy to see where this is going. Kovin was the initial owner of the copyright. There was no separate legal entity “Kovin Design” who could own the copyright as a work made for hire. It also wasn’t a work made for hire of Deeter Associates under either of the bases described in 17 U.S.C. § 101: Kovin wasn’t an employee of Deeter Associates nor was there a signed, written instrument commissioning the work. The 2012 agreement didn’t do the trick; Kovin did not contemplate in 2008 that he was assigning the copyright** so “they cannot now, in retrospect, make more of the agreement than it really was.” Furthermore, Kovin testified that he did the work for “Deeter Associates” but the assignment was to Deeter, so the document could not be ratifying an earlier oral agreement. The language of present transfer—”hereby assigns”—also meant the document could not be ratifying a 2008 agreement.

    The 2012 agreement also wasn’t an assignment effective in 2012—it failed for lack of consideration. The compensation Kovin received in 2008 was to design the logo, not for the assignment, and since he wasn’t paid anything more in 2012 there was no consideration for the assignment.

    Piling on, Deeter had executed an “Agreement for Assignment of Copyright” in 2011, agreeing to transfer the copyright in the logo to DeliverMed so DeliverMed could file the suit. But this was an executory agreement with no evidence that Deeter ever performed, so DeliverMed’s claim of ownership failed for this transaction too.

    And Billy Bob Teeth, a doctrine that limits attacks on ownership of a copyright, didn’t strike. Here’s why:

    Unlike Magnuson and Eden Toys [predecessors to Billy Bob Teeth], where the issue was the validity of an assignment that neither the assignor nor the assignee contested, the issue here is whether the assignor was actually the author and had authority to assign the copyright –– or, as the case may be, to promise to do so in the future. Additionally, Deeter and DeliverMed do not agree on whether the April 8, 2011, “Agreement For Assignment of Copyright” actually transferred the copyright at that time; DeliverMed argues it did, but Deeter testified it did not. Had Deeter been an author, and had she and DeliverMed agreed that the assignment was effective at that time and was valid despite the lack of a writing, the defendants might not have been able to challenge DeliverMed’s ownership based on the lack of a written assignment. However, that is not the case.

    As an alternative basis for finding no copyright infringement, the court also held that Medicate had an implied nonexclusive license to use the logo to advance the purpose of the JV. There is an implied, nonexclusive license when (1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes that particular work and delivers it to the licensee who requested it, and (3) the licensor intends that the licensee-requestor copy and distribute his work. Here, based on Kovin’s testimony, the court found that Kovin gave a license to the JV through Deeter Associates and therefore Medicate’s use wasn’t infringing. (I’m not sure why this matters; Kovin wasn’t a party and therefore wasn’t claiming copyright infringement. But the same argument holds true for Deeter and Deeter Associates, assuming arguendo that one of them was the owner.)

    Finally, the copyright registration. Inadvertent mistakes will not invalidate a registration but a material misstatement intending to defraud the Copyright Office—one that might have caused the Copyright Office to reject the registration—will. And that was the case here. Swift, in his application, misrepresented the ownership: “Truthful statements would have revealed that Swift had no claim to copyright ownership in the logo. Swift purposefully caused these misrepresentations to be included in the application in an effort to gain an advantage in this lawsuit by deceiving the Copyright Office and causing it to issue DeliverMed a copyright registration to which it was not entitled.”

    This is the one piece I disagree with. No one gets the ownership claim right in copyright applications, particularly those involving a work made for hire. Deeter’s belief that Kovin’s work was a “work for hire,” which would make her the author of the work, is a common and pervasive misunderstanding of the law. But it was clear Swift was out to destroy Schaltenbrand, so the court was having none of it.

    And the final insult: the case was so lopsided that the defendants were awarded attorneys’ fees on the copyright infringement claim.

    Next time, the trademarks.

    DeliverMed Holdings LLC v. Schaltenbrand, No. 3:10-cv-00685-JPG-DGW (S.D. Ill. Oct. 15, 2012).

    *Edited on March 17 to correct the role of DeliverMed Holdings LLC.

    **The court discusses it as an assignment document rather than an agreement that the work is a work made for hire, which is a bit confusing, but the document doesn’t work for either situation.

    Creative Commons License
    The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

    , , , , , , ,

  • For the Want of an Assignment Agreement

    What we have in Anderson v. TOL, Inc. is the kind of case that makes lawyers’ heads hurt. In 2003, while Plaintiff Lloyd Anderson was in Chapter 13 bankruptcy, he formed PhoenixArts LLC, of which he was the President and sole owner. A few days later, he filed his first of three patent applications for rigid helium balloons. He didn’t assign the application (or the subsequent two) to PhoenixArts.

    Shortly thereafter PhoenixArts licensed the patent application and any related applications to Overbreak, LLC for a toy called a “HoverDisc” (the link is to a Wayback Machine page; the link from defendant TOL’s website wasn’t live at the time of this writing). At first Overbreak paid royalties, but by 2007 the relationship had soured. There were various acts that could have terminated the license agreement: Overbreak filed foreign patent applications but let them lapse without notice to Anderson, which was a breach, and the parties disputed whether a letter from Anderson’s lawyer terminated the agreement. Overbreak then assigned the license to defendant TOL, who also produced small quantities of the HoverDisc product.

    In 2012 Anderson decided to revive the HoverDisc product. Anderson and TOL negotiated, but Anderson backed out. TOL then took the position that it had a valid and subsisting license to the patents and was going to relaunch in early 2013. Anderson sued.

    So who owns the patents, and does TOL have a license?

    TOL didn’t have a license. Overbreak’s assignment to TOL didn’t satisfy the conditions for assignment: specifically, Overbreak did not seek Anderson’s consent; if it assigned the license it also had to assign any obligations under the license (i.e., the shortfall in royalties) to any successor and it did not; and there was an increased royalty rate for any assignee that Overbreak didn’t impose on TOL. Therefore TOL couldn’t assert that it had any rights to the patents by virtue of a license.

    But that’s only half of it, did Anderson even own the patents? PhoenixArts had represented in the license agreement that it was the owner of the patents.

    But, a patent assignment must be in writing, 35 U.S.C. § 261, and there was no written assignment from Anderson to PhoenixArts. Here is the court’s take on it:

    Having reviewed the License Agreement closely, it is not clear to the court whether the parties to that agreement engaged in sloppy drafting, whether PhoenixArts made an affirmative misrepresentation, or whether the agreement simply incorporates some form of mutual mistake. For example, the “Background” section on the first page of the agreement defines PhoenixArts as the “Licensor” and states that “Licensor filed on February 14, 2003 for a United States utility patent, attached hereto as Schedule A, with respect to Rigid Helium Balloons.” However, the attached “Schedule A” is a copy of the 838 Patent Application filed by Anderson in his own name. Accordingly, unless the court construes “Anderson” and “Licensor” synonymously in this particular context, it is difficult to understand how the language of the License Agreement can be reconciled with the 838 Patent Application attached as Schedule A, which on its face was not filed by PhoenixArts. At any rate, however the parties intended the License Agreement to be construed, its language would not have overridden the requirements of federal statutory law, which does not appear to recognize oral assignments of patent ownership.

    Therefore, based on the existing record, the court is satisfied that Anderson currently owns the Patents, regardless of the language in the License Agreement.

    Ah, but what about that bankruptcy? Weren’t the patents part of the bankrupt estate and therefore not Anderson’s?

    Under the Chapter 13 rules in effect when Anderson filed his petition, Anderson was required to file a schedule containing all of this assets and liabilities, including all of his legal or equitable interests in property (including intellectual property) at the commencement of the case. See 11 U.S.C. § 521(a)(1). While his Chapter 13 Plan was being administered, Anderson was also statutorily required to declare all property acquired after the commencement of the case. See id. § 1306(a)(1); In re Seafort, 669 F.3d 662, 667 (6th Cir. 2012). The Patent Applications, Patents, and Foreign Patents at issue here each were filed and/or issued in Anderson’s name during the five-year pendency of his Chapter 13 Plan, yet Anderson never declared them as assets or revealed them to the Chapter 13 Trustee. It appears that they should have been, particularly where Anderson takes the position here that he always owned those assets and had merely licensed them to PhoenixArts until its dissolution.

    ….

    However, … [t]here is no bankruptcy trustee at the moment and TOL has not established that PhoenixArts has a present claim of exclusive ownership over the Patents. Therefore, the court is not persuaded by TOL’s argument that Anderson lacks standing to enforce the Patents at this point. Thus, at least at this stage, the court is satisfied that Anderson owns the Patents and can sue to protect against their infringement.

    TOL gets some small comfort, though–it can make the argument that Overbreak’s unpaid royalties are part of the bankrupt estate:

    Had Anderson disclosed these assets, his plan would have been modified, and his creditors would have received more money through his Chapter 13 Plan. Indeed, by failing to disclose the royalty stream, Anderson may have defrauded his creditors. As a consequence, he may lack standing to pursue those claims [for Overbreak’s unpaid royalties] here.

    What a mess, all for the lack of an assignment agreement.

    Anderson v. TOL, Inc., No. 3:12-v-01312 (M.D. Tenn. Feb. 28, 2013).

    Creative Commons License

    The text of this work is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

    , , ,

About Me

Learn more about me at my website, Chestek Legal

Recent Posts

Categories

Newsletter