Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Accrual of an Authorship Claim

    Copyright ownership claims are not unusual. But what about authorship? Often the distinction doesn’t matter because, in infringement claims, the owner stands in the shoes of author. But it does matter to termination – the author (or the author’s heirs) is the only one with termination rights; a mere owner cannot exercise a termination (and is most likely whose rights are being terminated). How to decide when an authorship claim, as opposed to an ownership claim, accrues was before the Court of Appeals for the Sixth Circuit.

    In Everly v. Everly, the parties are the famous Everly Brothers, in particular a dispute over the authorship of Cathy’s Clown:

    later also performed by Reba McIntyre:

    The Everly Brothers were Don and Phil; Phil is now deceased and his claim brought by his heirs. The Everly Brothers assigned the copyright in the song to Acuff-Rose Publications in 1960.

    The brothers had a falling out and stopped talking in 1973. Until then, both had described themselves as co-authors of the song. After the falling out Don approached Phil about the song, although there are different versions about how the conversation happened. The dispute ended in June 1980 with Phil signing a Release and Assignment:

    WHEREAS, [the Acuff-Rose assignment] listed both Phil Everly and Don Everly as composers of said compositions; and

    WHEREAS, the said Phil Everly desires to release, and transfer, to the said Don Everly all of his rights, interests and claim in and to said compositions, including right to royalties and his claim as co-composer, effective June 1, 1980;

    NOW, THEREFORE, … Phil Everly does hereby transfer, release, assign and set over unto Don Everly all of his rights, titles, interests and claim to the musical compositions “CATHY’S CLOWN,” “SIGH, CRY, ALMOST DIE,” and “THAT’S JUST TOO MUCH,” the copyrights of which were obtained in 1960 by Acuff-Rose Publications, and which are still owned by them. This transfer and release, which is effective June 1, 1980, includes not only the said Phil Everly’s right to royalties and other income arising out of said compositions from and after the effective date, but also every claim of every nature by him as to the compositions of said songs.

    Thereafter Don received all royalties and public credit as author. Acuff-Rose changed its records to list only Don as author. However, Don also made at least one public statement indicating that both co-wrote the song.

    After Phil died in 2014, his children filed notices of termination of both the 1960 grant to Acuff-Rose and of Phil’s 1980 Release and Assignment. Don filed a declaratory judgment action asking for an order stating that Phil was not an author of Cathy’s Clown and that the 1980 agreement was not terminable. Phil’s heirs counterclaimed for an order that Phil was an author, the termination was effective, and Don owed Phil half of the income earned from Cathy’s Clown. Don moved for summary judgment on the basis that Phil’s claim of ownership was time barred.

    The Copyright Act has a statute of limitations of three years. A claim of ownership is therefore barred three years after there has been an “express repudiation” of the aggrieved party’s claim. The court broke repudiation down into three types: private repudiation, such as a statement from one party to the other denying ownership; public repudiation, a publication of the work without credit; and implicit repudiation,1 non-receipt of royalties.2

    That’s how the standard is described in the ownership realm, but the court (with the parties’ agreement) applied it here to the authorship claim. When applied to authorship,

    an authorship claim will not accrue until the putative author’s status as an author is expressly repudiated; actions repudiating ownership are irrelevant to begin the statute of limitations for an authorship claim because repudiation of ownership is not adverse to the author’s claim as such. The party claiming sole authorship can repudiate the plaintiff’s authorship (1) privately in direct communication with the plaintiff, (2) publicly by asserting sole authorship to the world and the plaintiff, including the listed credit on the published work, or (3) implicitly by receiving remuneration for the work to which the plaintiff is entitled. Of course, to repudiate the plaintiff’s claims under the latter two theories, the receipt of money and credit must actually be adverse to the plaintiff’s authorship status.

    (Emphasis in original.)

    The district court had granted summary judgment in favor of Don but the court of appeals reversed, finding there was a question of fact about whether Don expressly repudiated Phil’s authorship. There was evidence that before the falling out, the brothers both described creation as joint owners. There were different versions of the interaction that led to the 1980 agreement, one version a phone call and the other version a letter not in evidence. As to the agreement itself, the court found the language ambiguous:

    To be sure, some language supports Don’s version of events. For example, Phil disclaimed “all of his rights, interests and claim in and to said compositions, including rights to royalties and his claim as co-composer,” and “every claim of every nature by him as to the compositions of said songs.” But because the assignment itself cannot transfer authorship status, this language is simply additional evidence a jury could consider in resolving a factual dispute about the interaction between Don and Phil. ¶ Specifically, a reasonable juror could find, as Don argues, that the 1980 Release is evidence that Don challenged Phil’s status as author. But, a reasonable juror could also find that this document was simply the transfer of the right to receive the benefits of authorship, such as royalties and license payments. And, finally, a reasonable juror could find that the release was also a transfer of the right to publicly receive credit for the song.3

    The Reba McInytre album cover credited only Don, but that could be because Phil gave up only the right to be named as author, not because Phil was not an author. Non-receipt of royalties was consistent with the Release and Assignment, not a repudiation of authorship. There was therefore a question of fact about when and whether Don had expressly repudiated Phil’s authorship of Cathy’s Clown.

    The bonus read is a very thoughtful concurring opinion. While agreeing with the result, Judge Murphy took the opportunity to disagree with the evolution of a stand alone cause of action for ownership of copyright and the application of the discovery rule, rather than the occurence rule, for a copyright claim. Instead, Judge Murphy advocated for an occurrence rule for copyright claims, but a claim would accrue only when a claimant had a complete and present cause of action.

    These principles show the right questions to ask in this copyright context: Is a party’s status as a copyright co-author or co-owner a “complete and present” claim that the party may immediately pursue in court (like a negligence claim)? Or is a party’s status as a co-author or co-owner an element of a claim that must fully develop before the party may sue (like the breach element of a negligence claim)? Current caselaw treats this authorship or ownership status as an “element” in the context of an owner’s suit against an infringing party, but as a “claim” in the context of a co-owner’s suit against another owner. I tend to think that courts should treat a party’s authorship or ownership status as an element across the board. That view would mean that this status is not a “claim” and does not, by itself, trigger the statute of limitations in either of these two contexts.…

    May an infringing party nonetheless cut off all future liability by sending a copyright owner a “plain-and-express repudiation” of the owner’s ownership status, hoping that the owner does not get around to suing within three years of that repudiation? No, the statute of limitations would not begin to run from the date of the repudiation (no matter how “plain and express”); it would begin to run from the date of the completed claim—the act of copying in violation of § 501.…

    What is the act that one owner could take against a co-owner that would be analogous to this “infringing act”? Most often, it would be an owner’s refusal to turn over a share of the “royalty payments” to which the co-owner claims an entitlement. Here, for example, Phil’s successors have a “claim” to half the income earned from Cathy’s Clown after they exercised his termination rights. Just as each infringing act of “copying” creates a new claim, each time an owner fails to turn over income earned might lead to a distinct “claim” subject to a distinct three-year window. After all, the separate-accrual rule means that “[e]ach wrong gives rise to a discrete ‘claim’ that ‘accrue[s]’ at the time the wrong occurs.” And as long as that claim is timely, a request for declaratory relief should be too.…

    I simply predict that the Supreme Court may one day hold that the plain text of the Copyright Act’s statute of limitations contains an occurrence rule, not a discovery rule. And that change will likely require courts to reassess their plain-and-express-repudiation tests, which have long followed a discovery-rule model.

    “When some law-making bodies ‘get into grooves,’ Judge Learned Hand used to say, ‘God save’ the poor soul tasked with ‘get[ting] them out.’ ” United States v. Jeffries, 692 F.3d 473, 486 (6th Cir. 2012) (Sutton, J., dubitante) (quoting Learned Hand, The Spirit of Liberty 241–42 (2d ed. 1954)). I fear the courts may have gotten into such a “groove” in this copyright context.

    A very thought-provoking, thoughtful and well-supported argument that I suspect we will be seeing again.

    Everly v. Everly, No. 19-5150 (6th Cir. May 4, 2020)

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    1. The court commented on the “linguistic tension” in the concept of a “express repudiation by implicit repudiation” but didn’t consider it relevant here. ↩
    2. This strikes me as three situations where courts had occasion to evaluate whether there has been a repudiation, not the complete universe of ways in which a repudiation might be conveyed. ↩
    3. The dissent would have granted summary judgment on the basis that Phil’s statement in the release that he was giving up a claim as co-composer “is evidence that Don made a demand that challenged Phil’s co-authorship of Cathy’s Clown” and the claim therefore accrued in 1980. ↩
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  • You Can’t Just “Re-Form” a Plaintiff

    Here are the facts:

    • Ness Stewart Irvine was a patentee.
    • Irvine assigned his patents-in-suit to InterAD Technologies, LLC.
    • InterAD assigned them to Zeroclick, LLC (“Zeroclick I”), the plaintiff, a Texas entity.
    • Zeroclick I sued Apple for patent infringement.
    • Erich Spangenberg, listed as the “governing person,” terminated the Zeroclick I entity.1
    • Non-party Granicus IP, LLC transferred ownership of Zeroclick I to Irvine.2
    • Irvine dissolved Zeroclick I and formed Zeroclick, LLC (“Zeroclick II”), a Texas entity.
    • Irvine assigned the patents-in-suit to Zeroclick II.

    Irvine testifed that Zeroclick II was a “brand new” entity and that he was continuing the lawsuit filed by Zeroclick I. Zeroclick I served supplemental responses to Apple’s first set of interrogatories, stating:

    On July 30, 2019, the sole member of Zeroclick, LLC transferred ownership in that entity to Dr. Nes Irvine, making him the sole member. Subsequently, Dr. Irvine dissolved the existing Zeroclick, LLC entity and reincorporated the entity (still Zeroclick, LLC) with a new operating agreement. Dr. Irvine further executed a confirmatory assignment of the patents-in-suit to the new entity.

    Needless to say, Apple moved to dismiss for lack of standing.3

    We’ll start with the plaintiff’s argument that Zeroclick I had been “reincorporated” or “reformed” into Zeroclick II. That’s not how it works.

    Zeroclick I points to no evidence or authority to support its theory that Zeroclick I and Zeroclick II are the same entity. Further, Dr. Irvine’s own deposition testimony, and other documents submitted by Apple, contradict the notion that Zeroclick I and Zeroclick II are the same entity. See ECF No. 108-6 at 4-5 (Dr. Irvine’s deposition testimony stating that he created a “brand new company” also called Zeroclick, LLC); ECF No. 108-8 (operating agreement of Zeroclick II, stating that Zeroclick II was “formed” on November 6, 2019); ECF No. 107-8 at 2-4 (documents generated from the website of the Texas Office of the Comptroller showing that Zeroclick I and Zeroclick II have different taxpayer numbers, dates of registration, registered addresses, and registered agents). Accordingly, the Court cannot find that no standing defect exists on the basis that Zeroclick I and Zeroclick II are the same entity.

    Failing in its claim that Zeroclick I and Zeroclick II were the same entity, Zeroclick I argued that the standing defect could be cured by substituting Zeroclick II as plaintiff. It doesn’t work that way either. The substitute plaintiff would have to have standing, but there was no evidence that Zeroclick II owned the patents either:

    There is a gap in the chain of title with respect to the patents-in-suit that prevents the Court from concluding that Zeroclick II has sufficient exclusionary rights to be a plaintiff in this patent-infringement action. This gap starts when Zeroclick I was terminated in 2017, and ends in January 2020, when Dr. Irvine assigned the rights he purportedly had to the patents-in-suit to Zeroclick II. Zeroclick I has submitted no evidence to show what happened to the ownership of the rights to the patents-in-suit during that timeframe.…

    Zeroclick I does not dispute that it was terminated in December 2017 pursuant to the Certificate of Termination filed with the Texas Secretary of State. Zeroclick I has submitted no evidence to show what happened to Zeroclick I’s assets, including the patents-in-suit, as a result of that termination.… The Court cannot simply assume, based on Zeroclick I’s arguments alone, that ownership of all rights to the patents-in-suit remained with Zeroclick I notwithstanding its termination in 2017, because Texas law, which applies to entities formed in that state, requires that the assets of a limited liability company be distributed to creditors and owners before it is terminated. There is nothing in the record to support the notion that Zeroclick I retained any of its assets, including ownership of the patents-in-suit, notwithstanding its winding-up and termination in 2017.

    Moreover, even assuming that Zeroclick I owned the patents, and Irvine owned Zeroclick I (despite its termination by Spangenberg), Zeroclick I would have been the owner of the patents – but it was Irvine, not Zeroclick I, who assigned the patents to Zeroclick II.

    Zeroclick I has 21 days to file a brief and evidence on the chain of title to the patents-in-suit.

    Zeroclick, LLC v. Apple, Inc., Case No. 15-cv-4417-JST (N.D. Cal. Apr. 23, 2020).

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    1. There just has to be so much more to this story. Why do you terminate the legal existence of the plaintiff in the middle of the suit and apparently walk away? If anyone has the back story please fill us in. ↩
    2. The opinion doesn’t give any more information about who on earth Granicus IP is and how it might have ended up owning Zeroclick I. But, Spangenberg. ↩
    3. This is after the parties have already been up and down the the Federal Circuit once on claim construction. ↩
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  • Only Owners (Or Licensees) Can Bring a Claim Under the Federal Trade Secrets Act

    In 2016 the United States enacted trade secret law at the federal level. Before that, trade secret law was available only at the state level, meaning a patchwork of different standards and no federal jurisdiction for claims. The Defend Trade Secrets Act (“DTSA”), changed that.

    Like trademark law, the federal trade secret law does not preempt state law but coexists with it. And like trademark law, sometimes one can state a claim under one scheme but not the other. That may be the case with trade secret law when it comes to ownership. The DTSA plainly requires ownership of the trade secret as an element of the claim:

    An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.

    18 U.S.C. § 1836(b)(1).

    Plaintiff Focused Impressions (FII) was schooled on that in Focused Impressions, Inc. v. The Sourcing Group. Third Party Defendant Lynn Smith was first employed as Chief Operating Officer by FII and then Smith became an independent contractor for FII. FII’s business was largely focused on managing relationships between paper and envelope suppliers and non-party Liberty Mutual Insurance. Defendant The Sourcing Group (TSG) was one of those suppliers and a client of FII. (As an aside, who would have thought that the procurement of paper and envelopes would be such a complicated undertaking, but I guess insurance companies go through a lot of envelopes and paper.) After Smith was no longer directly employed by FII but only a contractor, Smith also started working directly for TSG as the Chief Marketing Officer in addition to her work for FII on TSG’s behalf.

    The relationship between FII and TSG deterioriated, resulting in this lawsuit. FII sued TSG and TSG counterclaimed FII, alleging a breach of FII’s agreement to provide relationship management between TSG and Liberty Mutual. FII then sued Smith as a third party defendant, claiming that if there was a breach it was Smith’s fault.

    As part of her FII duties, Smith was privy to information about other suppliers’ relationships with Liberty Mutual, specifically the prices The Regal Press, Inc. and Wright Business Graphics, LLC, charged Liberty Mutual. The FII complaint alleged that Smith used confidential information about Regal’s and Wright’s pricing to try to persuade Liberty Mutual (unsuccessfully) to buy products from TSG that were cheaper than the competitors’ products.

    LII alleged violation of the DTSA against Smith. In the third party complaint, FII alleged that (bold in original):

    • “FI created and maintained trade secret information within the meaning of the Defend Trade Secrets Act; specifically, the prices at which Regal and Wright sold their products to Liberty Mutual (the “Trade Secret Information”). This pricing information was negotiated and set by and between either Wright or Regal, FI, and Liberty Mutual.” [Compl. ¶ 105 (emphasis added)]
    • “The secrecy of this information gives Regal and Wright, and by association FI, an economic advantage over their competitors ….” [Id. ¶ 106 (emphasis added)]
    • “The contractual agreement between Wright and Liberty Mutual and between Regal and Liberty Mutual specifies the purchase price for each of the products those companies sell to Liberty Mutual. Pursuant to the terms of those contracts, the purchase price shall be maintained strictly confidential, meaning the information is not generally available to the public. FI became privy to Wright’s and Regal’s pricing information as part of the relationship management services it provides to those companies pursuant to contractual arrangements with them.” [Id. ¶ 109 (emphasis added)]
    …
    • “The requirement in the Smith Agreement to maintain the confidentiality of FI’s suppliers etc. was intended to protect the financial interests of companies for which FI performed services, as well as FI’s own financial interests ….” [Id. ¶ 112 (emphasis added)]
    • “Smith misappropriated FI’s, Wright’s, and Regal’s Trade Secret Information when she used her knowledge of that Information to offer prices for TSG products, a competitor of both Wright and Regal, at an amount that she knew would undercut the prices that those companies charged to Liberty Mutual.” [Id. ¶ 113]
    • “Smith’s misappropriation of the Wright’s Trade Secret Information, by using that information to undercut Wright’s prices and business, caused actual economic harm to FI ….” [Id. ¶ 117 (emphasis added)]

    The court explained that FII had not alleged ownership of trade secrets:

    Although FII initially makes the conclusory allegation that it “created” Regal and Wright’s pricing information, subsequent allegations make clear that even FII believes that the information belongs to Regal and Wright. See [Compl. ¶¶ 105–06, 109, 111–13, 117]. For example, FII “became privy to Wright’s and Regal’s pricing information,” Smith needed to “maintain the confidentiality of FI’s suppliers,” and Smith misappropriated “Wright’s Trade Secret Information.” [Id. ¶¶ 109, 112, 117 (emphasis added) ]. Furthermore, the pricing information was memorialized in “contractual agreement[s] between Wright and Liberty Mutual and between Regal and Liberty Mutual,” to which FII was not a party. [Id. ¶ 109]. If this pricing information belonged to anyone, it was Regal, Wright, and possibly LMI. But, as alleged, this pricing information did not belong to FII.
    …
    FII fails to allege that it had “rightful legal or equitable title to, or license in” the pricing information it alleges was a trade secret. See 18 U.S.C. § 1839(4). Having failed to plead an essential element of its DTSA claim, the claim is dismissed.

    (Emphasis in original.)

    The court also therefore dismissed the supplemental state law claims. Never fear, though, one of them was a breach of contract against Smith for the misuse of the confidential information – while FII didn’t have a DTSA claim against Smith, they presumably still have a cognizable claim for the breach of a confidentiality agreement that obliged Smith to not misuse their clients’ confidential information.

    The defintion of “owner” in the DTSA includes “licensee,” so I am left wondering why FII didn’t allege it was a licensee of the pricing information. Should we be amending our confidentiality agreements so that there is a “license” to the trade secrets one has access to, not just a duty to maintain their confidentiality?

    The DTSA is worded differently from the Uniform Trade Secrets Act. In the Uniform Trade Secrets Act “misappropriation” is defined as: “(i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means ….” Some states have construed this language as not requiring ownership of the trade secret in order to state a claim. There are decisions interpreting at least Maryland, Wisconsin and Pennsylvania law that ownership of the trade secret is not a requirement for a claim of misappropriation.

    The DTSA leveraged the Economic Espionage Act of 1996, which already relied on the concept that a trade secret has an “owner.” But it could turn out to be a big difference between the federal and state law regimes.

    Focused Impressions, Inc. v The Sourcing Group, No. 19-cv-11307-ADB (D. Mass. Apr. 16, 2020).

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  • A License to Embed (See What I’m Doing Here?)

    I was going to blog Sinclair v. Ziff Davis, LLC, but @MarkJKings explained everything you need to know in a Twitter thread. So, by virtue of the license granted to me by Twitter, I present Sinclair.

    Plaintiff Sinclair is a professional photographer. Mashable approached her about including one of her photographs in an article about female photographers and offered $50. She declined, so Mashable published the article anyway, embedding one of Sinclair’s Instagram posts (image now removed but in the record):

    Sinclair accused infringement

    As you can see from the image, Mashable embedded an image Sinclair published herself to Instagram. Sinclair sued for copyright infringement. And here is where I turn it over to @MarkJKings:

    I interrupt this thread to explain Goldman v. Breitbart. It was a case that rocked the copyright infringement world. We had all been poking along thinking that the “server rule” made a ton of sense, that is, if you only embedded content on your webpage you hadn’t actually copied anything, so there wasn’t any infringement. Goldman v. Breitbart rejected that theory, holding instead that “when defendants caused the embedded Tweets to appear on their websites, their actions violated plaintiff’s exclusive display right; the fact that the image was hosted on a server owned and operated by an unrelated third party (Twitter) does not shield them from this result.”

    Back to @MarkJKings:

    Here’s a link to the Terms of Use in effect at the time.

    Here’s the copy of the Platform Policy submitted by the plaintiff. I found it pretty surprising that neither party appears to have submitted copies of either the Terms of Use or the Privacy Policy, but the court nevertheless went digging for them. The court even made a point of saying they had the right one:

    Back to Mark:

    THE END

    This result should surprise anyone. This possibility has been noted before.

    The plaintiff’s argument that the agreements were too convoluted was not met with sympathy. And as any contract lawyer could have predicted, the fact that the plaintiff had a dilemma, having to choose between private settings and therefore no exposure, or public settings but granting a license, also didn’t garner any sympathy from the court. And I’ll let you guess how the argument that the court wasn’t qualified to interpret the meaning of the legal documents fared for the plaintiff, other than to say that the Second Amended Complaint was dismissed with prejudice.

    Sinclair v. Ziff Davis, LLC, No. 18-CV-790 (KMW) (S.D.N.Y. Apr. 13, 2020).

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  • Foreign Manufacturer Continues to Own Its Mark

    Liger6, LLC v. Sarto is right in my wheelhouse, two claimants to the same mark. I passed on it at the district court level, though, because it wasn’t particularly remarkable. However, there is a decision on appeal now, and it’s a slow news week for non-Covid news. The district court opinion is marked “Not for Publication” and the appeals court decision marked “Not Precedential,” so don’t expect to find anything earth-shattering here. I would say the lesson is flimsy evidence can be defeated by common sense.

    The Defendants are Sarto S.r.l. and sole proprietor Sarto Antonio, controlled by father Antonio Sarto and son Enrico Sarto. I’ll refer to all of them as “Sarto.” Sarto has manufactured bicycle frames in Italy for 30 years. In 2010 or so, Liger6 became the US distributor of Sarto bicycles, with the parties disputing who approached whom. From January 2011 through December 2012 Liger6 paid Sarto $250,000 for bicycle frames. Liger6 spent $500,000 on marketing. Liger6 claims that Sarto agreed to jointly register the SARTO trademark in the US, which would give Liger6 exclusive rights to the mark in the US. Liger6 had an Italian lawyer draft several versions of an agreement between the two parties but Sarto never signed one. Liger6 set up a US website at sartocycles.com and also owned domain names sartobikes.com and sartobicycles.com that it redirected to sartocycles.com.

    Liger6 indeed registered the SARTO mark listing Liger6 and SartoAntonio as joint owners. Liger6 claimed that it provided Sarto with copies of the documents; however, about six months later, “seemingly unaware”1 of Liger6’s application, Sarto S.r.l. filed a request for extension of its International Registration for the SARTO mark to the United States. Sarto received an office action refusing registration because of the Liger6/SartoAntonio registration. Sarto demanded that Liger6 abandon the registration, which Liger6 did. Liger6 has subsequently filed two new applications, which are blocked by the Sarto pending application. Liger6 has also opposed the Sarto application, with the opposition suspending pending the outcome of this litigation.

    Sarto’s evidence of ownership was:

    • They were the first ones to use the SARTO mark overseas and in the United States
    • Liger6 was only a reseller and identified the Sarto entities as the source of anything it offered for sale
    • They were the owner of the SARTO mark in Italy and the rest of Europe
    • It’s their surname

    Liger6’s evidence of ownership of the mark was:

    • The unsigned agreements included joint ownership of the mark and Sarto never objected to that particular term during negotiations
    • Sarto’s prior sales in the US were infrequent and sporadic
    • Liger6 spent money promoting the mark

    The district could concluded:

    This Court finds that Liger6 has failed to rebut the prima facie showing by the Sarto Entities of entitlement to summary judgment on the declaratory judgment claim and counterclaim. The Sarto Entities had been using the SARTO mark in the United States and abroad, and never signed off on any of Liger6’s proposed agreements concerning joint ownership of the SARTO mark. The efforts of Liger6 in promoting the products of the Sarto Entities in the United States may support an award of relief as to other claims in the complaint, discussed infra, but not on the issue of the registration of the mark. Therefore, this Court will grant the part of the motion concerning the declaratory judgment claim and counterclaim.

    The appeals court affirmed a bit more verbosely, in its entirety:

    The District Court did not err in granting Defendants summary judgment as to the declaratory judgment claims. Liger6’s only argument on appeal is that the District Court “failed to address Liger6’s claim that it entered into an oral agreement with [Sarto] to jointly own the SARTO Mark [sic].” But Liger6 conceded for purposes of summary judgment that Sarto never granted it any ownership interest in the mark, and Defendants alerted the District Court to this concession repeatedly at summary judgment. We cannot reverse the District Court for failing to consider a legal argument predicated on a fact unsupported by the record.
     
    Moreover, no reasonable jury could conclude from the summary judgment record that Liger6 and Sarto entered an oral agreement to share the SARTO mark. Liger6 argues that a jury might have credited Bonelli’s declaration that the Sartos agreed to share the mark in exchange for Liger6 “pioneering and developing the United States market.” But without any detail about the terms of the alleged agreement and the circumstances surrounding its formation, no reasonable jury could conclude that the parties formed an enforceable contract regarding the mark.
     
    Nor do the draft agreements or joint trademark application support a conclusion that the Sartos agreed to share the mark. Liger6 cites a provision in the draft agreements stating that the parties “have … jointly applied in the US to register the trademark ‘Sarto’ of which they are and will be co-owners.” But Sarto never signed any of the agreements. Indeed, when Liger6 sent the first draft agreement to Sarto, it had not yet applied to register the mark. Liger6’s reliance on the joint trademark application to prove that Liger6 and Sarto “agreed they would jointly own the mark, and that Defendants changed their minds” is also unconvincing. In its own complaint, Liger6 alleges that it surrendered its registration because it had “erroneously named” Sarto as a joint owner—not because Defendants changed their minds about joint ownership.
     
    Finally, the mere fact that Liger6 devoted substantial resources to selling and promoting bicycle frames bearing the SARTO mark does not support a conclusion that Sarto agreed to share the mark. Because Liger6 was Sarto’s exclusive dealer, its investments would have been in its commercial interest whether or not it owned the mark jointly with Sarto. Thus, Liger6’s investments are “not significantly probative” of whether Liger6 and Sarto agreed to share the mark.

    Liger6’s only evidence was its own unilateral acts, that of filing an application and drafting an agreement, evidence that was largely defeated by the common sense conclusion that Sarto wouldn’t have filed its own application in the US if it had agreed to Liger6’s registration. I am glad it takes more than this to acquire someone else’s trademark, even if you win the race to the trademark office.

    Liger6, LLC v. Sarto, No. 13-4694 (D.N.J. Aug. 10. 2016).
    Liger6, LLC v. Sarto, No. 19-2027 (3rd Cir. Jan 22, 2020)

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    1. Both courts used the same phrase. ↩
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  • Don’t Sue a High School Choir for Copyright Infringement in the Ninth Circuit

    Burbank High School has show choirs, which are choirs that combine choral singing with some choreographed steps. If you watched the TV show Glee you’ve seen it; in fact the court says that Burbank High School inspired the TV show. Brett Carroll is the vocal music director at the school and the Burbank show choirs are supported by a charitable non-profit, the Burbank High School Vocal Music Association Boosters Club, which raises money for the various show choirs at the school. Carroll, the Boosters Club and parents involved in the Boosters Club were named as defendants.

    Carroll commissioned an arranger, Greene, to create sheet music for two shows, “Rainmaker” and “80’s Movie Montage.” “Rainmaker” was an 18 minute medley of many works, which ended with two minutes of Olivia Newton-John’s “Magic”:

    The “80’s Movie Montage” included sixteen seconds of “(I’ve Had) The Time of My Life,” written by Bill Medley and Jennifer Warnes:

    A show choir from a different school performed segments of the songs “Hotel California” and “Don’t Phunk with My Heart” at a show choir competition that was a fundraiser operated by the Boosters Club.1

    Plaintiff Tresóna Multimedia, LLC alleged it was “the only authorized issuer in the United States and Canada for the … infringed songs,” and that Carroll, the Boosters Club, and the parents’ use of the songs without obtaining a “custom arrangement license, grand right license, synchronization license, or mechanical license” for the songs infringed Tresóna’s copyright interests in the songs.

    Tresóna obtained rights to three of the songs (except for “Don’t Phunk With My Heart”) from PEN Music Group. For “Magic,” the sole copyright owner was John Farrar Music (BMI). It licensed the work to PEN, but John Farrar Music (BMI) retained the performance rights. PEN only had some of the copyright owners’ rights for “Hotel California” and “(I’ve Had) The Time of My Life.” Tresóna obtained rights to “Don’t Phunk With My Heart” from The Royalty Network, but The Royalty Network only had rights to two of eight copyright owners.

    So for three of the four works, Tresóna did not have grants from all the copyrights owners. This was fatal to its claim.

    I confess that I am very confused by the 9th Circuit’s law on standing of licensees and authors. It all starts with a poorly-received decision in Sybersound Records Inc. v. UAV Corp., where the court held that a joint author cannot grant an exclusive license. The decision was subsequently refined in Corbello v. DeVito:

    [O]ne co-owner, acting independently, “may not limit the other co-owners’ independent rights to exploit the copyright.” … Such a conclusion stems from the self-evident principle that a joint-owner cannot transfer more than he himself holds; thus, an assignment or exclusive license from one joint-owner to a third party cannot bind the other joint-owners or limit their rights in the copyright without their consent. In other words, the third party’s right is “exclusive” as to the assigning or licensing co-owner, but not as to the other co-owners and their assignees or licensees. As such, a third-party assignee or licensee lacks standing to challenge the attempted assignments or licenses of other copyright owners.

    Corbello v. DeVito, 777 F.3d 1058, 1065 (9th Cir. 2015).

    However, in Minden Pictures, Inc. v. John Wiley & Sons, Inc. a 9th Circuit panel held that an exclusive licensing agent had standing even though the owner of the copyright also retained the right to license the same rights granted to the agent. Here though, the court distinguished Minden Pictures:

    [A]s we pointed out, Minden Pictures had received an exclusive right to act as the licensing agent for each of the individual photographers, which was a grant of rights vis-à-vis the world. Even if that exclusive right was shared with the photographers, Minden Pictures would still have standing to sue over infringement of its license. As we there reasoned:

    The reason the [Copyright] Act prevents a holder of a “nonexclusive license” to use a copyrighted photograph from bringing an infringement action against others who use the same photograph is that such a licensee has no more than “a privilege that protects him from a claim of infringement by the owner” of the copyright. That is, because such a licensee has been granted rights only vis-à-vis the licensor, not vis-à-vis the world, he or she has no legal right to exclude others from using the copyrighted work, and thus no standing to bring an infringement suit. But when a licensee has been granted rights vis-à-vis the world—even if he or she shares those rights with another party, including the owner of the copyright—we see nothing in the Copyright Act that requires us to deem such an arrangement a mere “nonexclusive license” insufficient to give rise to standing to sue.

    Id. (citations omitted).

    We accordingly saw “no reason why, having appointed Minden [Pictures] to manage the commercial use of their photographs in the first instance as their licensing agent, the photographers should not also be able to rely on Minden [Pictures] to protect and defend the licenses that it has issued on their behalf.” Id. at 1005. In other words, even if an exclusive right is shared between two entities, a sole owner can promise exclusivity to just those two, while a co-owner cannot make that same promise unilaterally. Because the issue of whether a co-owner of a copyright interest can unilaterally grant an exclusive license to that interest was not present in Minden Pictures, Tresóna’s reliance on Minden Pictures is misplaced.

    So, where there is a sole author, the author can grant an exclusive license while still retaining rights and the exclusive licensee will have standing. But where there are multiple authors, unless the licensee has grants from everyone, the licensee does not have standing to enforce the licenses.

    It was therefore the end of the road for the infringement claims for “(I’ve Had) The Time of My Life,” “Hotel California” and “Don’t Plunk With My Heart.” But recall that there was sheet music for the “Rainmaker” work, so Tresóna did have standing for the infringement of the reproduction right. The district court had dismissed the claim on the basis of qualified immunity for music director Carroll and the absence of direct or indirect infringement by the Boosters Club and parents.

    But the appeals court decided the infringement question for “Magic” on what I think is one of the most bizarre fair use cases I’ve ever seen. It’s bizarre for starters because the district court never reached fair use. Surely if fair use was a live issue, then the case should have been remanded for a determination in the district court in the first instance.

    Instead, the appeals court, perhaps because of an absence of briefing by the parties on the issue, takes transformativeness to a new level. I guess the lesson is don’t bring a copyright infringement claim against a high school choir, because the court will go to great lengths to find that the use was fair.

    The court recognized that educational use didn’t mean that it was a per se fair use, but found that “Rainmaker” was transformative, weighing “strongly” in favor of fair use:

    “Magic” was an original song in the 1980 musical movie fantasy “Xanadu.” Olivia Newton-John played Kira, a muse descended from Mount Olympus, who encourages and inspires the male protagonist, Sonny, to pursue his dream of opening a fantastical nightclub, Xanadu. “Magic” plays during their first encounter, reprises first when Kira must return to Olympus, and then again when Kira seemingly reappears as a Xanadu waitress. It is thus used as a vehicle of inspiration for pursuit of one’s dreams and love.

    “Rainmaker” is an entirely different theatrical work—a show piece for the high school choir that reworks pieces from multiple songs to tell a story with new expressive content and meaning. “Rainmaker” tells the story of a local Dust Bowl-era community ravaged by drought. After a stranger visits the town, he promises rain in return for faith in his magical powers and performs several miracles to encourage the townspeople to believe in him. When the town’s last holdout, the Sheriff, drops to his knees to proclaim his faith, lifesaving rain finally arrives. The townspeople celebrate the newfound rain, singing the rearranged chorus of “Magic,” including additional, new lyrics.2

    This rearrangement of “Magic” along with other musical works was thus transformative.

    My stars. “Magic” may have been written for Xanadu, but so what? It was a separate work with a separate registration for the musical composition. “Magic” was also a No. 1 hit on the Billboard Hot 100 for four weeks and charted all around the world. The claim wasn’t that the “Rainmaker” work infringed the movie Xanadu, so I haven’t got a clue why its origin matters. Instead, it was used exactly because the song fit into the story that the show choir was telling, “you have to believe we are magic” when the rainmaker brought the rain.

    The second factor, the nature of the copyrighted work, “creative,” favored Tresóna. However, the third factor, the amount and substantiality of the portion used, despite copying a “qualitatively significant portion,” also fell to the transformativeness domino:

    Here, the segment taken from the song “Magic” is approximately twenty seconds of a four-minute and twenty-two second song. The portion that was used, however, incorporates the song’s principle [sic] chorus, which is the central element of the musical work, and is repeated more than once. Thus, the copied portion is undoubtedly a qualitatively significant portion of “Magic.” However, as the Supreme Court has explained in discussing both parody and news reporting, “context is everything, and the question of fairness asks what else the [copier] did besides go to the heart of the original.” Even “entire verbatim reproductions are justifiable where the purpose of the work differs [enough] from the original.”

    In this case, Greene’s rearrangement did not simply copy several lines from one chorus of the song and repeat it, but embedded that portion into a larger, transformative choir showpiece that incorporated many other works, and imbued that entire piece with new expression and meaning not contained within any of the individual works. Carroll thus “departed markedly from” the original lyrics, incorporating the chorus of “Magic” into a new and different story that also furthered high school students’ musical learning and development. The new work is not a verbatim copy, nor one in which the transformative use “is so insubstantial, as compared to the copying, that the third factor must be resolved as a matter of law against the [Defendants].”

    In light of Carroll’s non-profit educational and transformative use of “Magic,” the amount and substantiality of the portion used does not weigh against of fair use.

    As to the fourth factor, the effect upon the use for the potential market, transformativeness was a thumb on the scales here too:

    Although the creation of sheet music incorporating the copyrighted work is a derivative use, the twenty seconds used in the “Rainmaker” choir piece is not a substitute for the song “Magic.”

    Professor Nimmer explains, “if, regardless of medium, defendant’s work performs a different function from plaintiff’s, then notwithstanding its use of substantially similar material, the defense of fair use may prevail.” Fair use exists when “[t]hose interested in obtaining plaintiff’s music for musical purposes would not find their need fulfilled by purchasing” the defendant’s allegedly infringing work. A consumer interested in acquiring sheet music for “Magic” would not purchase the sheet music for”Rainmaker,” as it omits much of the song except the chorus, and even the portions that are included are substantially rearranged. Similarly, a person wishing to purchase the sheet music for “Magic” in order to play or perform that song would necessarily purchase the sheet music for the song itself from the owner of the performance rights—not the sheet music for “Rainmaker.” Thus, the use of “Magic” in “Rainmaker” does not affect the consumer market for the sheet music in the song at all. It is difficult to see how even widespread and unrestricted use of the chorus, in the context of nonprofit show choir performances, could displace the market for sheet music for the entire song.

    Of course, “it is a given in every fair use case that plaintiff suffers a loss of a potential market if that potential is defined as the theoretical market for licensing the very use at bar.” However, “a copyright holder cannot prevent others from entering fair use markets merely ‘by developing or licensing a market for parody, news reporting, educational, or other transformative uses of its own creative work.’” Nor does the decision by secondary users to pay, or not pay, establish whether fair use exists. Because the use in this case “falls within a transformative market,” Tresóna was not harmed by the loss of any fees for the licensing of the song “Magic.”

    Talk about a bootstrap. Apparently, where the use is transformative the fact that there is a well-developed market for licensing exactly these kinds of uses can’t affect the outcome.

    So three of the four factors all turn on transformativeness, in a case where the court’s conclusion on transformativeness was based on a discussion of the movie the song was in, not the song itself. I assume it was only possible for the court to reach this outcome because there was no evidence whatsoever on any fair use factor. This case needs a do-over on fair use.

    And then there is the cherry on top, reversing the district court’s denial of the award of attorneys’ fees to the defendants. The district court did not award them because part of the defense win was a technicality, the qualified immunity, however:

    Tresóna should have known that Sybersound rendered its chances of prevailing on three of the four songs remaining at summary judgment “slim to none.” The argument was also legally unreasonable because our opinion in Minden Pictures did not purport to overrule Sybersound; nor did it address the precise standing issue decided in Sybersound and Corbello.

    Tresóna’s fair use argument as to the one song it did have exclusive rights to, “Magic,” was likewise objectively unreasonable. … [T]he use falls plainly within the enumerated fair use purposes of “teaching” and “nonprofit education” and the portions of the song taken were used in a highly transformative work.

    But here’s probably the real beef the court had:

    Tresóna did more than simply pursue an aggressive litigation strategy. It sued a public school teacher, a not-for-profit Boosters Club, and parent volunteers. Both during litigation, and in pre-litigation communications with Carroll, Tresóna repeatedly mischaracterized its copyright interests in the songs at issue by claiming to be the sole entity empowered to issue licenses. In light of Tresóna’s minimal and belatedly produced evidence supporting its claimed chain-of-title, these communications appear specifically designed to frighten Carroll and the Boosters Club into purchasing licenses from Tresóna, rather than to legitimately enforce its limited licensing interests or those of the true copyright owners. Indeed, Tresóna’s initial complaint alleged exclusive rights in 79 songs used by the Burbank show choirs. And it was not until after briefing on Carroll’s summary judgment motion was complete that Tresóna belatedly produced any evidence of its chain of title, which demonstrated its claimed interests were almost entirely unsubstantiated. None of these actions furthers the purposes of the Copyright Act.

    Courts have a legitimate interest in deterring the type of litigation conduct in which Tresóna engaged, and in compensating those who have been harmed by such conduct. Although the district court noted that it “[did] not believe that [Tresóna] will groundlessly reassert these claims,” the basis for that finding is unclear. Tresóna groundlessly asserted at least three claims of infringement in this very case, while simultaneously representing that it could have brought many more such claims. And while, after almost four years of litigation, Tresóna turned out to have standing as to the fourth remaining claim of infringement, it lost both in the district court and on appeal on two independent legal theories. As much of this litigation was avoidable from the beginning based on settled law when Tresóna filed its complaint, awarding attorneys’ fees to Defendants appropriately serves the interest in deterrence.

    Awarding Defendants their attorneys’ fees insures that they are properly compensated for defending against overreaching claims of copyright infringement and pressing a defense that benefits those educating our youth. An award of attorneys’ fees here assures that “an overzealous monopolist [cannot] use his copyright to stamp out the very creativity that the [Copyright] Act seeks to ignite,” allowing for greater breathing room for classroom educators and those involved in similar educational extracurricular activities.

    Tresóna Multimedia, LLC v. Burbank High School Vocal Music Ass’n, Nos. 17-56006, 17-56417, 17-56419 (9th Cir. Mar. 24, 2020).

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    1. Any other band or choir parents out there for which this all seems way too familiar? ↩
    2. The description given by the court matches that of a play called The Rainmaker, which was also the basis for a Broadway musical called 110 in the Shade. ↩
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  • The Implied Sublicense

    Plaintiff Photographic Illustrators Corp. (PIC) did beauty shots of lightbulbs for Osram Sylvania. The parties had a falling out and in 2006 entered into a settlement agreement. The agreement settled all past claims and set forth the terms of the parties’ future relationship. Relevant to the case, Sylvania had a broad license to use PIC photographs, including the right to sublicense the use of the photographs “in its sole and absolute discretion, in perpetuity, anywhere in the world.” The agreement also had an attribution requirement: “[t]o the extent reasonably possible and practical, [Sylvania] shall … include a copyright notice indicating PIC as the copyright owner and/or include proper attribution indicating Paul Picone as the photographer.”

    Sylvania allowed its distributors to use the photographs to sell its lightbulbs; however, it did not require that they provide the attribution for the photographs. PIC filed a slew of lawsuits against Sylvania distributors and Sylvania intervened as an interested party. A number of the cases, but not this one, were consolidated and decided through arbitration.

    PIC alleged copyright infringement by the distributors. Its argument was that, while Sylvania had the right to sublicense the use of the photographs to its distributors, Sylvania hadn’t done so and the distributors were therefore infringing. PIC’s theory was that the sublicenses had to be express, either oral or written, but could not be implied, and Sylvania had not expressly granted a license to their distributors.

    PIC claimed that it was a “legal impossibility” that a sublicense could be implied. The theory goes that, as prescribed by Effects Assocs. Inc. v. Cohen, for an implied license defense the licensee must request the creation of the work, the licensor create and deliver the work, and the licensor intend that the licensee distribute the work. The Court of Appeals for the First Circuit didn’t agree, though:

    PIC insists that the three-part test employed by many courts for assessing claims of an implied license from the copyright owner must be applied literally and inflexibly to assessing claims of an implied sublicense between a licensee and a sublicensee. Such a literal application would mean that there could rarely if ever be an implied sublicense because, for example, the putative sublicensee generally deals only with the licensee, and likely would not have requested the owner to create the copyrighted work. But it makes no more sense to use this test to assess the making of a sublicense than it would to require that an assignment of a mortgage meet the same requirements that might apply to the granting of a mortgage. One would not, for example, deem an assignment by the mortgagee to a third party invalid because the owner/mortgagor did not sign it.

    Examining Sylvania’s intent, the court held that Sylvania had granted an implied license to Orgill:

    First, the very nature of the business at hand makes it obvious that Sylvania wanted its distributors to use the photos, just as one might confidently say that Sylvania wanted Orgill to sell lots of Sylvania products. It would be effectively impossible for Sylvania to expect its distributors to have much success in selling its lightbulbs without also permitting them to use photos of those lightbulbs.

    Second, Sylvania paid a substantial sum — roughly $3 million — for its sixteen-page license granting it, among other things, the authority to “sub-license Use, and permit Use, in its sole and absolute discretion.” A principal reason for Sylvania’s paying so much for this agreement was precisely to allow its dealers and distributors to continue using the photos.

    Third, as a matter of common sense, when Sills called up Sylvania and said he needed copies of the photos to use in selling Sylvania’s lightbulbs, and Sylvania subsequently sent along the photos (or pointed Sills to where to find them), Sylvania surely manifested its permission for Sills (and Orgill) to use the photos in the proposed way, even though Sylvania never uttered some magic words that made express its permission.…

    Fourth, Sylvania knew that Orgill was using the photos. Twice per year, Orgill provided Sylvania a copy of Orgill’s catalog for Sylvania to review for accuracy. Although Sylvania has periodically responded to make various corrections to the listings in the catalog, Sylvania never objected that Orgill was using copyrighted photos without permission.…

    Fifth, Sylvania and Orgill entered into a “Confirmatory Copyright Sublicense Agreement” in July 2014, after PIC initiated this lawsuit. This document purports to be effective “nunc pro tunc as of June 1, 2006” and states that Sylvania “hereby confirms that it previously granted permission to Orgill to Use and to sublicense the right to Use the Images to its dealers.” … [T]he issue here is not whether the agreement by itself can operate as a retroactive sublicense, but rather whether it is evidence of Sylvania’s prior intent to grant a sublicense. And certainly a statement by Sylvania itself provides such evidence.

    Sixth, PIC successfully held Sylvania liable for breach of its covenant precisely because Sylvania permitted its third-party dealers and distributors to use the photos without attribution. Although the arbitrator did not explicitly call out Orgill as one of those distributors, the notion that Sylvania would have permitted (i.e., sublicensed) only some of these third parties to use the photos but not Orgill makes no sense.…

    Having considered the entire record, we find it indisputable that Sylvania intended — indeed, wanted — Orgill to use the photos, and gave the photos to Orgill for precisely that purpose, just as the license itself anticipated and allowed. We therefore agree with the district court that Orgill has conclusively proven the existence of a sublicense and that no reasonable jury could find otherwise.

    With respect to the attribution requirement, the district court applied the holding in the arbitration of the other suits, which was that the attribution requirement was a covenant of the agreement, not a condition of the copyright license, and therefore the distributors were not copyright infringers despite the absence of the attribution.

    Photographic Illustrators Corp. v. Orgill, Inc., No. 19-1452 (1st Cir. Mar. 13, 2020).
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  • This Is Why You Don’t Call It “Intellectual Property”

    Oh, just ugh. This is in a software development agreement:

    14. INTELLECTUAL PROPERTY

    The Parties agree that no new Intellectual Property will be created under this agreement.

    That’s sort of like agreeing in a contract that the sun won’t rise. The sun is going to rise, so what happens then?

    Plaintiff Decisionq hired defendant GigaM to write some front end software. The suit has a lot of claims endemic of a failed relationship; however, the ones interesting to me are the ownership claims, which hinge on the above contract language.

    Here’s how the court describes the parties’ interpretations:

    Plaintiffs assert that “the Parties agreed that neither party would create any intellectual property pursuant to the Subcontract,” and that “[i]f no new intellectual property is created, there is nothing to copyright.” In sum, Plaintiffs argue that the Parties, by contract, intended to prevent the attachment of any copyright interest in the first place.” (Emphasis in original.)

    As to the plaintiffs’ argument though,

    [U]nder the Copyright Act, rights vest in the author of a work immediately, as a matter of law, upon fixation of an original work of authorship without any requisite “intent to copyright” by the author. For this reason, Plaintiffs’ position is essentially that Mr. West and GigM, by agreeing to the Subcontract and its “no new intellectual property” clause, abandoned their copyright interest in the GigM Code. “It is well settled that rights gained under the Copyright Act may be abandoned. But abandonment of a right must be manifested by some overt act indicating an intention to abandon that right.

    So since there was “intellectual property” created, the plaintiffs’ argument had to be that it was abandoned. There was a question of fact on that theory.

    The defendants’ argument was that “no new intellectual property” meant there would be no change in the default ownership of any “intellectual property” that did accrue:

    Defendants, by contrast, argue that the no new IP clause reflects the parties’ intent that “the Subcontract does not create new intellectual property rights in any technology created under the agreement (the default intellectual property rules apply) and the parties would not create any new joint intellectual property.” In support of this reading, Defendants cite the drafting history of the Subcontract. Originally, the Subcontract contained a work for hire provision, whereby the copyright in the GigM Code would vest in DQIO. During the negotiations of the Subcontract, Defendants allege, Mr. West and GigM “expressed their clear intent to not transfer any intellectual property rights to DQIO without additional consideration.” In light of this drafting history, Defendants argue that the parties intended the no new IP clause to mean that “(1) GigM would retain intellectual property rights to technology it developed; (2) DQIO would retain intellectual property rights to property it developed; and (3) no new joint intellectual property would be created under the Subcontract.”

    The motion for summary judgment was unsurprisingly denied:

    As reflected above, genuine disputes of fact exist regarding, inter alia, (1) whether the parties intended the clause to disclaim any transfer of copyright interests; and (2) whether the parties intended the clause to memorialize their intent to abandon their copyright interests; and if so, (3) whether Mr. West and GigM committed an overt act sufficient to effect abandonment of their copyright interests. Accordingly, neither party is entitled to summary judgment on Count I of the Amended Counterclaim.

    The poorly conceived language didn’t affect just the copyright claim either; trade secrets were also at issue: “Additionally, the parties’ intent with respect to the ‘no new intellectual property’ clause of the Subcontract is material to all of the claims for misappropriation of trade secrets. For example, if, as Plaintiffs argue, the clause reflects the parties’ intent that nothing created under the Subcontract would be intellectual property, the parties may have likewise intended that nothing created under the Subcontract would qualify as a trade secret, or that to the extent it did, the parties intended to waive their rights as to any trade secrets.”

    Casual use of the term “Intellectual Property,” rather than describing exactly what right you’re talking about, is what creates the environment for this kind of contractual havoc. One can avoid “creating” patentable rights by not filing patent applications, but as the court mentions, copyright arises automatically. And how do you interpret it for trade secrets? Ascertaining parties’ intent is going to be quite interesting when the parties don’t have a basic understanding of the rights involved.

    This decision also has a bonus for open source software mavens. Decisionq argued that the GigM software wasn’t copyrightable because it was created using open source software, but the court sorted things out quickly:

    The mere inclusion of preexisting open source code and automatically-generated code does not render an entire codeset unoriginal and thus uncopyrightable. … [T]he Court in Feist concluded that the white pages were uncopyrightable, not because they contained material that was unoriginal and factual, and therefore uncopyrightable in and of itself, but because the presentation of that information did not exhibit the necessary modicum of creativity, recognizing that had it done so, the resulting work would have been copyrightable.

    At oral argument Plaintiffs argued that because the preexisting code used in the GigM Code was open source and the GigM Code was developed using an open-source platform, called Ruby on Rails, the resulting code must also be open source. As an initial matter, even were this true, whether or not code is “open source” is a matter of licensing, not copyrightability or assignment. Indeed, the need for the license derives from the existence of the copyright, not its absence. Open source licenses, also called “[p]ublic licenses …, are used by artists, authors, educators, software developers, and scientists who wish to create collaborative projects and to dedicate certain works to the public.” Jacobsen v. Katzer, 535 F.3d 1373, 1378 (Fed. Cir. 2008). However, using open source code does not necessarily render any resulting derivative work or compilation open source. An open source license may require, as a condition precedent to use, that any resulting compilation or derivative work be subject to the same license. Such a condition is a matter of interpreting the contractual terms of the license, and there is no evidence in the current record to indicate that such a term was included in any of the open source licenses on the preexisting code that went into the GigM Code or the license for the Ruby on Rails platform. Therefore, the fact that the preexisting code used in the GigM Code was open source neither defeats copyrightability of the GigM Code nor subjects the GigM Code to an open source license.

    Decisionq Corp. v. GigM Technologies, LLC, No 1:17-cv-232 (AJT/JFA) (E.D. Va. Feb. 14, 2018).

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  • Waiving Ownership of the Registration

    Do you need to own a trademark to succeed in an infringement claim? Not necessarily.

    The plaintiff, I&I Hair Corporation, now owns the registration for the trademark EZBRAID. Except that it originally didn’t; the registration was owned by Eunja Son, a principal of the plaintiff.

    I&I Hair sued the defendant, Beauty Plus Trading Co., for trademark infringement. Through its attorney, Beauty Plus alleged that I&I Hair wasn’t the owner of the trademark. The two parties then switched to negotiating directly and ultimately reached a settlement. A Consent Judgment and Permanent Injunction was entered against Beauty Plus.

    Which Beauty Plus promptly breached. I&I Hair went to a trade show and found Beauty Plus still selling EZBRAID product.

    I&I Hair filed a motion for contempt. Beauty Plus argued in response that, because I&I did not own the registration, it was fraudulently induced into agreeing to the Consent Judgment and that I&I Hair did not have standing for the action. After the Beauty Plus response, I&I Hair entered into a nunc pro tunc assignment of the mark from Eunja Son to I&I Hair.

    The court did not find that Beauty Plus was fraudulently induced into the Consent Judgment. Beauty Plus’s counsel knew of the ownership issue and the client is deemed to have notice of the facts known to its counsel.

    On standing, a consent judgment can be invalidated if the court that issued it lacked jurisdiction. Where there is no constitutional standing, there is no jurisdiction. A plaintiff will also lack standing if there is no statutory standing and the law is clear that the statutory requirement is jurisdictional.

    Here, though, under Section 32 of the Lanham Act for infringement of a registered trademark, the statutory requirement for ownership of a trademark registration can be waived:

    Whether a party owns the trademark affects whether it is in the class of plaintiffs that can seek relief under the terms of 15 U.S.C. 1114(b), but nothing indicates an intent by Congress to designate trademark ownership as a jurisdictional requirement. Multiple courts have agreed that trademark ownership is a statutory requirement. … Because Plaintiff’s ownership status of the EZBRAID Mark is not an issue of constitutional standing, it does not impact the Court’s jurisdiction and does not warrant invalidating the Consent Judgment.

    The court also accepted that the nunc pro tunc assignment cured the problem:

    Additionally, unlike constitutional standing, statutory standing issues can be waived or cured. This includes attempted curing through a nunc pro tunc assignment. As Defendant argues, the Federal Circuit has held that nunc pro tunc assignments cannot retroactively cure a lack of standing. Enzo APA & Son, Inc. v. Geapag A.G., 134 F.3d 1090, 1093 (Fed. Cir. 1998); Gaia Techs., Inc. v. Reconversion Techs., Inc., 93 F.3d 774, 779 (Fed. Cir. 1996). However, the plaintiffs in both of those cases lacked both statutory and constitutional standing, and several courts have distinguished those decisions and found that a nunc pro tunc assignment can cure a lack of statutory standing. Positive Techs., Inc. v. LG Display Co., No. CIV. 2:07 CV 67, 2008 WL 4425372, at *2 (E.D. Tex. Sept. 24, 2008); Advanced Tech. Incubator, Inc. v. Sharp Corp., No. CIV.A. 2:07-CV-468, 2009 WL 2460985, at *5–6 (E.D. Tex. Aug. 10, 2009). As a non-jurisdictional issue, Plaintiff’s lack of ownership of the EZBRAID Mark was both waived by Defendant by agreeing to the Consent Judgment and cured through the nunc pro tunc assignment between Plaintiff and Ms. Son.

    Further, even if I&I Hair lacked statutory standing for infringement of a registered trademark, a claim of false designation of origin under Section 43(a) of the Lanham Act can be brought by “any person who believes that he or she is or is likely to be damaged.” I&I did not lack statutory standing for a claim under Section 43(a) for which the relief was the same, and therefore sufficient to validate the Consent Judgment.

    However, there was no contempt because of the uncertainty:

    The Consent Judgment, here, recites that Plaintiff owns the EZBRAID Mark [Consent Judgment ¶ 3], and then phrases its operative provisions in terms of the EZBRAID Mark, Plaintiff’s EZBRAID Mark, and Plaintiff’s rights in the EZBRAID Mark. [Id. ¶ 10]. However, given that Plaintiff may not have owned or had rights in the EZBRAID Mark at the time of the alleged contemptuous conduct, it is unclear what obligations, if any, Defendant and Femi may have violated. “The judicial contempt power is a potent weapon which should not be used if the court’s order upon which the contempt was founded is vague or ambiguous.” Martin v. Trinity Indus., Inc., 959 F.2d 45, 47 (5th Cir. 1992). Accordingly, the Court finds that Plaintiff has not provided sufficient evidence to justify holding Defendant in contempt.

    But don’t try it again:

    Nevertheless, as of the date of this Order Plaintiff indisputably owns the EZBRAID Mark, following the assignment from Ms. Son. Accordingly, any ambiguity in the Consent Judgment has been remedied and similar actions by Defendant in the future would likely warrant a finding of contempt.

    I & I Hair Corp. v. Beauty Plus Trading Co., No. 3:18-cv-03254-M (N.D. Tex. Sep 13, 2019).

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  • “Concerning the Subject Matter Hereof”

    You’ve seen “integration” clauses (also called “merger” clauses) like this:

    Entire Agreement. This Agreement is an integrated Agreement and constitutes the entire agreement and understanding between and among the Parties with regard to the matters set forth herein and shall be binding upon and inure to the benefit of the administrators, agents, personal representatives, successors, and assigns of each. There are no representations, promises, or agreements pertaining to the terms or subject matter of this Agreement, whether express or implied, that are not set forth in this Agreement. All prior and contemporaneous conversations, negotiations, possible and alleged agreements, representations and covenants concerning the subject matter hereof, are merged herein and shall be of no further force or effect.

    The phrase “concerning the subject matter hereof” is a bit of a cheat when there are multiple agreements between two parties – you don’t want to go to the trouble to figure it whether the new agreement is going to muck up the old ones, so you wash it with “concerning the subject matter hereof” and figure it’ll get sorted out if it ever actually matters.

    Turns out it should have mattered to Molon Motor. In 2004 Molon Motor sued defendant Nidec’s predecessor, Merkle-Korff Industries, Inc., for patent infringement. Merkle-Korff filed a counterclaim for invalidity and in response Molon unilaterally gave Merkle-Korff a covenant not to sue on two patents (the 2006 Covenant). The covenant said:

    Molon hereby forever covenants not to sue Merkle-Korff for patent infringement (whether direct, contributory, or by inducement thereof) under either the ’915 patent or the ’726 patent with respect to any and all products previously or presently made, used or sold by Merkle-Korff in the United States. This covenant extends directly to Merkle-Korff as well as any individual or entity to which Merkle-Korff previously or presently supplies products by way of the manufacture and/or sale thereof in the United States.

    Molon and Merkle-Korff later settled the suit fully (the 2007 Settlement). The 2007 Settlement involved a number of patents, was a grant of an exclusive license to Merkle-Korff for the “Kinetek Exclusive Market,” and gave Merkle-Korff some limited right to sue for infringement.

    Merkle-Korff later merged with defendant Nidec (there was no issue that Nidec was a successor to the two agreements). Molon sued Nidec for practicing the licensed patents outside the Kinetek Exclusive Market. The question was whether the 2006 Covenant survived after the parties entered into the 2007 Settlement, hinging on whether the 2006 Covenant “concerned the subject matter” of the 2007 Settlement.

    The dissent took Molon’s view that because the two patents in the 2006 Covenant were also included in the 2007 Settlement, the 2007 Settlement was the same subject matter. The majority, however, held that the differences in the scope of the agreements – one for more patents than the other; one for non-exclusive rights and the other for exclusive rights; one only backward-looking and the other forward-looking; one without a field of use restriction and the other with one – meant that they were not the same subject matter.

    Molon also made the argument that, because the two parties had only two agreements, including a merger clause at all meant that it was the intent of the parties that the 2006 Covenant be merged. The court explained to Molon that the word “merger” does not mean what it thought it meant:

    It is telling that Molon’s appeal relies on a clause that both parties repeatedly refer to as a “merger” or “integration” clause. Yet, neither party has invoked the merger doctrine in its traditional form as a doctrine of contract interpretation. See Schweickhardt v. Chessen, 329 Ill. 637, 161 N.E. 118, 122 (1928) (“The rule is, that when parties reduce their agreement to writing, all prior negotiations leading up to the execution of the contract are merged therein, and parol evidence is not admissible to explain, contradict, enlarge, or modify the writing as it existed when executed.”). The effect of the merger doctrine is to “preclude[ ] evidence of understandings, not reflected in a writing, reached before or at the time of its execution which would vary or modify its terms.” … But here, neither Nidec nor Molon has argued that the 2006 Covenant was part of the negotiations for the 2007 Settlement and is thus relevant to interpret that later agreement. On the contrary, Nidec’s position is that the 2006 Covenant is an entirely separate agreement unrelated to the 2007 Settlement, and Molon’s position is that the 2006 Covenant should be considered extinguished. These positions reflect the parties’ apparent concession that the 2006 Covenant was a separate agreement from the 2007 Settlement, and therefore outside the scope of what a merger clause is intended to cover.

    Perhaps you can rely on “concerning the subject matter hereof” if the other agreements have no overlapping subject matter at all, but otherwise it’s best to haul them back out and evaluate exactly what relevance they might have.

    Molon M0tor and Coil Corp. v. Nidec Motor Corp., No. 2019-1071 (Fed. Cir. Jan. 10, 2020).

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