Property, intangible

a blog about ownership of intellectual property rights and its licensing


  • Know When to Fold ‘Em

    I’ve previously reported on a case brought by Wayne Gray challenging the ownership of the UNIX trademark.  Gray was trying to register the mark “iNUX” but his application was refused as likely to be confused with UNIX. He went on the attack in court, claiming that an assignment from Novell to defendant X/Open wasn’t effective. He lost soundly in both the trial court and on appeal. In a coup de grâce, Wayne Gray has now been ordered to pay the defendant’s attorneys’ fees and costs, to the tune of +$400K.  You can read all the gory details at Groklaw.

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

  • A Derivative Work Made for Hire

    Photo by davesandford, CC BY-NC 2.0

    In U.S. Auto Parts Network, Inc. v. Parts Geek, LLC out of the Ninth Circuit, the court says that its decision is about a “previously unexplored intersection of the Copyright Act’s work for hire and derivative work provisions.” Perhaps so, although the analysis is fairly routine.

    Defendant Lucas Thomason had a pre-existing computer program called “Manager 2000.”  Plaintiff’s predecessor-in-interest, Partsbin, obtained a perpetual license to the software, used for processing internet orders for replacement car parts. Partsbin then hired Thomason, where he continued to improve the software (creating Manager 2001, Manager 2001 v2, Manager 2003 and Manager 2005) and added a new module called “Auto Vend,” a “material breakthrough” that allowed the business to significantly expand its ability to sell parts.

    Partsbin was acquired by Plaintiff U.S. Autoparts Network (USAP), including all copyrights. Thomason worked for USAP for awhile where he continued to work on the software, adding Manager July 2008 and Versapart.  Some of his former co-workers from Partsbin started a new company, defendant Parts Geek, and they asked Thomason to write software, which he did while still employed by USAP. Thomason then quit USAP about four weeks later. USAP sued Parts Geek for copyright infringement.

    (I’m sorry, I can’t help it.  So often I read cases and think “What were they thinking??!!” Do you have any doubt about how this is going to come out?)

    The trial court granted summary judgment in favor of Thomason and Parts Geek on the theory that Thomason had never assigned the copyright in the original program to USAP.  The court of appeals differed, reaching the unremarkable conclusion that:

    1. Thomason’s work on the program after he was employed by Partsbin and USAP was in the scope of his employment so that USAP was the copyright owner; and
    2. Some of his modifications to the program, most notably the addition of the new “Auto Vend” module, were likely copyrightable derivative works.

    This adds up to possible infringement by Parts Geek of the USAP improvements to the work, so summary judgment was reversed.

    Lots of blah blah blah about the legal standard for works made for hire and derivative works, if you need some cut and paste for a brief.

    U.S. Auto Parts Network, Inc. v. Parts Geek, LLC, Nos. 10-56194, 10-56129 (9th Cir. Aug. 21, 2012).

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

  • Walter Mercado Gets a Toehold

    The saga over the use of Walter Mercado’s name and likeness, trademark, and copyrighted content goes on and on and on … Suits in two different jurisdictions, Florida and Puerto Rico, and one appeal so far.

    What’s interesting to me about the case is that Walter Mercado unequivocally assigned the WALTER MERCADO trademark to opposing party Bart Enterprises, but both trial courts agreed that the trademark would revert to Walter Mercado upon the termination of the agreement. A trademark reversion is unusual, and this one wasn’t express. Nevertheless, Walter Mercado has thus far been unsuccessful in proving that the contract was properly terminated so that the trademark has reverted.

    But we now have a decision from the District of Puerto Rico, revising in part a previous decision on cross motions for summary judgment. First, Bart Enterprises asked that the court reconsider whether the mark reverts to Walter Mercado upon termination of the contract, but the court would have none of it – both Florida and Puerto Rico agreed there was a reversion, so the holding stands.

    It reversed, though, on its earlier decision that Mercado had not terminated the agreement so that ownership of the trademark currently remains with Bart Enterprises.  Mercado was able to successfully point to several unauthorized uses by Bart Enterprises that might be considered a breach, thus allowing Mercado an opportunity to terminate.  Therefore, the jury will ultimately decide who owns the mark, which means there will certainly be more to come on this story.

    Discussion by Rebecca Tushnet on the interrelationship between trademark rights and the right of publicity here.

    Mercado-Salinas v Bart Enter. Int’l, Ltd., No. 09-1509 (D.P.R. Aug. 27, 2012).

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

  • Eighth Circuit Screws Bread Company

    I previously reported on a bankruptcy involving the BUTTERNUT trademark for breads.  In 1996, in order to avoid antitrust concerns created by its acquisition of another bread company, Interstate Bakeries Corporation (IBC) sold assets and granted a trademark license for its BUTTERNUT and SUNBEAM marks to Lewis Brothers Bakeries (LBB). The trademark license was only for certain geographic areas. In 2004, IBC filed for bankruptcy and the question was whether the trademark license was executory, which would mean that the bankruptcy trustee could reject LBB’s trademark license and reclaim the right to use the trademarks itself in the licensed territory.

    The bankruptcy court held that the license was executory and therefore could be rejected.  The district court denied the appeal.

    The court of appeals has now weighed in, affirming the bankruptcy court and district court. The reasoning is expected; the quality control provision is a continuing obligation so the license is executory and therefore subject to rejection.

    The dissent argued that there was more than a trademark license, but rather the asset purchase agreement and the trademark license should have been treated as one integrated agreement.  Looking at the whole, the dissent would not have found that there was an executory agreement.

    What appears to be missing is any consideration of the effect on LBB.  The Seventh Circuit recently decided that the denomination of a trademark license as executory does not dictate that the trademark licensee lose its right to use the mark and it therefore allowed a trademark licensee to sell trademarked goods.  This is an area to watch.

    Lewis Bros. Bakeries Inc. v. Interstate Brand Corp., No. 11-1850 (8th Cir. Aug. 30, 2012).

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

  • Be Careful When You Threaten

    Photo from Grand Rapid Press

    Here’s one to wrap your head around, courtesy of the IPKat. Cedar Springs, Michigan has heretofore been the “Red Flannel Town,” as evidenced by the sign to the left. The logo was used by the town on city vehicles, the cemetery, its letterhead, and in its town seal.

    The story* about the moniker is that during a cold winter in 1936, a New York writer bemoaned the lack of “red flannels” in the USA. The editors of the Cedar Springs (MI) Clipper newspaper shot back “Just because Sak’s Fifth Avenue does not carry red flannels, it doesn’t follow that no one in the country does. CEDAR SPRINGS’ merchants have red flannels!” “Red Flannel Day” was born and the Red Flannel Festival (registered trademark below) has been an annual event ever since.

    TARR link

    Then the falling out between the city and the Festival. The Grand Rapids Press reports that it started because the town was going to charge the Festival for police services, use of city equipment and cleanup by city employees. The Festival agreed to pay, then discovered that the city created license plates and holders using the logo (presumably the town logo, not the Festival logo). The Festival was irked, the City stopped selling the tags and offered $4,000 of in-kind services to have a license to the logo, but the City Attorney pulled the plug on the offer. In correspondence with the Festival (link down at time of publication), the city outlined the history of the name Red Flannel Town and the logo, describing registrations by various entities the predated the Festival’s application.  The Festival rebutted, threatened a lawsuit, and the city opted to cease using the logo.

    I don’t know quite what to make of it. Any trademark lawyer will tell you that this was a dead-dog loser for the Festival. No matter when the city started using the logo, a claim by the Festival is almost certainly barred by laches. I am still puzzling out whether one would consider this a case of two marks with two owners, one mark with joint owners, or whether the city’s use is as a mark at all. There are questions of priority and ownership. But no matter how you get there, there is no reasonably viable legal claim here.

    Unfortunately, the city had to make what probably was an economic decision. The Festival took the penultimate step of filing a Notice of Intention to File Claim, as required under state law, so the city had no choice but to take the Festival at its word that it would sue. For the city, it was probably cheaper to eliminate the use of the logo throughout the town than to be burdened with the expense of trademark litigation. Even a motion to dismiss will strain the budget of an already cash-strapped town.

    One would presume the Festival still has to pay for the city services for the Festival.  What a shame. The city and the Festival are both worse off for it.

    Medallion from City Council Chambers. Grand Rapids Press

    Archive of correspondence here (link down at time of publication. Grabs of Google caches here).  Red Flannel Festival Facebook page here.

    *Alternate link to the Wayback Machine here. At the time of publication, the Festival website at www.redflannelfestival.org was down.

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

  • WITTMANN PATCH v. STAR PATCH

    I reported in the past about a dispute over the WITTMANN PATCH mark for a surgical device invented by Mark Wittmann. The case arose out of a business relationship that went bad. The court held on a preliminary injunction that plaintiff Starsurgical owned the WITTMANN PATCH mark and that Wittmann had to cease using it. Wittmann then adopted STAR PATCH instead. Starsurgical has now sued Wittmann again on breach of fiduciary duty, tortious interference, trade secret and unfair trade practices theories, as well as infringement of WITTMANN PATCH by STAR PATCH. Normally one wouldn’t think that these marks are close enough to infringe, but given the history, the bad blood and the “Starsurgical” name associated with the patch I don’t think it’s such a bad theory.

    Starsurgical, Inc. v. Wittmann, No. 8:12-cv-01605-MSS-EAJ (M.D. Fla.), complaint filed July 19, 2012.

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

  • Whoops, the State Owns the Mark

    Florida VirtualSchool is an agency of the State of Florida. The enabling statute for the school says this:

    The board of trustees … may acquire, enjoy, use and dispose of patents, copyrights, and trademarks and any licenses and other rights or interests thereunder or therein. Ownership of all such patents, copyrights, trademarks, licenses, and rights or interests thereunder or therein shall vest in the state, with the board having full right of use and full right to retain the revenues derived therefrom.

    Florida VirtualSchool registered the trademarks FLORIDA VIRTUALSCHOOL and FLVS for educational services.  It then sued K12, Inc. for trademark infringement for use of the name “Florida Virtual Academy.” K12 filed a motion to dismiss on the basis that Florida VirtualSchool lacked standing.

    So who owns the marks? The statute is not a model of clarity; it says that the school may “acquire, enjoy, use and dispose of” trademarks, a list of rights that sound like what an owner would have, but then goes on to say that “ownership of … trademarks … shall vest in the state ….”

    Florida VirtualSchool argued that it must be the owner of the marks; the language “acquire, enjoy, use and dispose of” has been used to denote ownership of property since the earliest jurisprudence of the United States. Florida VirtualSchool also argued that it would be inconsistent to allow it to unilaterally dispose of marks that were owned by another entity.

    But Florida VirtualSchool couldn’t sell the court on the theory; the arguments didn’t overcome the plain language in the statute that ownership of the marks vests in the state. Florida VirtualSchool therefore did not have standing as the owner of the marks.

    But an exclusive licensee may also have standing. Florida VirtualSchool also argued that since it was granted “full rights” to use the marks under the enabling statute it was an exclusive licensee, but the court held that “full rights” is not the same as “exclusive rights.” The statute did not exclude others from using the marks; in fact it contemplated that the state would have ownership of plural “licenses” to the intellectual property rights. The case was therefore dismissed, albeit without prejudice.

    I think there’s something missing though. Florida VirtualSchool brought actions under both Section 32 and 43(a) of the Lanham Act. Indeed a plaintiff must be the owner or exclusive licensee of the mark to have standing for a Section 32 claim, but “[u]nlike Section 32 and 43(c) [for dilution], Section 43(a) authorizes a cause of action by ‘any person who believes that he or she is likely to be damaged by such act.’ 15 U.S.C. § 1125(a)(1). Accordingly, [a non-exclusive licensee] has standing to assert the rights created by this section.” BMW of N. Am. v. Au-tomotive Gold, Inc., Civ. No. 96-384-CIV-J-20, 1996 WL 1609124 (M.D. Fla. June 19, 1996). I don’t know why the section 43(a) claim didn’t survive.

    Florida VirtualSchool v. K12, Inc.
    , No. 6:11-cv-831-Orl-31KRS (M.D. Fla. July 16, 2012).

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

  • 7th Circuit Closes Trademark Loophole in Bankruptcies

    Bankruptcy law has a quirky little thing going on with trademarks. But let’s back up a little and put some context to it.

    Under Bankruptcy Code § 365(a), the trustee for a company in bankruptcy has the option of rejecting or assuming executory contracts or unexpired leases. This is a fundamental need for a company undergoing a restructure or liquidation; it’s how the company gets out from under burdens that contributed to its bankrupt condition and it permits the trustee to capture the most value when liquidating assets.

    In Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), the Court of Appeals allowed a patent owner to reject a patent license and strip the licensee of its ability to practice the patents. This was beneficial to the bankrupt estate because the estate could then license the patents on more favorable terms. But when an intellectual property license is terminated it can be devastating to the licensee’s business if its business relies to any substantial degree on using the licensed intellectual property.

    Congress responded by amending the Bankruptcy Code to add Section § 365(n). The Senate Report described the need this way:

    The purpose of the bill is to amend Section 365 of the Bankruptcy Code to make clear that the rights of an intellectual property licensee to use the licensed property cannot be unilaterally cut off as a result of the rejection of the license pursuant to Section 365 in the event of the licensor’s bankruptcy. Certain recent court decisions interpreting Section 365 have imposed a burden on American technological development that was never intended by Congress in enacting Section 365. The adoption of this bill will immediately remove that burden and its attendant threat to the development of American Technology and will further clarify that Congress never intended for Section 365 to be so applied.

    S. Rep. No. 100-505, at 1 (1988), reprinted in 1988 U.S.C.C.A.N. 3200, 3200.

    Under § 365(n), a licensee with a rejected license for “intellectual property” is allowed to retain its rights.  The hitch, though, is that the definition of “intellectual property” is:

    (A) trade secret;
    (B) invention, process, design, or plant protected under title 35;
    (C) patent application;
    (D) plant variety;
    (E) work of authorship protected under title 17; or
    (F) mask work protected under chapter 9 of title 17.
    Bankruptcy Code § 101(35A). See what’s missing? Trademarks. The Senate Report explains why:
    Finally, the bill does not address the rejection of executory trademark, trade name or service mark licenses by debtor-licensors. While such rejection is of concern because of the interpretation of section 365 by the Lubrizol court and others, see, e.g., In re Chipwich, Inc., 54 Bankr. Rep. 427 (Bankr. S.D.N.Y. 1985), such contracts raise issues beyond the scope of this legislation. In particular, trademark, trade name and service mark licensing relationships depend to a large extent on control of the quality of the products or services sold by the licensee. Since these matters could not be addressed without more extensive study, it was determined to postpone congressional action in this area and to allow the development of equitable treatment of this situation by bankruptcy courts.
    S. Rep. No. 100-505, at 1 (1988), reprinted in 1988 U.S.C.C.A.N. 3200, 3200.

    Which brings us to a recent decision by the Seventh Circuit, Sunbeam Prods Inc. v. Chicago American Mfg. LLC. The bankrupt company, Lakewood Engineering & Manufacturing, had granted a patent and trademark license to defendant Chicago American (CAM) to manufacture box fans. Because Lakewood was in financial distress, it also authorized CAM to sell the run of box fans for CAM’s own account if Lakewood didn’t buy them.

    Three months later Lakewood was put into involuntary bankruptcy. The trustee sold the assets of the business to plaintiff Sunbeam Products d/b/a Jarden Consumer Solutions. Because Sunbeam didn’t want the inventory or for CAM to sell the fans, the trustee rejected the contract. CAM sold the fans anyway, so Sunbeam brought an adversary action.

    The bankruptcy judge held that under § 365(n) CAM could practice Lakewood’s patents and that, as a matter of equity, CAM could also use the trademarks on the fans.  Sunbeam appealed and the appeals court had to decide what the absence of “trademarks” in § 365(n) meant.

    Noting that under § 365(g) a rejection “constitutes a breach” of the agreement, the court pointed out that a breach doesn’t necessarily terminate a license:

    Outside of bankruptcy, a licensor’s breach does not terminate a licensee’s right to use intellectual property…. CAM had bargained for the security of being able to sell Lakewood-branded fans for its own account if Lakewood defaulted; outside of bankruptcy, Lakewood could not have ended CAM’s right to sell the box fans by failing to perform its own duties, any more than a borrower could end the lender’s right to collect just by declaring that the debt will not be paid.

    What § 365(g) does by classifying rejection as breach is establish that in bankruptcy, as outside of it, the other party’s rights remain in place…. Consider how rejection works for leases. A lessee that enters bankruptcy may reject the lease and pay damages for abandoning the premises, but rejection does not abrogate the lease (which would absolve the debtor of the need to pay damages). Similarly a lessor that enters bankruptcy could not, by rejecting the lease, end the tenant’s right to possession and thus re-acquire premises that might be rented out for a higher price. The bankrupt lessor might substitute damages for an obligation to make repairs, but not rescind the lease altogether.

    [R]ejection is not the functional equivalent of a rescission, rendering void the contract and requiring that the parties be put back in the positions they occupied before the contract was formed. It merely frees the estate from the obligation to perform and has absolutely no effect upon the contract’s continued existence.

    The appeals court therefore affirmed CAM’s right to sell the fans under the Lakewood brand.

    What’s puzzling about the the decision is that, by its reasoning, there was never any need for § 365(n) in the first place. But the “breach” argument wasn’t made in Lubrizol, and the statutory change was enacted fairly quickly, so perhaps it was indeed simply a patch that wasn’t necessary.

    I’m also curious about the original justification given in the Senate Report for not including trademarks. Indeed, a trademark licensor must have broad latitude in picking and choosing its licensees, but in the case of a licensor bankruptcy (the only situation to which § 365(n) applies) the licensee, who was acceptable to the licensor, remains the same. I don’t have a problem requiring an acquiring company to keep the same, nonbreaching licensee that had heretofore contributed to the goodwill of the mark. Indeed, while doing so may limit the acquiring company’s use of the mark for different goods in the short term, the law of tacking requires no less.

    Sunbeam Prods Inc. v. Chicago American Mfg. LLC, No. 11-3920 (7th Cir. July 9, 2012). Another summary here.

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

  • Unexciting Patent Ownership Decision

    No one else seems to have reported much on this case, which is understandable – there’s not really any new ground covered.  But it is a Federal Circuit decision, so I’ll give you a brief summary.

    Yale Preston was an employee of Marathon Oil Co. A few days after his employment began, at the same time he was doing other paperwork like his W-4, he signed an employment agreement that said:

    3. Disclosure and Assignment of Intellectual Property.
    EMPLOYEE agrees to promptly disclose to MARATHON and does hereby assign to MARATHON all Intellectual Property, and EMPLOYEE agrees to execute such other documents as MARATHON may request in order to effectuate such assignment.

    While employed by Marathon, Preston invented what Marathon’s patent application titled “Baffle System for Two Phase-Annular Flow” and what Preston had titled in his own patent application “Method and System for Producing Gas and Liquid in a Subterranean Well.”  And here we see the problem – a dispute between Marathon and Preston over who owed the invention.  Preston refused to sign the assignment to Marathon for its application and as a result various lawsuits were filed on various theories, all of which hinged on who owned what.

    Preston argued that his offer letter was his employment agreement and the later-executed agreement, the one with the invention assignment, was not valid because the agreement lacked consideration. Both the district court and the appeals court had separately certified the question to the Wyoming Supreme Court, which said:

    [T]he stability of the business community is best served by ruling, consistent with our at-will employment jurisprudence, that no additional consideration is required to support an employee’s post-employment execution of an agreement to assign intellectual property to his employer. If the employee does not agree to that modification of the terms of his employment, he can terminate the relationship without any penalties.

    Thus, the assignment provision in Preston’s employment agreement was valid.

    The district court further held that the employment agreement obliged Preston to assign the patent to Marathon and that he was in breach of his employment agreement by not doing so. The Federal Circuit disagreed with only the latter half of this conclusion; it found that the agreement itself effected the assignment and therefore there was no breach.

    Of interest also, the employment agreement provided new employees with an opportunity to exclude “unpatented inventions” created before their employment. Preston wrote “CH4 Resonating Manifold” on his form but no one at the time inquired about what that was. Marathon nevertheless muddled through the problem; after a bench trial the district court found that the “CH4 Resonating Manifold” was nothing more than a “vague idea,” not an invention, and therefore was not excluded by the agreement.  The appeals court agreed.

    Dennis Crouch at Patently-O has more background on the non-cooperating inventor assignment of Marathon’s application here.

    Preston v. Marathon Oil Co., Nos. 2011-1013, -1026 (Fed. Cir. July 10, 2012).
    Preston v. Marathon Oil Co., No. 08-CV-239-J (D. Wy. Dec. 28, 2009) (Findings of Fact and Conclusions of Law).

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