Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Numb Nuts, Part II

    Former licensee’s current web page

    I previously reported on a bit of a bone-headed dispute between Orange County Choppers (OCC), of “American Chopper” television fame, and a company that designed T-shirts for it, Olaes Enterprises, Inc. d/b/a ODM (ODM). OCC made the mistake of suing ODM for royalties and ODM counterclaimed against 25 companies that were licensed by OCC to sell the ODM designs. ODM claimed that it, not OCC, was the owner of the copyright in the designs and therefore OCC had no right to license them.

    OCC indemnified its licensees until OCC it realized it was going to come out on the losing end of the copyright ownership argument. OCC then settled with ODM and threw its licensees under the bus, deciding at that point that it no longer was obliged to indemnify the licensees. The licensees filed a motion for summary judgment that OCC was required to indemnify as a result of the OCC-ODM settlement, because in the settlement OCC admitted to not owning the copyrights in the design. In the August, 2010 decision the court didn’t agree with the licensees’ theory, but suggested that they might have an equitable estoppel argument. 

    The licensees all ultimately settled with ODM, then took the court’s suggestion and renewed their motion for indemnification.  OCC apparently realized it was a lost cause; it didn’t even respond to the motion.  The court granted the motion:

    On the undisputed facts set forth in the Licensees’ Rule 56.1 Statement, the Licensees have made out every one of the six elements [of equitable estoppel]. The undisputed facts show that OCC knew of its original arrangement with ODM, but did not disclose that arrangement, or suggest that anyone other than itself might have any reason to claim ownership in the licensed designs. They show that OCC, by providing the actual designs and making its representation and warranty of ownership without disclosing ODM’s involvement in creating the designs, conveyed the impression that OCC alone could permit the Licensees to emblazon their products with the licensed designs. They show that OCC expected–indeed, wanted–the Licensees to place the licensed designs on their products and introduce those products into the marketplace, so that OCC would receive royalties under the License Agreements. They show that the Licensees did not have a clue about ODM’s existence or its relationship to the matters covered by the License Agreements. They show that the Licensees relied on OCC’s conduct and warranties and representations in entering into the agreements and in producing what apparently was infringing merchandise. And they show that the Licensees acted to their detriment by producing the merchandise contemplated by the Licensing Agreement and putting it into commerce.

    Furthermore, OCC’s conduct in connection with this litigation up until the time Judge Conner refused to dismiss the lawsuit (and opined that OCC might well lose as between it and ODM/Olaes) demonstrates that OCC itself understood its obligation to indemnify the Licensees in this action.

    In short, regardless of whether ODM/Olaes has any rights in what OCC has come to call the “ODM Property,” OCC is stopped to deny any contractual obligation to indemnify the Licensees in connection with this lawsuit.
    Olaes Enter., Inc. v. A.D. Sutton & Sons, Inc., No. 09 Civ. 8680 (CM) (PED) (S.D.N.Y. June 20, 2011)

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  • How to Steal a Trademark

    You don’t see it happen much at all, but a band managed to successfully, including on appeal, claim ownership of the band’s name, despite contractual agreements that conceded the name was owned by the original management company and its successor.

    We’re talking about an unregistered trademark here, for the band Exposé. (There was an early effort to register the mark but it was unsuccessful.) A company called Pantera Productions, Inc. started the band in 1984 with three women but the band wasn’t a success. In 1986 Patera then replaced the original members with three defendants in this case, Jeanette Jurado, Anne Curless and Gioia Bruno. Jurado, Curless and Bruno’s faces and names were on album covers.

    They were considerably more successful than the original trio; the band’s debut album went triple platinum and they had a number of other successful records. At one point Bruno had to leave due to illness and was replaced by Kelly Moneymaker. The band disbanded in 1995 and Jurado, Curless, Bruno and Moneymaker signed an agreement with Pantera absolving them of obligations they had to Pantera, stating that Pantera had conceived of and owned the Exposé mark, and that the singers would no longer have any right to use the mark.

    In 2003, Jurado and Curless signed a trademark license agreement with Crystal Entertainment, Pantera’s successor, because they wanted to start performing again as Exposé.  In the agreement, they again acknowledged that Crystal Entertainment owned the Exposé mark. Due to Curless’ pregnancy, though, they only performed once and cancelled the rest of the tour.

    In 2006, Jurado, Curless and Bruno executed another trademark license agreement with Crystal Entertainment in anticipation of a tour. In the agreement, the three acknowledged that Crystal owned and controlled the Exposé mark.

    The three went on tour, managing their own tour schedule and promotion.  In 2007, the women’s production company filed an application to register the Exposé mark.  Their lawyer sent a letter to Crystal Entertainment disputing Crystal Entertainment’s ownership of the mark and the band stopped paying royalties to Crystal Entertainment because of its lack of participation in the band’s promotion and marketing. 

    Crystal Entertainment took a mulligan on a first complaint filed in 2007 and sued again in 2008, claiming breach of the 2006 agreement, trademark infringement, cybersquatting, and unfair trade practices under Florida law. In a bench trial, the district court held in the defendants’ favor on all claims except breach of the 2006 contract, awarding $25,060 to Crystal Entertainment on the claim. Crystal Entertainment appealed.

    The issue boils down simply to who owns the Exposé mark. First up was whether Crystal Entertainment had established trademark rights with the first iteration of the band:

    We have applied a two-part test to determine whether a party has proved prior use of a mark sufficient to establish ownership: Evidence showing, first, adoption, and, second, use in a way sufficiently public to identify or distinguish the marked goods in an appropriate segment of the public mind as those of the adopter of the mark. The district court was required to inquire into the totality of the circumstances surrounding the prior use of the mark to determine whether such an association or notice was present. We have determined that a company proved prior use of a mark sufficient to establish ownership when, among other things, the distribution of the mark was widespread because the mark was accessible to anyone with access to the Internet, the evidence established that members of the targeted public actually associated the mark … with the product to which it was affixed, the mark served to identify the source of the product, and other potential users of the mark had notice that the mark was in use in connection with the product.

    (all sorts of quotation, citation and bracket crap removed.) The court held that the original trio’s use of the Exposé mark wasn’t sufficiently public to establish trademark rights in the mark, largely because the district court didn’t believe the testimony.

    Thus, “Because Crystal failed to prove that it first appropriated the Exposé mark, the district court was required to determine the owner of the mark where prior ownership by one of several claimants cannot be established.”  Following Bell v. Streetwise Records, Ltd., 640 F.Supp. 575 (D. Mass. 1986):

    To determine ownership in a case of this kind, a court must first identify that quality or characteristic for which the group is known by the public. It then may proceed to the second step of the ownership inquiry, namely, who controls that quality or characteristic.

    Under this standard, it was a slam dunk for the band members:

    The district court found that Crystal failed to prove that it had selected Moneymaker, had exercised control over Jurado, Curless, and Bruno, or had taken any active role in scheduling any of the group’s performances; Garcia [of Pantera] had conceded that he had been unable to put a different group together to perform as Exposé since 1986; the involvement of Crystal with Exposé was limited to collecting royalties from the sale of records; and the private agreements upon which Crystal relied disclosed nothing to the public to change this perception. The district court also found that Exposé had been consistently portrayed to the public as Jurado, Curless, and Bruno since 1986; they were the product denoted by the Exposé mark; they owned the goodwill associated with the mark; and a member of the public who purchased a ticket to an Exposé concert would clearly expect to see Jurado, Curless, and Bruno perform.

    But what about the THREE agreements where the women agreed that Pantera and its successor Crystal Entertainment were the owners of the mark? Notably, in Bell v. Streetwise Records there was no contract because the plaintiffs were minors at the time of the contract’s execution and they later disaffirmed it, so Bell isn’t on all fours. Here, “the private agreements upon which Crystal relied disclosed nothing to the public to change this perception.”

    Wow. So apparently in the 11th Circuit a private agreement doesn’t matter; rather, the actual ownership has to be manifested publicly. I’m not saying the outcome is wrong – band names are a different world when it comes to trademark ownership, because the members are often so strongly identified with the public image of the band. But I would have liked a little more compelling reason for why the court felt that the contracts, as well as the defendants’ belief that they needed a license, could just be ignored.

    Crystal Enter. & Filmworks, Inc. v. Jurado, No. 10-11837 (11th Cir. June 21, 2011).

    Crystal Enter. & Filmworks, Inc. v. Jurado, Civ. No. 08-cv-60125-MGC (S.D. Fla. May 26, 2009) (trial transcript).

    Crystal Enter. & Filmworks, Inc. v. Jurado, Civ. No. 07-cv-61748-WJZ (S.D. Fla.) (dismissed without prejudice).

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  • Sibling Rivalry

    I have sympathy for small businesses. Just working stiffs, plumbers for example, trying make a living day to day. You have to watch the pennies, you’ve got equipment costs, rent and salaries and rising health insurance costs and there’s only so much the market will bear.  Trademarks are going to be really low on the priority list – too low on John C. Flood of Virginia’s list, as it turns out.

    As stated by the lower court, “This case involves two sister companies in the plumbing business that are, in effect, fighting over their ‘inheritance.’”  The marks in dispute are FLOOD and JOHN C. FLOOD for HVAC services. Here is the sequence of events:

    1984 John C. Flood, Inc. (“1984 Flood“) incorporated in Maryland by Davis and Crooks.
    1988 John C. Flood of Virginia, Inc. (“Virginia Flood“) incorporated in Virginia by Davis, Crooks, and two 1984 Flood employees, Haislip and Seltzer.  Verbal license to use the marks.
    1981 1984 Flood files for bankruptcy, but Davis and Crooks continue to operate it in bankruptcy until 1993.
    1993 Trustee appointed for 1984 Flood and the case converted to Chapter 7: the company shut down, it ceased using marks and ceased monitoring Virginia Flood’s use of the marks.
    1993 Davis, Crooks and the Smileys set up four new entities, J.C.F., Inc., J.C. Flood, Inc., John C. Flood of DC, Inc. and John C. Flood of MD, Inc. (“New Flood entities“) and start using the marks.
    1995 The bankruptcy trustee for 1984 Flood enjoins the New Flood entities and appoints a receiver for them.
    1995 Haislip and Seltzer purchase Davis and Crooks’ share of Virginia Flood and become sole owners.
    1995 The bankruptcy court proposed selling the marks to Davis, Crooks and the Smileys. Haislip and Seltzer object and Davis and Crooks drop out, leaving the Smileys. Haislip and Seltzer made a competing bid.
    1996 The marks were conveyed to the Smileys, who incorporated John C. Flood, Inc. (“1996 Flood“) in Maryland.
    1996 1996 Flood tells Virginia Flood it is infringing; Virginia Flood agrees to always use “of Virginia”
    1999 Virginia Flood files applications to register two trademarks.*
    2000 Marks registered.
    2005 Petitions to cancel registrations filed by 1996 Flood (currently suspended).
    2006 Virginia Flood brings trademark infringement suit against 1996 Flood.

    Virginia Flood had two theories why 1996 Flood didn’t own the trademarks: it was senior user because it started using the marks in 1988 and 1996 Flood didn’t start using them until 1996; and 1984 Flood had abandoned the mark through naked licensing to Virginia Flood during the Chapter 7 bankruptcy. The lower court held that 1996 Flood was the owner of the marks by virtue of its acquisition of them from the bankrupt estate and that Virginia Flood was barred by licensee estoppel from raising a naked licensing defense.  Virginia Flood challenged both holdings on appeal.

    Virginia Flood argued that the New Flood entities’ wrongful use of the mark broke the chain of title, but the Court of Appeals didn’t buy it.

    Presumably, Virginia Flood’s unlawful use argument stems from frustration over the fact that 1996 Flood–a business associated with the same people who operated the New Flood entities–now has priority to the disputed marks. 1996 Flood’s priority is derived, however, not from the New Flood entities, but instead from the bankruptcy trustee’s sale of the marks to 1996 Flood. The New Flood entities’ unlawful use of the disputed marks is irrelevant to 1996 Flood’s claim to priority. Priority over the disputed marks originated with 1984 Flood, transferred to the 1984 bankruptcy estate, and was then conveyed to 1996 Flood via a bill of sale with the approval of the bankruptcy court. The district court did not err when it held that 1996 Flood was the successor-in-interest of 1984 Flood and the legal owner of the marks.
    The naked licensing defense was likewise rejected by the appeals court. Various courts of appeal have different legal standards for when licensee estoppel may be applied:

    Although this circuit has never explicitly recognized the equitable doctrine of licensee estoppel, some other circuit courts have held that, in general, trademark licensees are estopped from challenging the validity of the licensor’s title because by agreeing to the license, the licensee has recognized the validity of the licensor’s ownership. More recently, other circuits have permitted licensees to make such challenges, but only based upon facts that arose after the license expired. The Second Circuit has taken an even less restrictive view, holding that every claim of licensee estoppel should be evaluated by balancing the public interest in favor of challenging invalid trademarks against the private interest in the enforcement of contracts.

    (citations omitted). The Court of Appeals for the District of Columbia declined to define its standard, instead holding that no matter what standard was used Virginia Flood was estopped. First was Virginia Flood’s failure to object to the sale by the bankruptcy trustee in 1995.  If it thought it owned the marks because of the naked licensing it should have raised the point then. It didn’t – it objected to the bankruptcy court’s consideration of 1996 Flood’s bid, but that was based on the New Flood entities’ prior misappropriation of the marks, not its own ownership. Making its own bid on the marks was again a concession that it didn’t own the marks. Finally, its failure to claim that it owned the Flood marks when 1996 Flood complained of infringement, instead acquiescing to the demand that “of Virginia” always be used, was also an acknowledgement that it didn’t own the Flood marks.

    There is no suggestion that 1984 Flood didn’t monitor Virginia Flood’s use before the bankruptcy was converted to Chapter 7, so the period of uncontrolled licensing looks fairly short – from 1993, when 1986 Flood actually ceased operation, until 1996, when 1996 Flood began operating.  For that reason alone I think it’s a tough case to win in the bankruptcy context. The facts called out by the court only bolster the point.

    All is not lost for Virginia Flood though. Remaining to be decided is whether Virginia Flood may continue to use the marks with the distinguishing modifier “of Virginia.” The district court had left open the possibility that Virginia Flood could use naked licensing as an estoppel defense against the counterclaims for infringement; the appeals court took it further and remanded for “the determination of the ownership and priority rights of the parties as to the modified trademark ‘John C. Flood of Virginia.’” Those could be very tough questions and, assuming the parties are still up for the fight, we could get some more insight into the law of ownership and estoppel.

    John C. Flood of Virginia home page.
    John C. Flood, Inc. home page.

    The whole time I was writing this I was trying to come up with a punny title involving plumbers and floods.  But I’m just not that clever. Calling John Welch . . .

    *Bonus question for all you fraud fans out there – what do you think of the fraud case for an application to register “John C. Flood” after you bid on the mark in bankruptcy and didn’t win?

    John C. Flood of Virginia, Inc. v. John C. Flood, Inc., No. 10-7098 (D.C. Cir. June 17, 2011).
    John C. Flood of Virginia, Inc. v. John C. Flood, Inc., No. 06-1311 (RJL) (D.D.C. Mar. 31, 2010).

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  • Privity as a Sword

    Awhile back I reported on a case where a jus tertii defense was allowed to go forward.  The defendant, Baroody Imports, claimed that its licensor, Orouba Agrifoods Processing Company, an Egyptian company and not a party to the suit, really owned the “Basma” trademark Baroody  was accused of infringing, not plaintiff United Food Imports.

    But Baroody couldn’t bring it home.  Its only proof that Orouba owned the trademark was an admission by a representative of United Food that Orouba had indeed sold frozen food under the Basma trademark first, but in Egypt, not the United States. Baroody also claimed that the trademark had been used by a company called Faragella Food, Inc. before United Food used it, but Faragella Food turned out to be a predecessor in interest to United Food (oops).

    Finally, even if there had been proof, the claim was precluded by a prior TTAB decision. Orouba had twice challenged the United Food registration of its trademark, once in an opposition and once in a cancellation, but it butchered the job.  In the opposition, Orouba never prosecuted the case so it was dismissed.  The TTAB then dismissed the cancellation action on the basis of res judicata, or claim preclusion, because of Orouba’s earlier failure to prosecute the opposition.

    Although Baroody was not a party to the opposition or cancellation actions, it couldn’t claim that it stood in Orouba’s shoes for purposes of asserting Orouba’s ownership while at the same time avoiding the effect of the earlier TTAB actions.

    Defendants cannot avoid res judicata simply because the first decision against Orouba was the result of a failure to prosecute a claim. Nor may Defendants reargue the TTAB decisions because they were not parties to the actions. To the contrary, Defendants claim to be in privity with Orouba and assert various rights on that basis. But privity “is merely a word used to say that the relationship between one who is a party on the record and another is close enough to include that other within the res judicata.” A party asserting the rights of another by virtue of privity is bound by judicial prior determinations concerning the rights of that party.
    “Having hitched their wagon to the Orouba star, Defendants are wedded to its fate.”

    Baroody’s defense that it wasn’t responsible because it wasn’t being deceptive predictably went nowhere. Summary judgment granted in favor of United Food on likelihood of confusion; Baroody enjoined from selling any products using the “Basma” trademark.

    United Food Imports v. Baroody Imports, Inc., Civ. No. 09-2835 (DRD) (D.N.J. June 8, 2011).

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  • The Coup de Grâce for Pooh?

    One opposed mark
    The TTABlog brings us the last (?) chapter in the Winnie the Pooh story – well, it’s the last pending action at least, after a state court litigation, an appeal of it, a federal court litigation, and an appeal of it, all of which SSI lost.  But never say never.
    The parties, Disney on one side and Stephen Slesinger, Inc. (SSI) on the other, have been dueling for years over the ownership of the Winnie the Pooh set of properties.  SSI acquired various sticks in various bundles from author A.A. Milne on two different occasions, the first in 1930 and the second in 1932. It then transferred in some way – exactly what rights and the type of transfer are the dispute – to Disney. Early in the district court case A.A. Milne’s widow was unsuccessful in an effort to terminate the copyright grant, after which (according to Disney) SSI transformed its case to one about the trademarks.

    The Trademark Trial and Appeal Board case was a fairly simple one, having to decide only whether SSI was collaterally estopped from claiming that various Disney applications and registrations should be cancelled. The federal court decision left enough wiggle room for SSI to make the argument but it was ultimately unsuccessful; John lays out the details. Formal analysis aside, I thought one fairly compelling point in Disney’s favor was that SSI had prayed that the court “correct the title of any [Disney] registrations to Slesinger” (p. 50, ¶ 137); this count was dismissed and the request therefore effectively denied.

    So what did SSI have to argue with? Mostly an agreement that didn’t differentiate trademark or copyright rights and, as a result, a court decision that didn’t either.  Don’t blame it on the drafters of the agreement; it was almost 30 years ago.  Here’s the grant clause for the non-motion picture assets:

    Schlesinger’s “further rights”

    include the exclusive right in the United States and Canada to use, or license the use of, the characters and illustrations from the said ‘work’ in, on or in connection with various articles of merchandise.

    The “work” is defined as the A.A. Milne books “Winnie the Pooh” and “House at Pooh Corner,” as well as the collections of verse “When We Were Very Young” and “Now We Are Six,” “including the title, illustrations and complete contents thereof.”

    So no explicit delineation of the types of rights that might be encompassed. Thus, in deciding separate counts for trademark, trade dress and copyright infringement, the district court mashed the analysis together, saying simply that SSI “transferred all of its rights in the Pooh works to Disney, and may not now claim infringement of any retained rights.”

    SSI claimed that the district court had therefore not necessarily found that Disney owned the trademarks, only that they weren’t infringed. Since the basis for noninfringement can be either ownership or license, SSI argued that the district court decision wasn’t preclusive as to ownership. 

    A few other facts were in SSI’s favor, most notably that it was entitled to royalties.  This, however, does not mean that the agreement was necessarily a license, as noted by the TTAB:

    “Royalties in an assignment agreement are properly conceived as deferred consideration for the original conveyance of rights, with the amount of consideration pegged to the commercial success of the product.”  Baladevon, Inc. v. Abbott Labs., Inc., 871 F.Supp. 89, 33 USPQ2d 1743, 1748 (D. Mass. 1994) (internal citations omitted).
    Disney, when sending the royalty payments, characterized them as pursuant to a license:

    and Disney described its arrangement with SSI in its Security and Exchange Commission filings as a “licensing agreement.”

    At the end of the day though, what mattered was that there were simply no rights retained by SSI:

    In spite of SSI’s protestations today that “[t]he rights Slesinger obtained from Milne are much broader than the rights Slesinger licensed to Disney in the 1983 Agreement,” SSI Opp’n at 4, the language of the parties’ agreements belies that contention.  Significantly, nowhere in its motion papers does SSI identify precisely what rights it believes it retained. Nor can any such rights be discovered by reading the contracts. SSI received “certain rights” from Milne and “further rights” in later agreements, and granted “those rights it had acquired” to Disney….  The Court is satisfied that under the clear terms of the parties’ agreements, SSI transferred all of its rights in the Pooh works to Disney….

    (The district court, quoted by the TTAB.)

    The TTAB thus concluded that the ownership of the trademarks was a “pivotal issue addressed by the district court” and SSI was precluded from re-arguing it before the TTAB.

    Stephen Slesinger, Inc. v. Disney Enter., Inc., Opp. No. 91179064 et al. (TTAB June 8, 2011) (precedential).
    Milne v. Stephen Slesiger, Inc., No. 2:02-cv-08508-FMC-PLAx (C.D. Cal. Sept. 25, 2009).

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  • When Are You a “Distributor”?

    There’s a presumption in manufacturer-distributor cases that the manufacturer owns the mark. Is the presumption deserved? What is fundamentally different between a manufacturer-distributor relationship and one where a company contracts for the manufacture of its product (an OEM relationship), when there isn’t the same presumption? Does it fall into one category or the other just depending on how you wrote your agreement?

    In Country Fare LLC v. Lucerne Farms, Country Fare and Lucerne Farms entered into an agreement where Country Fare was characterized as distributor/seller of lawn and garden products and Lucerne Farms characterized as a manufacturer/supplier of bagged products. Country Fare had a formula for a proprietary mulch composition of hay and straw and Lucerne Farms had the capacity to manufacture it, so they entered into an agreement where Lucerne Farms would manufacture, bag and ship “Mainely Mulch” mulch according to Country Fare’s specifications.  Country Fare supplied the bags, paid for the plates for printing the bags, and kept possession of the plates. Country Fare’s name was prominently on the front of the bag and Lucerne’s on the back as manufacturer.

    (click for larger image)

    The Agreement had this language:

    and the Agreement said that Lucerne Farms manufactured exclusively for Country Fare.

    All complaints about the product were directed to Country Fare and in one case Lucerne Farms said “Maine Mulch is a Country Fare product and therefore we are prohibited to do anything in the way of advertising, selling, etc. all must be done through Country Fare . . . ” Finally, the court found that, despite Lucerne Farms’ claim to the contrary, Country Fare conceived of the name “Mainely Mulch.”

    Then the break-up. In anticipation, Lucerne Farms filed an application to register the “Mainely Mulch” mark. The specimen, though, was missing the Country Fare name:

    (click for larger image)

    The trademark attorney, testifying by affidavit, explained “Information relating to LF’s distributor of the Mainely Mulch product does not appear on the specimen because it is not germane to the application.”  The specimen for the later Section 8 declaration was of only the top of the bag, again omitting the Country Fare reference.

    After the break-up, Country Fare turned to a Canadian manufacturer. Lucerne Farms filed its trademark registration with Customs and successfully excluded the Country Fare goods from the United States.  Lawsuit filed.

    The facts here are so heavily one-sided the manufacturer-distributor presumption was easily overcome. Lucerne Farms was enjoined from interfering with Country Fare’s use of the Mainely Mulch mark and was ordered to give Customs its consent for the release and importation of Country Fare’s Mainely Mulch.

    Because the trademark registration was incontestable Country Fare had to show fraud to get rid of it, also easily done:

    [T]he Court finds that the Plaintiff has clearly met its burden of persuasion of its likelihood of presenting clear and convincing evidence that the Defendant secured a trademark to the “Mainely Mulch” mark through fraud . . . . Country Fare’s rightful claim to the trademark would have been apparent and clear to Lucerne at the time it filed its application with the Trademark Office, particularly as Country Fare’s ownership of the mark was clearly delineated in the parties’ 1999 agreement, established through the nature of the parties’ respective relationships with the product, and reflected by the designs that appeared on the bag itself which identified Mainely Mulch as a Country Fare product. The Court therefore concludes that Country Fare has proved by clear and convincing evidence that Lucerne’s submissions to the Trademark Office were not made in good faith and were not a result of an honest misunderstanding particularly as Lucerne provided specimen’s that actively concealed any and all identifying information relating to the Plaintiff even though Lucerne asserted that the specimens reflected a mark that Lucerne had used in commerce for five consecutive years prior to the filing.
    The trademark attorney’s affidavit as to everyone’s good intentions was no help:

    The Court therefore is not dissuaded from its conclusion that the Plaintiff has demonstrated a likelihood of success, as the Defendant has not credibly disrupted evidence that Lucerne, as an entity, had clear knowledge of the Plaintiff’s right to the mark and therefore made a material misrepresentation when it instructed its trademark attorney to file for the mark even if Haley himself was unaware of the falsity. As noted, knowledge of the filing’s falsity is evinced by the fact that a specimen of the Mainely Mulch package was presented to the Trademark Office in a manner that strategically omitted all references to Country Fare that existed on the bag that was actually used in commerce by Country Fare prior to, and at the time of the Defendant’s application. Further, Lucerne misrepresented that the altered bag had been used by it in commerce when in fact it had not been.

    So what exactly made this a manufacturer-distributor relationship rather than a contract manufacturing relationship? Country Fare did everything – formulated the product, thought up the trademark, designed the bag, controlled how many bags Lucerne Farms had, did all the marketing for the product, and handled all complaints.  Country Fare had to meet a quota, but the court found that was based on Lucerne’s need to utilize manufacturing capacity, not anything having to do with ownership of the mark. I think the only reason this could be considered a manufacturer-distributor relationship is because the parties characterized it that way themselves. Lesson learned.

    Country Fare LLC v. Lucerne Farms, No. 3:11cv722 (D. Conn. June 7, 2011).

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  • Righthaven’s Failed Assignment Agreement

    I haven’t been blogging about the Righthaven case because there are many other bloggers doing a great job. You know, Righthaven, who is going around finding bloggers reproducing articles from the Denver Post and the Las Vegas Review-Journal and suing them for copyright infringement.  But I thought that I’d show you how miserably Righthaven screwed up the fundamental basis for its entire business model.

    The Electronic Frontier Foundation, representing the Democratic Underground, smelled a rat, namely that it was unlikely that Righthaven actually owned the copyrights. It successfully obtained a copy of the agreement between Righthaven and Stephens Media LLC, the publisher of the Las Vegas Review-Journal, outlining all the terms of their deal. And the court was very, very, unhappy with what the agreement said.

    It’s black letter law that the assignment of a bare right to sue is not allowed under the Copyright Act:

    While these exclusive rights may be transferred and owned separately, the assignment of a bare right to sue is ineffectual because it is not one of the exclusive rights.  Since the right to sue is not one of the exclusive rights, transfer solely of the right to sue does not confer standing on the assignee. One can only obtain a right to sue on a copyright if the party also obtains one of the exclusive rights in the copyright.  

    So this was the assignment language in the agreement between Righthaven and Stephens Media LLC:

    Note that the assignments to be executed were expressly “subject to the other terms and provisions of this Agreement,” which included this exclusion:

    7.2 Despite any such Copyright Assignment, Stephens Media shall retain (and is hereby granted by Righthaven) an exclusive license to Exploit the Stephens Media Assigned Copyrights for any lawful purpose whatsoever and Righthaven shall have no right or license to Exploit or participate in the receipt of royalties from the Exploitation of the Stephens Media Assigned Copyrights other than the right to proceeds in association with a Recovery. To the extent that Righthaven’s maintenance of rights to pursue infringers of the Stephens Media Assigned Copyrights in any manner would be deemed to diminish Stephens Media’s right to Exploit the Stephens Media Assigned Copyrights, Righthaven hereby grants an exclusive license to Stephens Media to the greatest extent permitted by law so that Stephens Media shall have unfettered and exclusive ability to Exploit the Stephens Media Assigned Copyrights. . . .

    (Emphasis added by court). The court explained that:

    The plain and simple effect of this section was to prevent Righthaven from obtaining, having, or otherwise exercising any right other than the mere right to sue as Stephens Media retained all other rights. Even Righthaven’s right to sue is not absolute. The SAA gives Stephens Media the right to prevent Righthaven from suing an alleged copyright infringer for various specific reasons, including that the lawsuit might “result in an adverse result to Stephens Media.”  (Id., Section 3.3.)  Other sections also give Stephens Media a right to reversion and other rights which, collectively, destroy Righthaven’s supposed rights in the Work.

    As pointed out by the court, the Strategic Alliance Agreement went to great lengths to allow Stephens Media to keep full control of the copyrights.  See for yourself – what were they thinking?
    Strategic Alliance Agreement Between Righthaven and Stephens Media

    Incidentally, there’s a new state lawsuit just filed in South Carolina against Righthaven alleging barratry (the improper incitement and prosecution of lawsuits) and unfair trade practices. This news article details some of Righthaven’s interesting behavior. Did you ever copy a clip from a web page, paste it, and get some extra text added to what you cut, like “Read more: Rosen: A letter to the Tea Partyers – The Denver Post,” with a link to the article? Guess what – that’s NOT the newspaper all happy about the fact that you’re linking to it. That, according to the lawsuit, is “a unique per-customer code generated to allow the Denver Post to associate a particular pasted copy with a specific customer’s IP address for the purpose of identifying defendants for prosecution—and persecution—by Righthaven. . . . The Denver Post’s software could easily be configured to insert ‘Notice: You are violating The Denver Post’s copyright.’ Instead, the software tricks unknowing users into believing they have done nothing wrong while simultaneously helping Righthaven sue them later.”  Yowza. Throughout these cases I’ve always wondered whether the lawyer skipped the class on equitable defenses.

    Understatement of the day, from the South Carolina lawsuit: “Righthaven’s barratry business model is marginally profitable with regard to successful cases, i.e. settlements, but is horrendously undercapitalized when liabilities are taken into account.”

    EFF case page on the Democratic Underground case here.

    Righthaven LLC v. Democratic Underground, LLC, No. 2:10-cv-01356-RLH-GWF (D.  Nev. June 14, 2011).

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  • Important New Patent Ownership Decision!

    Board of Trustees of the Leland Stanford Junior Univ.
    v.
    Roche Molecular Sys., Inc.

    In an important new decision, the Supreme Court held that Congress did not change one of the fundamental precepts of patent law – that the individual inventor is the original owner of invention – obliquely, through an ambiguous definition of “subject invention” and an idiosyncratic use of the word “retain.”

    Meh.

    If you want more than that, you can read here and here and here and here and here and here . . . .

    But I found the actual story of how two different invention assignments were signed interesting. Stanford hired a research fellow to test the efficacy of new AIDS drugs and he signed a invention assignment agreement with Stanford. Stanford then arranged for him to conduct research at Cetus, the predecessor in interest to respondent Roche, where he also signed an invention assignment agreement for Cetus. Oh, this sort of stuff gives the in house legal department nightmares. We tell them to ask first, really we do.

    The Federal Circuit held that in the duel of the assignment forms Cetus won, a holding that wasn’t appealed but that was heavily criticized in a dissent by Breyer and Ginsburg and also shared by Sotomayor in a concurrence. Odds on whether others pick up this torch?

    Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., Inc., No. 09-1159 (June 6, 2011).

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  • Abandoned, No Surprise

    Some cases make you wonder more about the lawyers. Did they come in to the situation too late and just have a mess to clean up? Have they counseled their clients about their odds? Original Rex, LLC v. Beautiful Brands International, LLC just looks like such a long shot, but some clients can’t be deterred. The facts are lengthy, but I’ll try to be brief.

    In 1974 Vernon McFarland introduced a boneless, skinless, bite-sized chicken breast meat marinated in a spicy liquid that was called “Rex Chicken.” McFarland set up a distributorship (“MDI”) for the chicken and allowed restaurants to use the “Rex” name. In 1977, non-party John Ballard entered into a franchise agreement with MDI. McFarland visited Ballard’s restaurant biweekly to deliver chicken until his death in 1988. After McFarland died, his wife Dolly took over MDI.

    In 1989 MDI filed an application to register a crown logo:

    Ballard started using it at his drive-in restaurant and continues to use it today.

    In 1992, Ballard’s franchise agreement was expiring and MDI wanted to terminate all franchises. It was, however, willing to give Ballard a one year extension, but he never signed the agreement. Ballard stopped paying any royalties in 1993, stopped using the Rex spice packets, and has been using his own chicken for perhaps longer than 10 years.

    In 1993, MDI sold all the assets, including the trademarks, to Rex Chicken, LLC, a subsidiary of Magnum Foods. In 1996, Rex Chicken LLC adopted and registered a “ribbon” trademark. Dolly McFarland operated some Rex Chicken outlets as a franchisee, sold them, but they were all closed by 2002. Rex Chicken LLC transferred its assets to Magnum in 2000 and Magnum ultimately quit franchising Rex Chicken altogether in 2002.  Neither Rex Chicken LLC nor Magnum ever inspected the Ballard business and didn’t have his business listed in their records as licensee.

    Rex Chicken LLC filed its Section 8 and 9 affidavit for the original Rex mark in 2001, after it didn’t own the marks anymore, using the Ballard trademark use as specimens.  Another trademark filed at the same time, for “Rex the Original,” was allowed to lapse, and the ribbon trademark ultimately lapsed under Section 8 in 1996. So we have complete cessation of use in 2002 (but for one former licensee now using his own recipe for the chicken), two lapsed trademark registrations, and one that was maintained questionably.

    Six years later, in 2008, defendant Coney Beach, Inc. begins to sell bite-sized boneless chicken it called “Rex’s Chicken” at its hot dog stand; because of the success of the chicken the restaurant is now known as Rex’s Chicken:

    Co-defendant Rex’s Franchise System, LLC filed an application to register the “Rex’s Chicken” word mark and is now franchising the business.

    At some point the McFarland family gets the bright idea that it stills owns the trademarks and goes through a number of steps to try to perfect its claim. This is where I’m intrigued – the documents were clearly prepared with legal assistance. What was the family told?

    To try to reclaim its rights to the “Rex Chicken” marks, on April 2, 2010 the family obtained an assignment from Rex Chicken, LLC (which no longer existed). The family then assigned the marks and goodwill to its new entity, plaintiff Original Rex LLC.  They recorded the assignments against the still-active registration. They obtained an “Affidavit and Assignment” from Ballard, wherein he stated that he both used the mark as a licensee and assigned any rights he may have to the “Rex” trademarks to to the family (belts and suspenders, I suppose).  They got a statement from Magnum Foods that it never intended to abandon use of the mark:

    (click for larger image)


    The family now has its own business, using the “Rex” name and the ribbon mark.

    So the family made a valiant effort to cover the bases, but unsurprisingly was not successful.  There was no valid assignment in 2010:

    Neither assignment, however, establishes either chain of title or the requisite intent to revive the Mark. The record shows that Rex Chicken, LLC, the last registered owner of the Mark, no longer existed as an Oklahoma limited liability company by the time the assignments were executed in 2010. It ceased to operate the Rex Chicken franchise system on November 4, 2000, allegedly transferring all rights to Magnum. Magnum, in turn, stopped using the Mark in 2002 when it shut down the Rex franchise system, and never used the Mark again. Further, it had no intention of using the Mark again because it had switched to the Ribbon Mark. The Ribbon Mark was canceled in 2006.

    Plaintiff offers the Clarification Statement in an effort to show an intent to revive the Mark on the part of Magnum. . . . In considering the issue of intent to resume use, courts place little weight on self-serving affidavits and statements. . . . Here, the Clarification Statement . . . was executed in an effort to overcome the fact that Magnum abandoned the trademark in 2002 and made no effort to revive it until McAuliff and Johnson approached Price about acquiring the Mark. Additionally, it contradicts Price’s testimony that Magnum stopped using the Mark and had no intention of using it again in part because it had switched to the Ribbon Mark.
    On the Ballard license, despite Ballard’s affidavit it was, of course, naked. For those of you who want a quick primer on naked licensing, the decision gives short summaries on all the usual suspects – Kentucky Fried Chicken, Land O’Lakes, Transgro, and Taco Cabana, as well as a new one to me, Lutheran Ass’n of Missionaries & Pilots, Inc. v. Lutheran Ass’n of Missionaries & Pilots, Inc., 2004 WL 2730104 (D. Minn. Nov. 29, 2004).

    This article says that the defendants purchased the name in a tax lien sale, which surprisingly wasn’t mentioned in the opinion. While they undoubtedly took ownership as-is, I find it another reason that the McFarland family’s belief that it had any rights in the Rex marks a questionable view.  So, rather than winning its own infringement case, the McFarland family is looking like an infringer itself at this point – it has a number of stores and all the parties are in Oklahoma. What happens now? How charitable is Beautiful Brands feeling?

    Original Rex, L.L.C. v. Beautiful Brands Int’l, LLC, No. 10-CV-424-CKF-FHM (N.D. Okla. May 27, 2011).

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  • Surprise – Wittmann Can’t Call His Product “Wittmann”

    This is kind of a no-brainer of an ownership case. I’m blogging it more for the sake of completeness than anything else.Defendant Dietmar Wittmann, an employee of the Medical College of Wisconsin, invented a surgical patch for abdominal surgery.  He assigned the rights to the patch (the case doesn’t say exactly what rights, but we’ll assume patent) to the College’s research foundation, which licensed it to Michael Deutsch. Deutsch went into business with Wittmann, forming plaintiff Starsurgical, Inc. (“Star”).  Deutsch was 51% owner and Wittmann 49% owner. They sold the patch as the “Wittman Patch” (warning – graphic image). In 2001 Deutsch registered the “Wittman Patch” mark with Wisconsin in his own name and assigned the rights to Star. A little while later, Wittman registered the same mark federally.

    In 2002, the two had a falling out and Deutsch removed Wittmann as an officer of Star. In 2009, Wittman formed two new companies and started selling a surgical kit, the “Wittmann Hypopack” that included what he called a Wittmann Patch. It wasn’t the same patch as that sold by Star. Star sued for trademark infringement and moved for a preliminary injunction.

    The court acknowledged that Wittmann had the presumption of ownership based on his federal registration, but that wasn’t enough to save the day for him. Wittmann claimed that Star was his licensee under Section 5 of the Lanham Act, 15 U.S.C. § 1055 (“If first use of a mark by a person is controlled by the registrant or applicant for registration of the mark with respect to the nature and quality of the goods or services, such first use shall inure to the benefit of the registrant or applicant …”), but the court didn’t buy it:

    However, the evidence in the record indicates that Star will likely be able to establish ownership of the mark. Simply because Wittmann was a shareholder and officer of Star does not mean that he owns the mark. He must have actually controlled Star’s use of the mark with respect to the quality of the patches. Nothing in the record suggests that Wittmann had such power. Although as Star’s vice president Wittmann may have exercised some degree of control over product quality, Deutsch clearly had more power than Wittmann did. Deutsch owned a majority of Star’s stock, was president of the company, marketed the patch as he wished, removed Wittmann as Vice President and refused to engage an additional supplier as Wittmann requested. Star, not Wittmann, controlled the quality of the product. Thus, Star will likely be able to establish ownership of the mark.

    Likelihood of confusion naturally follows and Wittmann is enjoined from using the “Wittmann Patch,” wittmann-patch.com, wittmanpatch.com, Wittmann Hypopack, or variations of marks starting with “Wittmann.”

    Wittmann-patch.com now resolves to a page with “Star Patch” and “Star Hypopack” products.  Hmmmmm.

    Starsurgical, Inc. v. Aperta, LLC, No. 10CV1156 (E.D. Wis. May 24, 2011).

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