Property, intangible

a blog about ownership of intellectual property rights and its licensing


  • There’s The Episcopal Church and Then There Are Episcopal Churches

    In 2012, the South Carolina Diocese of The Episcopal Church declared that it disassociated from parent The Episcopal Church, a hierarchical church. The common understanding is that it was because of the ordination of gay clergy and acceptance of same-sex unions, although the disassociating diocese differs with that characterization. As a result there are two South Carolina dioceses, each claiming to be the one true Episcopal diocese.

    As described by the court, we have

    • The Episcopal Church (TEC), owner of federal trademark registrations and intervenor
    • The Historic Diocese, the member diocese of TEC before the dispute and the owner of state trademark registrations, headed by defendant Lawrence until the schism
    • The Episcopal Church in South Carolina (TECSC), the diocese affiliated with TEC after the schism, headed by named plaintiff vonRosenberg as appointed by TEC
    • The Disassociated Diocese, the diocese now headed by Lawrence
    • Member parishes of the Disassociated Diocese

    Lawsuits ensue in both federal and state court. The state court suit is over ownership of property and the federal lawsuit is for trademark infringement, dilution, and related claims.

    Ultimately the South Carolina Supreme Court held in 2017 that TECSC is the true owner of the diocesan property. The state Supreme Court deferred to the federal court on the trademark claims, however the South Carolina Supreme Court decision was the beginning and end of the question of ownership of the trademarks:

    At the outset, as held above, it is settled by a majority of the South Carolina Supreme Court that TECSC is the lawful successor to the Historic Diocese. This issue has already been litigated, directly determined and necessary to support a judgment, and therefore Defendants are collaterally estopped from relitigating this issue. Therefore, for legal purposes of intellectual property, Plaintiff TECSC is the successor to the [H]istoric Diocese.

    Furthermore, this Court independently holds that TECSC is the lawful successor of the Historic Diocese since this Court is mandated to accept as binding the decision of the highest ecclesiastical body in a hierarchical religious organization. TEC is a hierarchical church. Plaintiffs have submitted unrebutted evidence that TEC is a three-tiered, hierarchical church composed of the “Church’s General Convention at the topmost tier, regional dioceses in the middle tier” and congregations on the bottom tier. This matter is not for dispute, and every other court to assess the issue, including the Fourth Circuit, has determined that TEC is hierarchal.

    Therefore, since TEC is hierarchical, “[i]t is axiomatic that the civil courts lack any authority to resolve disputes arising under religious law and polity, and they must defer to the highest ecclesiastical tribunal within a hierarchical church applying its religious law.” …

    In sum, this dispute, regarding church polity and administration of TEC’s administrative structure is precisely the type of case in which the Court must defer to a religious institutions’ highest ecclesiastical tribunal, which here removed Defendant Lawrence as the head of the Historic Diocese. Therefore, it was for TEC to determine which Bishop was leading the Historic Diocese and the Court is mandated to defer to TEC’s designation of Bishop vonRosenberg, and later Provisional Bishop Adams, as the head of the Historic Diocese, and thus the TECSC as the successor to the Historic Diocese.

    Various challenges to the validity of the mark all failed. If you’re interested in the characterization of denominational names as generic or descriptive, the court does an excellent job of explaining trademark significance in relation to religion, explaining when a use is generic and when it’s not. The case is also a recommended read if you’re interested in the law regarding courts’ deference to religious organizations.

    Interestingly, the Historic Diocese predates The Episcopal Church. This allowed the Disassociated Diocese to claim that it had senior rights to TEC. The claim failed for two reasons. Because TEC didn’t recognize the Disassociated Diocese as the successor, the Disassociated Diocese couldn’t tack to this use by the Historic Diocese. The claim also failed because of “merger,” a principle that a user can no longer claim earlier use after joining another organization using the same mark.

    Therefore TEC was owner of the federal registrations and TECSC was the owner of the state trademark registrations. The Disassociated Diocese is permanently enjoined from using the TEC and TECSC marks. They can use “episcopal,” which denotes an organization governed by bishops, but cannot use it in a confusing way. Examples of coexisting uses of “episcopal” are the Reformed Episcopal Church, the African Methodist Episcopal Church, and the Christian Methodist Episcopal Church. However, the Disassociating Diocese has renamed as The Anglican Diocese of South Carolina and says that they are likely to appeal.

    However, while individual parishes (who are also defendants) are enjoined from using the TEC and TECSC marks, summary judgment of infringement for individual parishes names was denied because TEC and TECSC had not proved that the individual parish names (for example, The Vestry and Church Wardens of the Episcopal Church of the Parish of St. Matthew’s, Holy Trinity Episcopal Church, and Christ St. Paul’ s Episcopal Church) were confusingly similar.

    The Right Reverend Charles G. vonRosenberg v. The Right Reverend Mark J. Lawrence, No. 2:13-587-RMB (D.S.C. Sep. 19, 2019) (diocese decision).

    The Right Reverend Charles G. vonRosenberg v. The Right Reverend Mark J. Lawrence, No. 2:13-587-RMB (D.S.C. Sep. 19, 2019) (parish decision).

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  • Think of the Name

    In transactional work, don’t think just about what you’re getting, but also what you don’t want the target to do in the future.

    Three family members with the surname Traeger had a business in wood pellet grills. They sold the business to plaintiff Traeger Pellet Grills. At least one of the Traeger family later joined a competitor, Dansons, d/b/a Louisiana Grills. This is one image that the court mentioned in its opinion, standing in front of the “iconic” Traeger Barn:

    Traeger Grills was not happy and sued various members of the Traeger family for breach of contract.

    The Asset Purchase Agreement said in Article 1.1 that the purchased assets included “all goodwill associated with the business.” Article 2.5 of the Asset Purchase Agreement said:

    [T]he sale, assignment, conveyance and delivery of the Purchased Assets to the Buyer pursuant to this Agreement … will transfer all of the Seller Parties’ and any Affiliates’ ownership interests associated with or used or useful in the Business and the Purchased Assets constitute all that have been used in the past to conduct the Business.

    (Emphasis in original.) The “Intellectual Property Rights” transferred in the “Intellectual Property Rights Assignment Agreement” included what was listed in Exhibit A as well as “all of the patents, applications, trademarks, copyright, know-how, droit moral, show-how, mask work, proprietary innovations and inventions, methods or techniques, likenesses or other intellectual property held by the Sellers or any of their Affiliates and used or useful, directly or indirectly , in the Business …” (Emphasis in original.) In turn Exhibit A to the Rights Agreement said the assets were

    All the patents, patent rights, proprietary info and projects, trade secrets, personal goodwill and IP assets and properties used or usable in the business, including but not limited to the following: Traeger name and tree logo (which Seller is assigning including any rights to register, in connection with the Business only). Any other marks, logos, copyrights or other intellectual property used in connection with the Business, including without limitation likenesses of people and images used in advertising (who shall sign documentation allowing the Buyer to continue to use the likenesses without cost and deliver said documentation to Seller at Closing), packaging and labeling, artwork used on Business products …

    (Emphasis in original.)

    So, can Traeger Grills stop the Traeger family from using their own likenesses and names to promote Louisiana Grills?

    No, at least not through a preliminary injunction. Traeger Grills claimed that “name” meant use of the Traeger name for all commercial purposes and that the Traeger family members assigned their personal goodwill and likenesses, not only as they had been used for the businesss at the time of purchase, but as they might be useful perpetually. The Traeger family argued that the agreement assigned only trademark rights.

    The court held that the transfer of a right of publicity must be “unambiguous,” citing Madrigal Audio Labs. Inc. v. Cello, Ltd., 799 F.2d 814, 822 (2d Cir. 1986) and JA Apparel Corp. v. Abboud, 568 F.3d 390, 398 (2d Cir. 2009). The agreements were not unambiguous:

    For instance, given that the term “Traeger” is unadorned and only written in lowercase throughout the agreements, as opposed to the trademark (TRAEGER), it could reasonably be read as either referring to the personal name, or only the trademark. Further, the use of the terms “used or useful” in the business could plausibly be read as the assignment of the likenesses of the Defendants as used until the agreements were signed, or perpetually. And, while the Traegers individually signed the agreements, their personal names do not appear in the relevant provisions. Then, the language assigning the “Traeger name and tree logo” could either reasonably be read as an assignment of the personal name, or as the assignment of the trade name and trademark. As the Plaintiff reasonably argues, “Traeger name” is unadorned and unrestricted by terms such as “but only as a trademark” or “TRAEGER trademark.” Nevertheless, it can also plausibly be read as the assignment of the trademark only as the terms “Traeger name” are joined with an “and” by “tree logo,” the very symbol that appears behind the capitalized trademark. Moreover, while the assignment of “likenesses or other intellectual property held by the Sellers … and used or useful,” along with the assignment of “likenesses of people and images used in advertising” could plausibly mean the assignment of the likenesses of the Traegers perpetually, it could also reasonably be interpreted as the assignment of the likenesses of the Traegers as used until the agreements were entered into by the parties. Finally, although the fact that Traeger Grills paid $9,000,000 for the intellectual property rights arguably creates a very strong inference that Traeger Grills obtained the right to prohibit the Defendants from using their names in a non-trademark sense, it nevertheless fails to make the contracts unambiguous as to that issue.

    Since both parties had reasonable interpretations of the agreement, Traeger Grills failed to demonstrate a likelihood of success on the merits and a preliminary injunction was denied. However, the court entertained the possibility that the photos with the Traeger barn in the background might be a breach and ordered another hearing.

    Names are tricky! When acquiring a business from the person after which the business is named, the person’s future use of their own name should be addressed head-on. The industry may be all they know and it would be foolish to assume that they will never use their personal name in association with it again.

    Traeger Pellet Grills LLC v. Traeger, No. 8:19-cv-1714-AEP (M.D. Fla. Sep. 11, 2019)

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  • Don’t Be Too Agreeable

    Plaintiff Tegu is a toy company. It hired defendant Vestal Design Atelier LLC to develop its first toy line.

    Vestal created prototypes for Tegu for blocks with embedded magnets.

    These are the relevant provisions on ownership of the intellectual property rights in the agreement:

    2.0 Ownership of Intellectual Property.

    1. Ownership. Intellectual property rights of each party will be governed by the following: For the purpose of this contract, any work product or new invention related to or arising from the Services provided hereunder, including all intellectual property rights created, invented or authored by Contractor [Vestal] in connection with the Services, will be the exclusive property of the Client [Tegu]. The Client will own all right, title and interest in such work product or new invention, except as stipulated in in item 4 below. Contractor hereby assigns all such right, title and ownership to Client.

    4. For any work product, invention and/or intellectual property generated under this Agreement that Contractor and Client mutually agree may be patented under a utility (non-aesthetic) patent, Contractor shall own at least 50% of any utility patent generated from the Contractor’s research and design. In addition, Contractor will be granted by Client a fair and agreeable share in revenue generated by commercialization. A separate agreement shall be established in writing, which specifies the precise nature of Contractor’s and Client’s ownership of Intellectual Property rights and share in revenue generated from the commercialization of the invention or Intellectual Property at a time no later than the filing date of the patent application (provisional or full application).

    The contract said that Tegu would pay Vestal $7,200 for 90 hours of work and there is no dispute that it was paid.

    Tegu wrote to Vestal and informed Vestal that that any patentable invention was on the manufacturing method, which Vestal hadn’t contributed to. Tegu was granted three patents and a lawsuit ensues.

    Vestal claimed that Tegu breached the agreement by not giving it partial ownership of the patents and sharing royalties, and also sued for correction of inventorship. Tegu claimed that the language in “item 4” was uneforceable because it was only an agreement to agree.

    The court sided with Tegu:

    The first sentence of Section 2.4 states that “[f]or any … intellectual property generated under this Agreement that [Vestal] and [Tegu] mutually agree may be patented … [Vestal] shall own at least 50% of any utility patent generated from [Vestal’s] research and design.” It is clear from this language that agreement is required. This language does not predicate Vestal’s ownership simply on the generation of intellectual property. For example, the sentence does not say that, “for any intellectual property generated, Vestal shall own at least fifty percent generated by Vestal’s research and development.” Rather, the parties emphasized that they needed to “mutually agree.” The parties could have adopted a different approach and decided to forego mutual agreement on the patentability of intellectual property. They could have, for instance, used a retrospective approach whereby Vestal had a right to at least fifty percent of any patent that Tegu actually obtained based on Vestal’s research and development. However, the parties instead opted for a prospective approach, wherein the parties were required to determine Vestal’s ownership and revenue share “at a time no later than the filing date of the patent application.” Such obligations were triggered by mutual agreement that certain intellectual property was patentable. Thus, the cooperation between Vestal and Tegu before the patent was filed was necessarily preceded by the parties’ agreement as to patentability.

    Moreover, even if the Court could infer from the mandatory language used in Section 2.4 (“shall own,” “will be granted,” and “shall be established”) an enforceable duty on Tegu’s part to grant Vestal a share ownership and revenue, neither Section 2.4 nor any other part of the agreement provides a discernable standard for doing so. Notably, the agreement does not contain a section on remedies in the event Section 2.4 is breached. Although Section 2.4 states that Tegu will grant Vestal a “fair and agreeable share” of revenue, such language provides no guidance as to what would be a “fair” share of revenue under various ownership percentages or how a court would determine whether this fair revenue share would also be “agreeable” to the parties. Even if a court could determine a fair revenue share, the court would still be faced with the lack of any standard for determining the ownership percentage. The Court concludes that Section 2.4 does not indicate that the parties have settled all the essential elements of the agreement or agreed upon a method of settlement. For the Court to enforce Section 2.4 as Vestal requests, the Court would effectively need to write a new section of the contract spelling out the rights of each party and the available remedies in the event that the parties fail to “mutually agree” on patentability. The Court cannot do this, as “the court cannot force parties to come to an agreement.”

    With section 2.4 inoperative, all of Vestal’s contract-based claims and its fraud claim failed. There was no quantum meruit claim because Vestal was paid for its work, including for the transfer of ownership of the intellectual property rights created. Finally, its correction of inventorship claim failed because Vestal had not suffered any injury in fact so it did not have standing for the claim.

    The agreement is on Vestal’s paper. I wonder if all their agreements have this language or if Tegu had a sharp lawyer. And don’t miss Section 6.6.
    .

    Tegu v. Vestal Design Atelier LLC, No. 18-cv-01377-PAB-NRN (D. Colo. Aug. 12, 2019)

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  • The Name Didn’t Stay With the Building

    Ownership of the trademark for a location-based business, like a restaurant, a theater, or a hotel, is always interesting. I don’t think there is any consistent outcome; it depends on the very specific facts of the given situation.

    Today’s installment is about a little bakery called The Long Grove Apple Haus. The original business owner, non-party LGC, was a tenant at the building (the “Building”), operating the store from 1977 through 2011. LGC had two other stores (apparently not called Apple Haus), a wholesale business for Apple Haus products, and sold the product at festivals, both before the store closed and after. After the store closed in 2011, the premises were vacant.

    In June 2013 the defendant, Baldi Candy Co., purchased the assets relating to the Apple Haus business and continued to use the Apple Haus mark on products.1 In February 2017, Baldi Candy purchased property near the Building and later that year opened two stores at the new property. The business was called Long Grove Confectionery Company but it sells Apple Haus products.

    In September 2014 the plaintiff, Long Grove Investments, acquired the Building. In August 2017, it leased the Building to a person named Steve Sintetas, who was obliged by his lease to open a business named “Long Grove Apple Haus.” The plaintiff claimed that when it purchased the building it acquired rights in the Apple Haus name. Long Grove Investments sued Baldi Candy Co. for trademark infringement and deceptive trade practices under Illinois law.

    The plaintiff’s theory was that the trademark associated with the premises runs with the premises. But the court wasn’t buying it:

    Plaintiff attempts to overcome summary judgment by contending that it demonstrates ownership by purchasing “the building with which [the mark] is associated.” Plaintiff cites Plitt Theatres, Incorporated v. American National Bank & Trust Company of Chicago, 697 F. Supp. 1031 (N.D. Ill. 1988), where the court observed that trademark ownership “passes impliedly with ownership of the pertinent building or business with which the mark is associated, absent express provision to the contrary.” Relying upon this proposition, the court in Plitt Theatres held that each successive owner to the historic Esquire Theatre—beginning with the original owners who established the “Esquire” mark—passed its ownership rights to that mark when it sold the building to the next buyer. Critically, the court noted that the building’s original construction included a marquee and vertical sign containing the name “Esquire,” which has remained on the façade throughout time.

    Plaintiff also cites Helpful Hound, L.L.C. v. New Orleans Building Corporation, 331 F. Supp. 3d 581 (E.D. La. 2018), where the court held that the City of New Orleans established continuous and prior use over the trademark “St. Roch Market” even though the City never actually operated a market, or any other type of food service, in the building housing the St. Roch Market. The court reasoned that the City owned the building housing the market (which had been known as the “St. Roch Market” since the late 1800s), designed and built the market, chose its lessees, and significantly restored it after Hurricane Katrina. The court thus rejected a food hall tenant’s argument that it held priority over the City as to the “St. Roch Market” mark.

    But Plaintiff’s reliance upon these cases is misplaced, because the circumstances here vastly differ from those in either Plitt Theatres or Helpful Hound. In both of those cases, the original property owners: (1) actually established first use of the marks; and (2) demonstrated that they or their successive owners continuously used the marks at the properties. …

    Here, in contrast to Hungry Hound, Plaintiff did not originally own the Building, but rather acquired it in 2014. Moreover, unlike both Hungry Hound and Plitt Theatres, the original owner of the Building did not create, or have any involvement with establishing, the Apple Haus Mark. Rather, the record remains clear that LGC, a tenant of the Building, did so by, among other things, selling products bearing the Apple Haus Mark. And finally, unlike in Hungry Hound and Plitt Theatres, where the owners demonstrated continuous use of the marks at the properties, the record here shows that: (1) the Building has remained vacant since 2011; and (2) Plaintiff has never used the Apple Haus Mark since it acquired the Building in 2014.…

    Plaintiff merely purchased the Building. There remains no evidence that Plaintiff also acquired LGC’s business or any of its intellectual property. And, neither Plaintiff nor this Court has located any authority suggesting that the mere purchase of real property that was once associated with a trademark in the past can confer ownership.

    Plaintiff’s theory was a bit too much of a blunt instrument. If it was correct, no business could ever move locations without risking someone opening a business with the same name at the old locale.

    Long Grove Investments, LLC v. Baldi Candy Co., No. 18-cv-5237 (N.D. Ill. Aug. 7, 2019)

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    1. It doesn’t seem to be an issue that the Apple Haus mark wasn’t listed as an asset in the Asset Purchase Agreement. 
  • Too Late for Work-Made-For-Hire

    There’s a recent decision out of the Second Circuit about an after-the-fact work-made-for-hire agreement. There is a circuit split; the Seventh and Ninth Circuits have held that a “work made for hire” agreement must be executed before the creation of the work. However, the Second Circuit held in Playboy Enterprises, Inc. v. Dumas that the writing could be after the fact if the parties had agreed before the creation of the work that it would be a work made for hire. In Playboy, the writings in question were checks with a legend stamped on them that said “BY ENDORSEMENT, PAYEE: acknowledges payment in full for services rendered on a work-made-for-hire basis in connection with the Work named on the face of this check, …”

    We now have the estate of Stanley Kauffmann suing the Rochester Institute for Technology. Kauffman was a film critic for the New Republic magazine but not an employee. Kaufmann and The New Republic had only one writing regarding the ownership of the articles. In 2004, about 46 years after Kaufmann started writing writing the The New Republic, it sent a letter to Kauffmann saying “Our agreement with you has always been an oral understanding …. We have … always understood in doing business with you that, in light of our regular monthly compensation arrangement with you, all articles you have written for The New Republic have been ‘works made for hire,’ as that term is defined under the US Copyright laws.” Kauffman signed it, checking the word “Agreed.”

    Defendant Rochester Institute of Technology published an anthology of Kaufmann articles. The court tells an interesting back story, although irrelevant to the case:

    The anthology, titled The Millennial Critic: Stanley Kauffmann on Film: 1999-2009, was edited by third-party defendant Robert J. “Bert” Cardullo. He is not a party to this appeal. Cardullo, a serial plagiarist of writings by Kauffmann and others, misrepresented to RIT that Kauffmann’s will had granted him sole authority to prepare an anthology of Kauffmann’s film reviews. He went so far as to forge a letter purporting to be from counsel for the Estate. In emails to counsel in this litigation, Cardullo admitted that he was “fully guilty of all the charges against [him] and that RIT Press was duped by [him] in this affair.”

    But back to the “work made for hire” agreement. We are, of course, speaking here only of the second definition of a work-made-for-hire, “a work specially ordered or commissioned for use as a contribution to a collective work … if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.”

    So we have a writing, signed by both, stating that the work will be considered a work-made-for-hire. All good, right? Yes, according to the district court. But not so fast, says the appeals court. The court described the rationale in Playboy:

    Rejecting an absolute rule that the requisite writing always had to be executed before the work was created, [Judge Oakes] deemed “convincing” the argument that such a requirement could “itself create uncertainty.” Significantly, Judge Oakes indicated the sort of circumstance where a subsequent writing would be acceptable: “ ‘unanimous intent among all concerned that the work for hire doctrine would apply, notwithstanding that some of the paperwork remained not fully executed until after creation of the subject work.’” Then, considering the specific circumstances before him, he acknowledged that “[w]hile Nagel’s endorsement of Playboy’s first check bearing [one version of the legend] may not evidence [Nagel’s] pre-creation consent to a work-for-hire relationship, Nagel’s subsequent pre-creation consent to such a relationship may be inferred from his continued endorsements.

    But this situation was no Playboy:

    In the pending case, the agreement alleged to satisfy the writing requirement was not executed until five years after the year in which the articles were written, and there are no circumstances even approaching the Playboy scenario of a series of writings executed by check endorsements right after payment for each work. It is not “‘paperwork [that] remained not fully executed until after creation of the subject work.’ ” The 2004 Agreement does not satisfy the writing requirement of section 101(2).

    It’s a bit of a surprise, it was an agreement executed by both parties. The appeals court characterized it as not just paperwork but didn’t point out why it thought that was true. However the situation certainly has an odor about it. The pretext for the letter is “expan[sion] into the web and related technologies,” not “we thought we would go ahead and tidy up that loose end.” This letter is fairly shortly after N.Y. Times v. Tasini, when publishers were back-filling on the right to republish independent contractors’ work in electronic publications. So I share what may be the court’s skepticism that this really was a memorialization of the parties’ prior verbal agreement, although I would have preferred a clearer justification.

    Kauffmann v. Rochester Inst. of Tech., No. 1-2404-cv (2d. Cir. Aug. 1, 2019).

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  • When There Are No Rights to Assign

    You’ve all seen this language before. This is from an agreement to transfer rights to a formula for nutritional products in exchange for royalties:

    If you can’t read the image, it says

    In consideration of the sum of $1.00 payable by Synergy to HealthBanc upon execution of this Agreement, HealthBanc hereby transfers and assigns to Synergy and its successors and assigns, HealthBanc’s entire rights, title, and interest in and to the Greens Formula, including, without limitation, all patent rights and other intellectual property rights of any kind.…

    HealthBanc also gave this warranty:

    HealthBanc hereby represents and warrants that it is the sole and exclusive owner of the entire rights, title and interest, including without limitation all patent, trademark, copyright and other intellectual property rights, in and to the Greens Formula .…

    Synergy changed the formula several times; HealthBanc found out that Synergy wasn’t paying royalties on product sold in South Korea; Synergy claimed it didn’t have to; and a lawsuit ensued on variety of legal theories.

    The first part of the opinion is on a breach of contract claim, primarily whether the changes in the formula and packaging avoided the royalty obligation. There was no summary judgment on that argument because the agreement was ambiguous.

    But here’s the interesting part. Synergy counter-claimed for breach of contract on the basis that the two above paragraphs were breached, because it turned out that HealthBanc had no exclusive rights in the “intellectual property” (let’s collectively groan) of the formula. So surely one of the above two paragraphs must have been breached, right? Nope. According to the court,

    The assignment of rights provision, for example, contains a main clause stating that HealthBanc transferred its “entire rights, title, and interest in and to the Greens Formula” to Synergy. This language is followed by a dependent clause clarifying the scope of the rights transferred: “including, without limitation, all patent rights and other intellectual property rights of any kind.” This dependent clause makes clear that this transfer of all of HealthBanc’s property rights to the Greens Formula includes all patent or intellectual property rights it held. In other words, HealthBanc did not represent that it owned intellectual property rights to the Greens Formula and that it was transferring those rights to Synergy. The plain language of this provision is merely an agreement to transfer all of HealthBanc’s rights, including any intellectual property rights, to Synergy.

    The assignment of rights provision is similar to a quitclaim deed. The distinguishing characteristic of a quitclaim deed is that it is a conveyance of the interest or title of the grantor in and to the property described, rather than of the property itself. In other words, HealthBanc transferred all of the rights it held to the Greens Formula, including all intellectual property rights, to Synergy. Similar to a quitclaim deed, HealthBanc agreed to transfer all rights that it had; it did not contract to convey any specific intellectual property right to Synergy.

    Synergy’s reading of the warranty provision suffers from a similar defect. The main clause of the warranty provision represents that HealthBanc was “the sole and exclusive owner of the entire rights, title and interest … in and to the Greens Formula.” Embedded in this main clause is a dependent clause that further defines the scope of HealthBanc’s exclusive ownership rights to the Greens Formula, which “includ[ed] without limitation all patent, trademark, copyright and other intellectual property rights.” Taken together, these two clauses represent that all property rights to the Greens Formula, including all intellectual property rights, were held by HealthBanc. This warranty clause does not guaranty that HealthBanc owned some unidentified property right to the Greens Formula. It states only that no other entity or person held any rights to the formula, including any intellectual property rights.

    In short, it would have been simple for the parties to draft a clause that guaranteed HealthBanc held specific intellectual property rights to the Greens Formula. But, as noted above, the contract does not contain such a provision. Thus, Synergy’s breach of contract counterclaim, to the extent that it is based upon the existence of such a guaranty, fails as a matter of law.

    I agree on the interpretation of the assignment provision but I find the interpretation of the warranty clause surprising. First, I don’t agree that the dependent clause “further defines the scope of HealthBanc’s exclusive ownership rights.” The clause says “including, without limitation” – I don’t know how much clearer you can be that it shouldn’t be construed as limiting. Nevertheless, I understand the court’s view to be that the clause doesn’t state that there are any exclusive rights, only that, to the extent there are any, that HealthBanc owns them. And there weren’t any, so the claim wasn’t false. The takeaway is the make sure your agreement states that the assignor/licensor actually owns something exclusive.

    But it was a moot point; a representative for Synergy testified that he questioned whether there were any exclusive rights 2007 or 2008, so the claim was barred by the statute of limitations.

    HealthBanc Int’l, LLC v. Synergy Worldwide, Inc., No. 2:16-cv-00135-JNP-PMW (D. Utah Aug. 1, 2019)

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  • Licenses and the After-Acquired Affiliate

    Licenses and releases for after-acquired affiliates can be tricky things to draft. Are after-acquired affiliates also licensed to the rights? Are they licensed on a forward-going basis only, or does the license or release cure earlier infringement? It all depends on how you write it.

    On November 24, 2016, plaintiff Oyster Optics, LLC sued a number of companies for patent infringement, including defendant Infinera Corporation and non-party Coriant. On June 28, 2018, Oyster and Coriant settled, with a release for past infringement and a license going forward. On October 1, 2018, Infinera acquired Coriant. Infinera thereafter claimed that it was released and licensed to the patents by virtue of Oyster’s agreement with Coriant.

    The release was as follows:

    3.1. … Oyster, on behalf of itself and its Affiliates … does hereby forever release and discharge the Coriant Defendants, their Affiliates …, from any and all claims … asserted or assertable without regard to jurisdiction questions, in the Territory, whether known or unknown, arising from activities in the Territory up to the Effective Date, whether or not raised in the Litigation, based on the Licensed Patents … including without limitation any asserted or unasserted claims of infringement of any of the Licensed Patents … by or for or on behalf of any of the Coriant Defendants and their Affiliates, prior to the Effective Date ….

    There was an atypical definition of “Affiliate.” “Affiliate” is commonly defined as a entity controlled by, in control of, or under common control with the contracting entity. Here though, it was defined only as the entity that was in control:

    “Affiliate” means “any Person, now or in the future, which … (ii) has Control of a Party hereto.” “Person” includes “any … corporation, and “Control” means, inter alia, “that fifty percent (50%) or more of the controlled entity’s shares or ownership interest representing the right to make decisions for such entity are owned or controlled, directly or indirectly, by the controlling entity.”

    However, Infinera had acquired Coriant, so it was an “Affiliate.”

    The court found no ambiguity in the agreement that Infinera was released:

    The text is clear: the Release applies to (1) Infinera because it is an “Affiliate;” and (2) the claims asserted by Oyster against Infinera because the claims (i) are based on “infringement of the [Patents-in-Suit];” (ii) are alleged to “aris[e] from activities in the [United States];” and (iii) are alleged to have occurred “up to [June 27, 2018].”

    Oyster argued that Infinera was not released from liability because it became an Affiliate after the Effective Date of the Agreement, arguing that control had to exist at the time the Agreement was made. However “Affiliate” was defined as any “Person, now or in the future” that has control. Placing the definition in the release provision, the release read “Oyster provides a release to each of the Coriant Defendants and their Affiliates [i.e., any Person, now or in the future, which: … (ii) has Control of a Party hereto],” so included Infinera.

    Oyster alternatively alleged that a representation and warranty clause was breached:

    The Coriant Defendants represent and warrant that none of the Coriant Defendants nor their Affiliates sell or supply optical-telecommunications transceivers, or components for optical-telecommunications transceivers, to any of the other named defendants in the Consolidated Litigation, although the Parties to this Agreement agree that the remedy for any breach by the Coriant Defendants of this representation and warranty is limited to an exclusion from the scope of this Paragraph 3.1 of such other named defendants with respect to those sales or supply that give rise to such breach.

    This provision wasn’t breached; the meaning was clearly a representation that Coriant hadn’t sold components to Infinera and it hadn’t; they each manufactured their own.

    The language granting the license was similar and the result the same. The agreement also had a “no assignment” clause and Oyster claimed that “by transferring manufacture and/or sale of these products to Infinera, it has also transferred the associated rights and benefits under the license to Infinera,” but the court wasn’t buying the stretch:

    The Court finds Oyster’s argument to be both logically challenged and inconsistent with the plain terms of the Agreement. Section 4.1 expressly grants a license “to each of the Coriant Defendants” and “their Affiliates” and that such a license is “nonassignable (except as provided herein).” Infinera’s license rights stem directly from its status as an “Affiliate.” Whether or not any purported assignment of the Agreement has occurred is simply irrelevant. Even if such an assignment did occur, Section 13.2 expressly states that the Agreement “shall be separately assignable by the Coriant Defendants: (i) to any of their Affiliates.” There is simply nothing in the text to suggest that the License is inapplicable to products made by companies that acquire Coriant.

    Oyster may not have anticipated the prospect that one defendant would acquire a settling licensee, or didn’t do a good enough job ensuring that the definitions in the agreement worked as intended each place they were used. It can be tricky stuff.

    Oyster Optics, LLC v. Infinera Corp., No. 2:18-cv-00206-JRG (E.D. Tex. June 25, 2019)
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  • Notifying Co-Authors About a Lawsuit

    The Copyright Act of 1976 made a fundamental change to copyright law by making copyright divisible. Authors can give someone else exclusive rights in a portion of their copyright, for example the exclusive right of first publication, retaining no right of first publication for themselves. The drafters of the Copyright Act also contemplated that this might create conflicting rights amongst authors and so also provided that:

    The court may require [the legal or beneficial owner] to serve written notice of the action with a copy of the complaint upon any person shown, by the records of the Copyright Office or otherwise, to have or claim an interest in the copyright, and shall require that such notice be served upon any person whose interest is likely to be affected by a decision in the case. The court may require the joinder, and shall permit the intervention, of any person having or claiming an interest in the copyright.

    As far as I can tell, this case is the first time someone has asked a court to invoke this provision, 41 years after the current Copyright Act became effective. But the effort wasn’t successful.

    Plaintiff American Chemical Society and co-plaintiff Elsevier publish academic journals. Defendant ResearchGate is an online professional network for scientists.

    When the plaintiffs accept articles for publication, they have the author assign copyright through a written agreement. If there are multiple authors, the “Corresponding Author” either signs an agreement averring that “I have informed the co-author(s) of the terms of this Journal Publishing Agreement and that I am signing on their behalf as their agent, and I am authorized to do so” or alternatively “The Corresponding Author or designee below, with the consent of all co-authors, hereby transfers to the ACS the copyright ownership in the referenced Submitted Work, including all versions in any format now known or hereafter developed.”

    ResearchGate allows members to upload articles. It claimed that co-authors had lawfully uploaded copies, so it was not an infringer. ResearchGate therefore filed a motion asking the court to order the plaintiffs to provide the non-signing co-authors with notice of the suit. The court declined.

    The court analyzed the provision:

    Because the purpose of § 501(b) notice is “to avoid a multiplicity of suits by ‘insuring to the extent possible that the other owners whose rights may be affected are notified and given a chance to join the action,’” it is not enough for Defendant to show that co-authors have some theoretical interest in the suit or that they once had an actionable interest. See Kamakazi Music Corp. v. Robbins Music Corp., 534 F. Supp. 69, 74 (S.D.N.Y. 1982) (quoting H.R. Rep. No. 94-1476, at 159 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5775). Instead, notice only accomplishes § 501(b)’s purpose when it is sent to a party that, because of the divisible copyright system, has a legal interest in the suit. See H. Comm. On the Judiciary, 89th Cong., 1st Sess., Copyright Law Revision: Supplemental Report of Register of Copyrights on General Revision of U.S. Copyright Law: 1965 Revision Bill, Copyright Law Revision Part 6 (Comm. Print 1965) (“Register’s Report”) (emphasis added), available at https://books.google.com/books?id=65AYAAAAMAAJ&pg=PA131.1

    However, ResearchGate hadn’t proved that there were co-authors who had a legal interest in the suit. ReasearchGate argued that the co-authors weren’t aware that the plaintiffs claimed to own their copyrights, but the court disagreed:

    Based on these documents, Defendant argues that co-authors may not have known ‘their ownership rights were being purportedly transferred, much less agreed to that transfer in a signed writing,’ ECF No. 9, but this conclusion is based entirely on speculation because according to the sample forms, corresponding authors have agreed that they are authorized to sign the agreement on the co-author’s behalf and that they has informed the co-author of the agreement’s terms. … Defendant argues that by allowing ResearchGate to host their articles, co-authors have acted inconsistently with the idea that a duly authorized agent has signed away their rights to upload articles to a commercial site …, but Defendant does not offer even one specific example of a co-author who did not sign an agreement with Plaintiffs, personally believed the corresponding author lacked the authority to sign on his or her behalf, and therefore uploaded an article to Defendant’s platform. … Thus, rather than offering evidence about co-authors’ inconsistent behavior, Defendant has only speculated that co-authors may have conducted themselves in a contradictory manner.

    Further,

    Defendant has not offered evidence that co-authors, who of course have a theoretical interest in their articles, have any actionable interest in the articles’ copyrights. As Plaintiffs point out, although Defendant gives users an opportunity to submit a “counter notice” to claim that the material they uploaded did not infringe on a copyright and should not have been removed, Defendant does not assert that it received any counter notices from authors after it responded to Plaintiffs’ takedown notices. Taken together, the Court cannot comfortably draw an inference from the fact that some co-authors may have uploaded their articles to ResearchGate that these co-authors seek to challenge that the corresponding authors were not acting as their co-authors’ duly authorized agents.

    ResearchGate’s arguments that there was no effective transfer of ownership didn’t go far either:

    the Fourth Circuit has held that “where the copyright author appears to have no dispute with its assignee on this matter, it would be anomalous to permit a third party infringer to invoke § 204(a)’s signed writing requirement against the assignee.” Metro. Reg’l Info. Sys., Inc. v. Am. Home Realty Network, Inc., 722 F.3d 591, 600 (4th Cir. 2013). … Here, although Defendant alleges in conclusory fashion that there is a dispute between Plaintiffs (the copyright owners) and co-authors (the transferees), the Complaint and the evidence before the Court do not support that conclusion, meaning Defendant (the alleged third-party infringer) may not invoke § 204(a)’s signed writing requirement. Id. Further, even to the extent that a co-author must authorize a corresponding author to act as her agent in writing, Defendant does not offer any evidence showing that corresponding authors lacked their co-authors’ express written consent. If Defendant’s argument is that, to sufficiently allege their claims, Plaintiffs must have pled that corresponding authors received written consent from co-authors, that argument relates to the merits of Plaintiffs’ claims, not to Defendant’s requested relief under § 501(b).

    The court therefore concluded that ResearchGate had not met its burden to prove that any specific non-corresponding co-authors have a legal interest in the copyrights at issue and denied the Motion for Notice. But it was only a failure of proof, and the case is a good roadmap for invoking Section 501(b).

    Amer. Chem. Soc. v. ResearchGate GmbH, No. GJH-18-3019 (D. Md. June 11, 2019).

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    1. Huge props to the court for giving a url to a free copy of the report. These are hard to find, even using a paid legal database provider. 
  • Obligations versus Benefits

    Apparently someone is still interested in the Amiga operating system.

    In 2009, non-party Amiga, Inc. and defendant Hyperion Entertainment C.V.B.A. entered into a settlement agreement that resolved a number of lawsuits between them. The plaintiff, Cloanto Corp., was a licensee of Amiga at the time of the settlement agreement and mentioned in the agreement but not a party.

    Plaintiff Cloanto now claims to be a successor to Amiga. Cloanto alleges that Hyperion is in breach of the Amiga-Hyperion agreement and sued Hyperion for a variety of wrongs, as described by the court: “Suffice it to say that this case deals with copyrights, trademarks, and the right to sell software related to the Amiga operating system.” Hyperion retorted that Cloanto did not have standing.

    The agreement said that it was not assignable. However, Cloanto claimed that it was an “Acquirer,” a term used in the agreement. The agreement included an Exhibit to be signed by a “successor/acquiring entity.”

    Cloanto signed it and gave it to Hyperion. The form said that the Acquirer “covenants and agrees with Hyperion Entertainment C.V.B.A. that Acquirer will comply with all obligations of the Amiga Parties under the Settlement Agreement …” and that Acquirer “acknowledges and agrees that it will be bound by the terms and conditions of the Settlement Agreement applicable to the Amiga Parties …” The form only needed one signature, of the Acquirer.

    The question before the Court is whether Cloanto has standing to sue in the shoes of Amiga after signing this Successor/Acquirer Agreement Form. This question turns on the difference between a “Successor/Acquirer” and an “assignee.” The Court notes that “[l]awsuits by assignees of contract rights satisfy Article III standing requirements.”

    The form at Exhibit 3 is not itself a valid contract between Cloanto and Hyperion. At best, the fill-in-the-blank Exhibit 3 indicates that the Amiga Parties and Hyperion contracted to allow the Amiga Parties to transfer “all obligations of the Amiga Parties” and “the terms and conditions of the Settlement Agreement applicable to the Amiga Parties” to a successor entity. This language appears carefully worded to avoid transferring the Amiga Parties’ rights under the Settlement Agreement. Coupled with a plain language reading of the clause prohibiting assignment of the Agreement to a third party without Hyperion’s consent, which has not been given, the Court agrees with Hyperion that Cloanto has not acquired standing to sue for breach of contract.

    Cloanto Corp. v. Hyperion Enter. CVBA, No. C18-381 RSM (W.D. Wash. May 16, 2019).

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  • A Rare Section 117 Win

    We have a rare win under Copyright Act § 117(a), a section of the Copyright Act that allows someone to copy or adapt a computer program under very narrow circumstances. Invocation of the section has been largely unsuccessful because it only applies where one is the owner of a copy of the program. However, most transactions involving software are characterized as a license, so the defense generally fails this threshold requirement. See, e.g., Vernor v. Autodesk, Inc., 621 F.3d 1102, 1111 (9th Cir. 2010); MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928, 939 (9th Cir. 2010); DSC Commc’ns Corp. v. Pulse Commc’ns, Inc., 170 F.3d 1354, 1362 (Fed. Cir. 1999).

    Defendant Micro Systems Engineering, Inc. (MSEI) manufactures medical devices and wanted to automate parts of its production. It solicited bids for a Test Handling System (THS). The project was going to be in two phases, where the first phase was to automate some product testing stations. It solicited bids for the first phase and plaintiff Universal Instruments Corp. won the bid. The project involved hardware and two software components, the software on the test station and server software with which the station software communicated.

    Two years later Micro Systems solicited bids for the next phase, which was awarded to co-defendant Missouri Tooling & Automation (MTA). Micro Systems gave the station and server source code to MTA, as it was obliged to do under the phase 2 contract. MTA made minor changes to the server code during its work on phase 2, with testimony that it was nevertheless “pretty much identical” to the Universal version of the code.

    Universal sued Micro Systems and MTA for copyright infringement and, after a trial, the district court granted Micro Systems’ motion for judgment as a matter of law. The decision was appealed to the Second Circuit.

    The Equipment Purchase Agreement between Universal and Micro Systems said this:

    [i]f [Universal] uses any Pre-Existing Intellectual Property in connection with this Agreement, [Universal] hereby grants MSEI, MSEI’s subcontractors, or suppliers, a non-exclusive, royalty-free, worldwide, perpetual license, to use, reproduce, display, of the Pre-Existing Intellectual Property for MSEI’s internal use only.

    (The court didn’t explain why this code was “Pre-Existing Intellectual Property,” but apparently it was.) In a Final Acceptance Letter, Universal agreed

    to provide the THS server code as is with the understanding that MSEI assumes the risk of invalidating the warranty in the event a change made by MSEI to the source code causes damage to any of the THS line hardware.

    The court first held that the license grant in the Equipment Purchase Agreement made Micro Systems’ use of the code non-infringing; MTA was a “supplier” and the use was “internal.” Universal took a stab at a theory that “internal” meant “on premises.” For all of you writing software licenses for “internal use,” take note:

    [Micro System’s] argument is premised on a physical internal-external dichotomy, whereby a supplier’s “use, reproduc[tion], [or] display” of Universal’s intellectual property on MSEI’s premises would be permitted, while the same use or reproduction off site would violate the license. But this cannot be the parties’ intent, because by its terms the license is “worldwide” in scope and extends to MSEI’s suppliers and subcontractors. A license cannot simultaneously be worldwide and limited to the physical confines of the licensee’s premises. The more natural understanding of “internal use” in this context is that the pre-existing intellectual property could be used by or for MSEI’s existing business — not for resale or for the use or benefit of others. In the context of computer software, the on-premises, off-premises distinction makes even less sense, given the nature of software and source code.

    The court next considered the argument that the use of the software was a non-infringing use under Section 117 of the Copyright Act. That section says:

    (a) Making of Additional Copy or Adaptation by Owner of Copy. Notwithstanding the provisions of section 106, it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided:

    (1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner ….

    The first question was whether Micro Systems was “the owner of a copy of a computer program,” which is where the defense fails most of the time. In the Second Circuit, formal title is not required and instead “the courts should inquire into whether the party exercised sufficient incidents of ownership over a copy of the program to be sensibly considered the owner of the copy for purposes of § 117(a).” Krause v. Titleserv, Inc., 402 F.3d 119, 123 (2d Cir. 2005). Here,

    MSEI paid Universal over $1 million for the combined hardware and software solution. Universal customized the software to serve MSEI’s precise needs. Universal expressly “provided” a copy of the server software to MSEI with the sole condition that “MSEI assume[d] the risk of invalidating the warranty in the event a change made by MSEI to the source code cause[d] damage to any of the THS line hardware.” Universal granted MSEI and its suppliers broad rights to the server source code — a perpetual, worldwide license to use, reproduce, and display the software for MSEI’s internal use. Although the terms of the EPA expired on December 31, 2012, MSEI’s rights to the software “continue perpetually and do not terminate upon completion of the services.” Nothing in the arrangement between MSEI and Universal indicates that MSEI was in any way restricted from discarding or disposing of the software as it wished. For all of these reasons, MSEI was an owner of the station and server source code under § 117(a).

    The modifications made to the server code satisfied the second requirement, “created as an essential step in the utilization of the computer program in conjunction with a machine.” Controlling precedent in the Second Circuit allows modification where they are for “correcting bugs, performing routine tasks necessary to keep the programs up-to-date and to maintain their usefulness to [defendant], incorporating the programs into a new system implemented by defendant, and adding new capabilities to help make the programs more responsive to the needs of [defendant’s] business … adaptation of the copy of the[ ] software so that it would continue to function on the defendants’ new computer system [and] … the addition of new features, which were not strictly necessary to keep the programs functioning, but were designed to improve their functionality in serving the business for which they were created,” were all essential steps as long as they do not “harm the interests of the copyright proprietor.” That was the case here:

    The modifications that were made were undertaken “to help improve efficiency of the line,” and to enable the server software to “support … communicating with all of the [new] stations.” The modifications were, therefore, “designed to improve [the server source code’s] functionality in serving the business for which [it was] created.”

    Universal claims that MSEI’s provision of the source code to MTA — “a competitor” of MSEI — is exactly the sort of harm we indicated in Titleserv might present “[a] different scenario.” We disagree that this is the sort of harm envisioned by § 117(a). By its terms, § 117(a) permits the owner of a copy “to make or authorize the making … of another adaptation.” And, as we held above, Universal expressly authorized MSEI and its suppliers and subcontractors to use and reproduce the software at issue. True, alterations that “somehow interfere[ ] with [a copyright owner’s] access to, or ability to exploit, the copyrighted work” might render modifications non-essential under § 117(a), but where the copyright owner “enjoy[s] no less opportunity after … changes, than before, to use, market, or otherwise reap the fruits of the copyrighted programs that he created,” the changes may properly be considered essential under § 117(a).

    MSEI’s use did not inhibit Universal’s ability to market or sell its server software to others, nor did it divulge sensitive Universal information or enrich MSEI or MTA at the expense of Universal. MSEI made and authorized the making of minor modifications, narrowly tailored to adapting the server software for the use for which it was designed — orchestration of the test handing stations to ensure the quality of MSEI’s implantable medical devices.

    Accordingly, we hold that a reasonable jury could only find that the modifications made by MSEI were essential as they allowed the existing server software to interact with additional systems in the manner intended when the source code was developed for MSEI.

    Universal Inst. Corp. v. Micro Sys. Eng., Inc., No. 3:13-cv-831 (GLS/DEP) (N.D.N.Y. Aug. 8, 2017).
    Universal Inst. Corp. v. Micro Sys. Eng., Inc., No. 17-2748-cv (2d. Cir. May 8, 2019).

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