Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • The New Federal Law of Patent Assignment

    In Abraxis Bioscience, Inc. v. Navinta, LLC last November, a panel of the Court of Appeals for the Federal Circuit examined a set of transactional documents and held that the plaintiff did not own the patents when the suit was filed and therefore did not have standing (blog post here).  This wasn’t your run-of-the mill “whoops, I need to fix my chain of title, I should have checked it before I sued” problem, but rather a complex transfer of an entire business that occurred well before suit was filed.  It was described this way by the dissent in the rehearing en banc:

    The standing question, and Abraxis’s right to pursue its claims, was dependent upon whether a series of contracts purporting to transfer the patents were effective to vest title to those patents in Abraxis before it filed suit. It is undisputed that the parties intended that the contracts be governed by New York law. Interpreting the contracts under New York law, the district court found that a subset of those agreements, all of which were executed before filing, did operate to vest title in Abraxis before it brought suit.

    But the Court of Appeals reversed, applying the law of the Federal Circuit and holding that under its jurisprudence the patents had not been assigned before suit was filed. Judge Newman dissented: “It’s clear that the parties to this transaction fully intended to, and by their language thought they had, transferred the ownership of the patents.” 

    Abraxis filed a motion for rehearing and rehearing en banc but was unsuccessful  Judge Gajarsa in concurrence summarized the reasoning:

    The analysis is simple. The panel, following Federal Circuit law, concluded that a party has no standing under Article III to bring an action if it does not own the patents when it files the action. 35 U.S.C. § 261 requires assignments to be in writing. In this case, Abraxis did not possess a written assignment of the patents-in-suit from the owner thereof at the time suit was filed.

    The position advocated by the dissent would apply state law to effectively preempt federal law. When Congress has adopted a statutory scheme to apply in a particular field, federal law preempts state law.

    Newly-minted appeals court Judge Kathleen O’Malley, joined by Judge Newman, dissented. 

    The consequences of this decision are not slight. This creation of a new body of law to govern transfers of patent rights – one applicable in this Circuit only – will disrupt substantial expectations with respect to the ownership of existing patents and impose unnecessary burdens on future transfers thereof. Parties may now be barred from pursuing claims for infringement of patents they indisputably own under state law, and choice of law provisions in large-scale asset purchase agreements such as that at issue here will become meaningless where patents are involved.
    Judge O’Malley goes on to lambaste the Court for preempting a matter of state law – contracts – with a federal rule.  Judge O’Malley found no basis for doing so and plenty of law that says state law applies to patent assignments, in Aronson v. Quick Point Pencil Co., 440 U.S. 257 (1979) and Kewanee Oil v. Bicron, 416 U.S. 470 (1974) in the Supreme Court and in numerous Federal Circuit cases.  The exception was in DDB Technologies v. MLB Advanced Media, 517 F.3d 1284 (Fed. Cir. 2008), but that was a case interpreting the narrow issue of whether a patent assignment clause was an automatic assignment or an obligation to assign.  Judge O’Malley believes it was improper of the Court to extend this narrow rule to all patent assignments in general without doing a full analysis of preemption principles.  Had the panel done so, it would have found that there was no reason to preempt state law in construing the meaning of the contracts and thus the district court’s holding based on New York state law was correct.

    I was troubled by the first decision in this case because there was never an intention to play shell games with the patents, but rather the assignment of the patents was one part of a larger transaction executed in multiple documents and stages.  I agree with Judge O’Malley that this case will unnecessarily hamstring parties in how they structure a transaction. Judge O’Malley describes the problem best:

    Patent assignments, like the one in this case, occur in the context of large scale business transactions where the parties negotiate over, and depend upon, their choice of law provisions. These provisions allow parties to anticipate how a court would interpret their agreement and to draft agreements so that a court’s interpretation of it most likely will conform to the parties’ intentions. This is precisely what AZ-UK and Abraxis sought to do by including a New York choice of law provision in their agreements. The parties’ master agreement, moreover, contained an effective date provision, a tool widely used in IP transfer agreements, where the parties form an agreement in principle, subject to additional due diligence before finalizing the transfer of rights. It is undisputed that, under New York law, parties to a written transaction may use such provisions to retroactively make a contract effective as of an earlier date. Finding that the parties intended to give an earlier effective date to various agreements transferring the asserted patents, the district court found that the “relevant documents, taken as a whole, effectively transferred the rights in the patent to Abraxis” before it filed suit. Without any superseding policy justification, the panel majority ignored the state law chosen by the parties and made no effort to scrutinize the parties’ intent or the effectiveness of the agreements under that law.

    By disregarding the express intent of the parties that New York law apply, the panel’s decision disrupts intellectual property transfers that rest on the expectation that the law jointly chosen by the parties will apply to both patent and non-patent assets. As a consequence, parties may lose standing to bring infringement actions with respect to patents that they indisputably own under state law.

    I want to make one practice pointer, too. Judge O’Malley commented that the court had “confus[ed] the law relating to the retroactive transfer of title with principles prohibiting retroactive conferral of standing.”  Judge O’Malley doesn’t mention them specifically, but one example of a transfer of title in order to confer standing is the nunc pro tunc assignment executed post-filing. That was not the situation here. Here, there was a transaction well before suit was filed and the question was whether the documents effected the transfer claimed. A nunc pro tunc assignment is instead a transfer that comes into existence later in time but with an earlier effective date.  A nunc pro tunc assignment executed after suit is filed can’t cure a standing problem because the transfer couldn’t have happened until the document was signed, even though the effective date is earlier.

    A nunc pro tunc assignment has its place, but be careful denominating something as “nunc pro tunc.” If a document is merely ministerial in furtherance of a transaction that already occurred, like a trademark assignment executed for purposes of recordation in a trademark register so that the full Asset Purchase Agreement does not have to be recorded, it is not “nunc pro tunc,” it is “confirmatory.”

    Abraxis Bioscience, Inc. v. Navinta, LLC, No. 2009-1539 (Fed. Cir. Mar. 21, 2011) (denying rehearing and rehearing en banc).

    Patently-O post here.

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  • Why the Paperwork is Important

    Defendant River West Brands LLC is a company that, in its own words, “identifies, acquires, redevelops, and monetizes iconic brand intellectual property that is significantly distressed.” In other words, its business is in zombie brands. I previously blogged on some of the methods the company uses here.  It’s a business model with fairly significant challenges, which aren’t any easier when there is some squirrely licensing practice going on.

    Non-party Unilever was the original owner of trademark registrations for the mark SALON SELECTIVES for hair products.  The disputed ownership and licensing history goes like this:

    2006
    • Unilever grants River West Brands an exclusive license in exchange for royalties, with a right to purchase the trademarks
    Late 2007
    • River West Brands and co-defendant Almar Sales Company form Selective Beauty Brands, LLC
    • River West Brands sublicenses the marks to Selective Beauty Brands, which sub-sublicenses the marks to Almar in a five-year, irrevocable oral license
    February, 2008
    • Selective Beauty Brands pays off the remaining royalty obligation to Unilever and the trademarks are assigned to it
    • Selective Beauty Brands gives non-party Hilco Financial LLC a security interest in the marks
    October, 2008
    • Hilco becomes the assignee of the trademarks
    Date unknown
    • River West Brands, Almar, and non-parties Beautology Brands and A.P. Deauville agreed orally to create a company Salon Selectives LLC to buy the marks back, each 25% owners of the company
    February, 2009
    • Beautology Brands buys the marks and places them into Salon Selectives, but does not distribute the 75% ownership share to the three other companies
    March, 2010
    • The three companies sue Beautology Brands in state court
    May, 2010
    • Salon Selectives demands that Almar cease and desist from distributing hair combs and brushes under the SALON SELECTIVES mark
    June, 2010
    • Salon Selectives assigns the marks to plaintiff 1177216 Ontario Ltd.
    • Co-plaintiff CLT Logistics, Inc. is the exclusive licensee
    August, 2010
    • 1177216 Ontario and CLT Logistics sue River West, Selective Beauty Brands and Almar for trademark infringement

    The first question was whether the federal court should abstain in favor of the state court action.  It did not, and you can read the decision if you’re interested in why the court didn’t.

    Next, the defendants raised a license defense, claiming that they have an irrevocable license from Selective Beauty Brands to use the marks.  This defense failed for a couple of reasons. First, Almar started using the marks when they were still owned by Unilever. Thus, the only license it could have had was River West Brands => Selective Beauty Brands => Almar. The problem with this theory was that a trademark licensee may not further sub-license unless there is an explicit grant of the right to do so. The Unilever => River West Brands license was not in evidence, so there was no proof that the license allowed River West Brands to further license to Selective Beauty Brands. Further, there was also no evidence that River West Brands had granted Selective Beauty Brands the right to further grant the oral license to Almar.

    Second, When Selective Beauty Brands became the owner of the marks, its sublicense from Unilever would have been extinguished. Since the Almar license was derived from the Selective Beauty Brands’ sublicense, the Almar license would also have been extinguished. (I’m not sure this necessarily had to be an obstacle. Since Selective Beauty Brands and Almar were aligned, I’m not sure why there just couldn’t be an argument that when the Selective Beauty Brands’ sublicense was extinguished, it simultaneously granted Almar a direct license.  A license doesn’t have to be in writing, but I guess hat tip for not making up a conversation that didn’t happen.)

    So no proof that any defendant had a license and their defense fails.  All in all, its a situation that I find pretty surprising for a company whose entire business model is based on acquiring and licensing trademarks.

    But the absence of a license defense doesn’t mean the plaintiffs win, either. The plaintiffs also suffered a failure of proof, so their motion for preliminary injunction was denied.

    Salon Selectives first made the sure loser of an argument that an assignee’s ownership of an incontestable mark is also incontestable.  Not so, as taught by Federal Treasury Enter. Sojuzplodoimport v Spirits Int’l N.V., (blogged here); one can still challenge the validity of the assignment.

    So while there was evidence that Salon Selectives was the owner of the marks, there was also evidence that River West Brands and Almar were owners of Salon Selectives. If they were, the validity of the assignment from Salon Selectives to 1177216 Ontario was in doubt. Under Illinois law, the sale or transfer of “substantially all” of an LLCs assets requires approval from every LLC member. Since Salon Selectives was a holding company for the marks, the marks were arguably all or substantially all of the company’s assets and the assignment therefore possibly invalid.

    The court also made an interesting point about the balance of hardships in its analysis. It didn’t have a lot of sympathy for the plaintiffs, who purchased the marks after the state court lawsuit was filed and thus knowing full well that there was a cloud on title to the marks, and that Almar had refused to cease using the marks. “Plaintiffs can be seen to have assumed some risk that they would not be awarded a preliminary injunction when they acquired the marks. This fact mitigates some of the harshness of denying an injunction.”  Defendants had also assumed risk, though,  knowing they might not re-acquire the rights to the marks.  Nevertheless, altogether the balance of the hardships tipped in favor of defendants.

    Plaintiff’s motion for preliminary injunction denied without prejudice; defendants’ motion to dismiss or for summary judgment denied.

    CLT Logistics, Inc. v River West Brands, LLC, No. 10-13282 (E.D. Mich., March 4, 2011).

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  • Revoking an Implied Nonexclusive Copyright License

    Jason Waggoner developed a software program in the 1990s.  Later, he and two other shareholders created a company called Nearstar, Inc., which distributed “Dataserver” software which was based almost entirely on Waggoner’s software.  Nearstar distributed the software for nine years, including versions 3.2, 4.0, 5.0, 6.0 and 6.2.  Waggoner admitted that he granted Nearstar permission to copy, distribute, market, and modify the Datasource source code, although nothing was put in writing.  Then Waggoner quit Nearstar, Nearstar sued Waggoner for breach of contract and copyright infringement, and Waggoner sued back for copyright infringement.

    Nearstar filed a motion for summary judgment, conceding for purposes of the motion that Waggoner owned the software, but arguing that it at least had an unlimited, irrevocable license to use, modify and sell Dataserver.

    Here are the fundamentals of an implied, non-exclusive copyright license:

    An implied nonexclusive license arises when the following occurs: (1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes the particular work and delivers it to the licensee who requested it, and (3) the licensor intends that the licensee-requestor copy and distribute his work.  A nonexclusive license may be irrevocable if supported by consideration.

    So how did Nearstar do? Far from successful on summary judgment, for a couple of reasons.  First, Nearstar didn’t request the creation of the work – recall that it existed before Nearstar did.  Second, a license is only irrevocable if there was consideration.  Waggoner had been paid a salary and distributions like the other partners, but continued at-will employment is not consideration to support an irrevocable license.  An equitable estoppel defense was raised only in the reply brief so could not be considered, but even if it had been considered there were questions of fact. Summary judgment denied.

    Nearstar, Inc. v. Waggoner, No. 4:09cv218 (E.D. Tex. March 2, 2011).

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  • When You Should Hire an Investigator

    This case just stinks. I can’t say it’s wrongly decided, it just seems so unfair.

    The dispute is over ownership of the trademark ZORLAC for skateboards and apparel. Opposer Jeff Newton started a skateboard business in 1976 under the ZORLAC mark, incorporating in 1986.

    1984 ad

    But shortly thereafter he was in financial trouble. He owed $80,000 (including to his mom – I have to think he was a very young man at the time), so his solution was to sell the company to trademark applicant David Brown. Thus in 1987 Newton signed an agreement transferring the company – or all of the assets of the company, it’s not clear – including the ZORLAC trademark in return for payment of his outstanding debts and future employment. Newton thereafter ceased using the mark and and worked for Brown’s company, Lambourne Industries, for about five years. Newton described his time there as “design team manager, the face of Zorlac, to slowly just becoming a salesperson with no input.” He left Lambourne Industries in 1992.

    Newton left the skateboard industry for 10 years, returning in 2002. In 2005 he started using the ZORLAC mark again, presumably based on a belief that Brown wasn’t using it anymore.

    From Wayback Machine, circa 2006
    From Wayback Machine, circa 2007

    A month after Newton had his first commercial sales using the ZORLAC mark, Brown filed an intent-to-use application for the same mark.

    Newton opposed Brown’s application and the only question was priority. If Brown had abandoned the mark then Newton had priority, since his actual use preceded the intent-to-use application filing date. If the mark was not abandoned then Brown owned it, based on Newton’s transfer to him of the mark and its continuous use thereafter. There is little documentary evidence in the case; instead, the Board had to rely on conflicting testimony of adverse parties and biased witnesses to reach its conclusion.

    First was a challenge to who the original assignee of the mark was. Newton claimed that he sold the mark to Lambourne Industries, not Brown personally, so applicant Brown was not the owner. If Brown was not the owner of the original rights, his claim based on continuous use would fail. (It’s not entirely clear to me why this is so. It seems that this would be a defect that could be remedied by an assignment, since Brown could clearly tack to the former use. But, Brown had any number of companies that used the ZORLAC mark over time, so maybe it was cleaner to just maintain that Brown always owned the mark.)

    There were no records of the transaction introduced in evidence. Brown testified that he bought Newton’s business in an individual capacity. Newton’s evidence that instead the transfer was to Lambourne Industries was based on the testimony of a person named Schmid, who claimed that he was Brown’s partner. The problem with Schmid’s testimony was that Schmid had previously, and unsuccessfully, sued Brown claiming half-ownership of all the skateboarding businesses, although he had no stock certificates or agreements evidencing interest in any of the companies. The Board found Schmid’s testimony not credible without documentary evidence and decided that Brown had purchased the ZORLAC mark personally.

    So the Board reached the meat of the case, which was whether Brown had continuous use of the mark. Newton’s first evidence of non-use was a Transworld Business magazine article that quoted employees who said that ZORLAC-branded skateboard deck blanks were being phased out and that “[T]he Zorlac brand has lost its appeal . . . So now it’s time to move on. . . .  Zorlac has been replaced with a new full-graphic line called Status . . . .  Zorlac’s history.”

    But the problem with the article was that the people quoted in the article – Schmid and Mertz, a salesman – had no authority to represent the company. In contradiction, Brown testified that “In 2000, Zorlac was extremely important to us. It’s all we were selling. . . . [Schmid] wasn’t a member of the Board of directors or an officer. It may be his opinion, but he wouldn’t have any way of knowing what the company was or was not going to do.”

    Newton also introduced Schmid’s testimony that Brown stopped making ZORLAC boards in the late 1990’s and that the stock was depleted by 2002. Another former employee testified that he no longer saw ZORLAC products in skateboard shops and visited a warehouse in 2004, hoping to find “freebie” products, but there weren’t any. A warehouse manager testified he never saw ZORLAC products in the warehouse when he worked for one of Brown’s distribution companies, Syndrome Distribution. A president of another Brown company, Alliance Board Sports, said he did not sell ZORLAC products and never heard of Alliance Distribution, the company supposedly distributing the ZORLAC products.

    Brown rebutted that the there were only a few skateboard decks and shirts “somewhere,” but that most orders were made-to-order, either in house or ordered from Taiwan. He said he sold to a buyer, “Bill,” in Texas, with whom Brown had been doing business for 10 years by cell phone (although he produced no invoices for sales to Bill). Brown said some buyers picked up the goods from Mexico. Thus, the Board found there was good reason why none of Newton’s witnesses would have seen any inventory.

    Rather, Brown had a witness who testified that Brown controlled the quality of the ZORLAC goods sold by any number of companies Brown owned over the years. Brown produced invoices for ZORLAC skateboard decks and wheels dated 1997, 1998 and 2000 to 2008. He also had correspondence with a “national retailer” about ZORLAC skateboards from 2002 to 2005 and in 2007 and 2008, proposing sales of ZORLAC-branded skateboards. There was similar evidence for apparel.

    Thus, Brown had continuous use of the ZORLAC mark. Further, even if there had been a cessation of use, the correspondence with the retailer shows that there was a continuing intention to use or resume use of the mark, so it could not have been abandoned.

    So at the end of the day Brown mustered up enough evidence to prove continuous use of the ZORLAC mark. I’d put an image here of it if I could have found one.

    I have so much sympathy for Newton. The goodwill in the ZORLAC brand is from what Newton did, not anything Brown did. When researching this post, I couldn’t even find a web page for Brown’s use of the ZORLAC mark. The only current use I could was Newton’s (now taken down), despite Brown having filed an intent-to-use application over five years ago. Newton poured his heart and soul into building a successful brand that, by all outward appearances, the acquiror just let molder. Newton had every reason to believe that the brand was now defunct – a public statement that it was gone and none found in the marketplace. Look at the evidence of use (albeit enough) – just the barest amount, a few sales to a few stores, so that even those familiar with the skateboard market and the Brown business weren’t aware of it.

    It was a human impulse on Newton’s part to try to save what he had once built, so he jumped back in.  The unhappy result is that the person who originally created a brand and then built it back up a second time isn’t the trademark owner.

    Newton v. Brown, Opposition No. 91174441 (TTAB Feb. 7, 2011).

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  • Bar Napkins Aren’t the Best Kind of Contract

    You be the judge, and it’s not hard on this one.  Dean Bach owned and operated “Dino’s Lounge” in Ferndale, Michigan.  A bar in Northville, Michigan was on the blocks and Bach and a guy named Martinez bid against each other for it.  Martinez’s bid was accepted, but he didn’t have experience running a bar.  The liquor license was about to go into escrow, so the bar needed to re-open fast.  Martinez, his wife, and a guy named Konol (one of the sellers) met with Bach to see if they could get the bar opened quickly to save the license – Martinez would contribute money and Bach the experience.

    Bach provided recipes, menus, and his personal assistant to get the bar opened within a few weeks, in time for a local festival. The assistant arranged for the vendors for alcohol, coffee, food, cleaning, and linens. Bach, or his assistant, probably were the ones to arrange for the staff that ran the bar that weekend (Martinez testified “I don’t know who made arrangements to have all these servers drop out of the sky for two days.”).

    The bar opened as “Dino’s Sports Lounge,” had a caricature of Bach on the menu, and used the Dino’s Lounge logo on the menu and awnings. Bach helped publicize the new bar and restaurant.

    And then the Martinezes stiffed him – he never got a dime or any ownership interest in the bar.  This is my favorite testimony, from Mrs. Martinez’s deposition:

    Q. Do you know if there was ever any discussions in compensating either Mr. Bach or Dino’s Ferndale for any efforts put toward the opening and running of Dino’s Northville?
    A. To my knowledge, there were no conversations, and given the fact that I was donating my time to help, my husband was donating his time, to me, it was– there would have been no compensation expected to try to get a business up and running.
    Q. But you were an equity owner, correct?
    A. Yes, I was an equity owner.
    Q. And Mr. Bach was not an equity owner, correct?
    A. That’s correct.
    Q. As far as you know, it was never your intention for Mr. Bach or Dino Drop to be paid for any whatever efforts they made?
    A. That’s correct …
    [….]
    Q. Do you know if Mr. Bach was ever to acquire any equity ownership in the bar or the liquor license?
    A. Absolutely not. He was not.
    Q. From the inception, he was never going to have an equity ownership?
    A. Correct. 

    Uh, yeah, Bach was letting them use his name, image and trademark, and helping get the place up and running, all out of the goodness of his heart.

    Not surprisingly, the relationship broke down and Bach’s business partner in Dino’s Ferndale (incidentally, a patent lawyer at Harness Dickey) sent a letter to the Martinezes’ lawyer instructing that they should “cease and desist from utilizing any and all indicia that would associate him with Dino’s.”  The name of the Northville restaurant was subsequently changed from “Dino’s Sports Lounge” to “Dino’s Sports Grill” (yeah, that works) and ultimately to “Northville Sports Den.” It continued, though, to have “Dino’s” indicia at least on the awnings and continued to use a similar menu.

    The case is probably really mostly about what compensation Bach should have received for his contribution to the business.  There’s a breach of contract claim that wasn’t decided on summary judgment, based on a writing on a bar napkin (yes, really). Bach is claiming 33% ownership in Dino’s Sports Lounge, 1/3 of gross revenues, and 3% of gross proceeds for the IP license.

    I’m sure you’ve figured out where the trademark infringement claim goes. “Dino’s” has secondary meaning (necessary to prove because it was an unregistered trademark in a personal name), in no small part because the court found that Dino’s Northville changed “Dino’s Sports Lounge” only as far as “Dino’s Sports Grill” in order to maintain the appearance of a connection with the original Dino’s.  Likelihood of confusion then of course a slam dunk, as it should have been.  A trade dress claim based on the menu was also a winner for Bach.

    Dino Drop, Inc. v. Chase Bar and Grill, LLC, No. 09-cv-10759 (E.D. Mich. Feb. 24, 2011).

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  • What Nunc Pro Tunc Means

    Patent standing cases are a dime a dozen, so I don’t necessarily blog them.  But Epic Sporting Goods, Inc. v. Fungoman LLC gives a really good summary of the legal significance of an assignment nunc pro tunc, so I thought I’d share it.

    On August 1, 2006 the asserted patent (U.S. Patent 7.082,938 titled “Baseball Fielding Practice Machine”) issued to Thomas Wilmont.  Plaintiff Epic Sporting Goods, Inc. filed a patent infringement lawsuit on November 30, 2009.  There was a nunc pro tunc assignment of the patent dated November 16, 2009, two weeks before the suit was filed, but it was executed on December 11, 2009, 11 days after the suit was filed.  Good enough?
    No, as is well-settled by the Federal Circuit:
    As a general matter, parties should possess rights before seeking to have them vindicated in court. Allowing a subsequent assignment to automatically cure a standing defect would unjustifiably expand the number of people who are statutorily authorized to sue. Parties could justify the premature initiation of an action by averring to the court that their standing through assignment is imminent. Permitting non-owners and licensees the right to sue, so long as they eventually obtain the rights they seek to have redressed, would enmesh the judiciary in abstract disputes, risk multiple litigation, and provide incentives for parties to obtain assignment in order to expand their arsenal and the scope of litigation. Inevitably, delay and expense would be the order of the day.
    So what is a nunc pro tunc assignment for?
    Plaintiff argues state law governs the effective date of the Assignment and that, under Alabama law, the effective date of the Assignment is November 16, 2009. The Court and Defendants agree with Plaintiff that state law generally governs the validity and enforcement of a contract and that the Court must look to state law to determine the ownership of a patent. Plaintiff’s argument is misplaced, however, as it fails to recognize the distinction between the effective date of the Assignment as it relates to (1) whether the Assignment is valid and enforceable as between the parties (a matter of state law), and (2) whether Plaintiff had Article III standing to assert a cause of action for patent infringement (a matter of federal law).
    Case dismissed without prejudice under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction.

    Epic Sporting Goods, Inc. v. Fungoman LLC, No. 09-1981 (W.D. La. Feb. 10, 2011).

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  • Who Knows Who Owns Betty Boop

    You’d think the recent 9th Circuit decision about Betty Boop would be right up my alley.  But really, I’m mostly just mystified by it.  It doesn’t add anything to current copyright jurisprudence and takes a decidedly orthogonal direction on current trademark law.

    The facts that the Court of Appeals cares to discuss are fairly simple. The original Fleischer Studios, headed by Max Fleischer, created the cartoon character Betty Boop, a “large round baby face with big eyes and a nose like a button, framed in a somewhat careful coiffure with a very small body . . . .”  Beginning in 1930, the studio developed a number of cartoons featuring Betty Boop:

    Ultimately Fleischer Studios sold the copyright in the works to Paramount Pictures, Inc. The next assignment was to UM&M TV Corp. in 1955, then a subsequent assignment to National Telefilm Associates, Inc., which became Republic Pictures.

    In the early 1970’s Max Fleischer’s family started a new Fleischer Studios and went about acquiring what it thought were all the rights to Betty Boop, obtaining the rights that Republic Pictures had in 1997.  It developed a successful merchandising business for the Betty Boop character.

    In 2006 Fleischer Studios sued the defendants (Fleischer Studios Inc v. A V E L A Inc et al, 2:06-cv-06229-FMC-MAN (C.D. Cal.)), who were selling Betty Boop images based on vintage posters.

    The only assignment the appeals court considered was the second one, between Paramount and UM&M TV Corp.  The assignment was in 1955, under the Copyright Act of 1909.  The assignment had this interesting provision:

    Paramount hereby grants and assigns to [UM&M] all of Paramount’s right, title and interest in and to said Photoplays [of Betty Boop] . . . .

    Anything to the contrary notwithstanding, no grant or assignment is made hereunder to [UM&M] of the characters and characterizations contained in said Sold Photoplays or said literary material, or of the copyrights in said characters or characterizations, or of any production or other rights in said characters and characterizations, or to use said characters and characterizations or the names of said characters or trade names, trademark and names of the series of Sold Photoplays or of said literary material in any manner except . . . only as part of the particular Sold Photoplay in which they or any of them are contained . . . .
    The copyright in the character was later assigned to Harvey Films.

    The parties agreed that characters are separately copyrightable from the underlying works.  The significant question here was, whether under the Copyright Act of 1909 where copyrights were indivisible, the above limitation meant what it said. It did, and you can read the decision for a more detailed discussion. (William Patry, where are you when we need you?) Thus, the new Fleischer Studios does not own the copyright in the character and the defendants are not copyright infringers.

    But, Fleischer Studios also obtained the Harvey Films rights in the character but, according to the majority opinion, failed to preserve its argument on the alternative chain of title on appeal.  The dissent disagrees:

    The majority inexplicably fails to respond to that theory, asserting only that Plaintiff waived the argument that it possesses the copyright via the Harvey Films chain of title. I disagree with the majority’s assertion for four reasons.

    First, it is true that Plaintiff did not raise the Harvey Films chain of title in its opening brief. But its failure in that regard is perfectly understandable. The district court had ruled in Plaintiff’s favor on every link in the UM&M chain except one. Plaintiff thus challenged only the portion of the district court’s opinion in which Plaintiff lost. That strategy makes particular sense because Defendants had never before advanced the argument made in their answering brief. Furthermore, after Defendants did advance a new argument, Plaintiff immediately retorted, in its reply brief, that even if the doctrine of indivisibility applied, Plaintiff prevails via the Harvey Films chain of title. I see nothing to be gained from encouraging litigants to protect against the waiver doctrine by asserting, pro forma, in their opening briefs any and all possible theories of victory, in the possible event that the opposing party will raise a completely new argument in its answering brief.

    So, a win by the defendants on procedure alone on the copyright infringement theory.

    Then when we get to trademark, things go in a completely unexpected direction. Lo and behold, aesthetic functionality turns out to be alive and well in the 9th Circuit.  It has been recited pro forma for decades that “[i]n this circuit, the ‘aesthetic’ functionality test has been limited, if not rejected, in favor of the ‘utilitarian’ functionality test.” See Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc., 457 F.3d 1062, 1070 (9th Cir. 2006); Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1260 (9th Cir. 2001); First Brands Corp. v. Fred Meyer, Inc.,  809 F.2d 1378, 1382 (9th Cir. 1987); Gucci Timepieces America Inc. v. Yidah Watch Co., 1998 WL 650078, *3 (C.D.Cal. 1998); Qualitex Co. v. Jacobson Products Co., Inc., 1991 WL 318798, *6 (C.D.Cal. 1991); Universal Frozen Foods, Co. v. Lamb-Weston, Inc., 697 F.Supp. 389, 393 (D.Or. 1987). This was true even after the Supreme Court recognized that aesthetic functionality is one species of functionality (“It is true, of course, that the person seeking to exclude new entrants would have to establish the nonfunctionality of the design feature — a showing that may involve consideration of its esthetic appeal. . . .” Wal-Mart Stores, Inc. v. Samara Bros., Inc.,  529 U.S. 205, 214, 120 S.Ct. 1339, 1345 (2000).)
    But, that was of no moment to this panel. 
    Although the parties did not cite or argue the application of Job’s Daughters to the facts of this case, and while the district court did not base its decision on that case, “it is clear that we have the power to affirm [the district court’s decision] on an alternate basis” if it is supported by the record. . . .

    Job’s Daughters is directly applicable to Fleischer’s trademark claims. Even a cursory examination, let alone a close one, of  “the articles themselves, the defendant’s merchandising practices, and any evidence that consumers have actually inferred a connection between the defendant’s product and the trademark owner,” reveal that A.V.E.L.A. is not using Betty Boop as a trademark, but instead as a functional product. . . . The name and [Betty Boop image] were functional aesthetic components of the product, not trademarks. There could be, therefore, no infringement.

    Further, allowing Fleischer Studios to use trademark law to extend the copyright in Betty Boop was contrary to Dastar: “If we ruled that A.V.E.L.A.’s depictions of Betty Boop infringed Fleischer’s trademarks, the Betty Boop character would essentially never enter the public domain. Such a result would run directly contrary to Dastar.” (For more on the Dastar portion of the case, see Rebecca Tushnet’s 43(B)log).  I’m so VERY curious to know what Disney thinks of that one.

    Betty Boop cartoons here and here.

    Fleischer Studios, Inc. v. A.V.E.L.A., Inc., No. 09-56317 (9th Cir. Feb. 23, 2011). 

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  • Do-Over on the Writing Requirement

    Such a short decision, and so many things to think about.

    We last visited Vergara Hermosilla v. The Coca-Cola Company after a motion for preliminary injunction had been granted in Vergara’s favor. Vergara did a Spanish translation of lyrics for a video for Coca-Cola, but there was a misunderstanding and/or screw up which meant that there was no contract in place that gave Coca-Cola the right to use the lyrics (at least that’s how it was decided on preliminary injunction). The root of the dispute was over credit for the work, and the court entered a mild-mannered order requiring Coca-Cola to give Vergara credit.

    Now we have the court’s decision on summary judgment, with what looks a lot like an about-face.  Let’s refresh the facts.  After a phone conversation about the terms of the deal after the work had already been completed, Vergara wrote this email:

    But because I am a man of my word and honor, that is not moved by economic motives, my only request is that my credits are respected as producer and adapter of the Spanish version (that every time the name of any composer of this version appears, my name appears as adapter), and obviously, the credits for the production that are detailed in the invoice sent for this production, which I have detailed below.

    For the adaptation, you may consider it a work for hire with no economic compensation to that respect. I believe what’s legal is a dollar.

    I hope that this leaves clear what my work was and what my good intentions were from the beginning.

    Jose Puig, VP of Marketing at Universal Music Latin America (who was doing the work for Coca-Cola) responded:

    You can count on the credits on the track.

    However, Puig then sent a draft agreement that didn’t provide for credit to Vergara, so Vergara rejected what he characterized as Puig’s “proposal.”

    The first time around Coca-Cola had argued that the work was a work made for hire, but the court found there was no writing as required by section 101(2) of the Copyright Act. This time around, Coca-Cola argued that there was a writing for purposes of assignment of copyright as required by section 204 of the Copyright Act – same correspondence, just different statutory section.

    This time the argument was a winner. Vergara’s email was the offer, Puig’s “you can count on the credits” the acceptance, they had the essential terms in place, and nothing mattered after that.

    The court notes that “findings made at the preliminary injunction stage are often based on incomplete evidence.” What changed? It was Puig’s email response saying “You can count on the credits on the track,” the acceptance of the contract.  This email wasn’t mentioned in the preliminary injunction decision.

    I’m not sure I buy it, though. The court cited Judge Kozinski’s famous statement about the writing requirement of Section 204: “It doesn’t have to be the Magna Charta; a line-line pro forma statement will do.”  But did Judge Kozinski mean even where the words used are “work for hire,” where there is a different statutory section for that writing requirement?

    Perhaps it doesn’t make a difference at the end of the day whether the writing was for purposes of agreeing it was a work made for hire rather than an assignment. Here are the two statutory sections:

    Assignment: A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.

    Work made for hire: A work [is a work made for hire] . . . if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

    I think it might matter.  Was an exchange of emails “a written instrument signed by them”?

    Vergara Hermosilla v. The Coca-Cola Company, No. 10-21418 (S.D. Fla. Feb. 23, 2011).

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  • Urban Homesteading

    URBAN HOMESTEADING
    URBAN HOMESTEADING
    URBAN HOMESTEADING

    Check out EFF to see what it’s about.

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  • Slow Blogging

    Cases have been slow lately, so instead I updated the look of my blog.  Hope you like it.

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