Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Estate of Saunders v Estate of Garcia


    According to the complaint, Merl Saunders and Jerry Garcia performed together as the Merl & Jerry Band. It was a partnership with equal shares. The two created Master Tapes, which were jointly owned but in the Garcia estate’s possession. Jerry Garcia’s estate released the recordings on an album (left) entitled Pure Jerry: Jerry Garcia & Merl Saunders Band, Keystone Berkeley September 1, 1974 after both men’s deaths. Merl Saunders’ estate is suing Jerry Garcia’s estate. Counts for false endorsement and unfair competition under the Lanham Act and state law, the right of publicity, for an accounting, for an injunction, and for declaratory judgment on the ownership of the Master Tapes.
    Estate of Saunders v Estate of Garcia Complaint

    News report here. See the album details here.

    © 2009 Pamela Chestek

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  • Keeping a Trade Secret Secret May Not Be Enough

    The trade secret form of intellectual property is unique because its very existence requires that it have economic value. Patents and copyrights don’t need to (and often don’t) generate a dime. Trademarks must be used in commerce to exist, but they don’t have to be used in an income-producing way. But the definition of a trade secret describes it as:

    information . . . that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

    Uniform Trade Secrets Act § 1 (emphasis added). No economic value, no trade secret.

    An unpublished decision from the 6th Circuit demonstrates this principle. Summit National Inc. (SNI), the defendant in a declaratory judgment action, was the successor owner of Automated Leasing Account System (“ALAS”) software. The software had been licensed in 1983 to the predecessor of the plaintiff Daimler-Chrysler Services North America LLC (DCS), which used the software to track leasing contracts, customers and vehicles. The last installation of the ALAS software to anyone was in 1993.

    DCS’s license was perpetual, for use at only one facility, and was to be used only for DCS and its wholly-owned subsidiaries. DCS breached both conditions so in May, 2002 SNI terminated the agreement and demanded that DCS cease use. DCS’s business relied heavily on the software; during the course of the litigation SNI estimated that the value to DCS of the software was $3.225 million.

    DCS filed a declaratory judgment action asking for a declaration that it was not in breach of the software license. SNI counterclaimed on the breach of contract and ultimately asserted several other theories, including a misappropriation of trade secret claim.

    The trial court held that the software was not a trade secret because SNI couldn’t produce a copy of the software licensed to DCS. The lower court reasoned “that a person must actually know the secret information or possess the secret device in order to have an advantage over others.”

    The appeals court agreed that there was no trade secret, but on a different theory. The appeals court held that SNI hadn’t provided enough evidence that it derived any independent economic value from the secret. The fact that SNI didn’t have a copy of the software was one suggestion that there was an absence of value, but even further SNI’s president testified that by 2002 “there is no market for ALAS . . . . I wouldn’t in good conscience sell it to anybody.” So even though the worth to DCS was substantial, value to the user doesn’t prove that there is economic value to the entity claiming the trade secret, and thus SNI had no trade secret.

    Daimler-Chrysler Servs. N.A., LLC v. Summit Nat’l Inc., No. 07-1357, 2008 U.S. App. LEXIS 17804 (6th Cir. Aug. 20, 2008).

    © 2008 Pamela Chestek

  • It All Looks So Different In the Snow

    It’s a fairly sure bet that when the government is sued for infringement of intellectual property, the government will win. In Gaylord v. U.S., the Postal Service was accused of infringing the copyright in the statues of soldiers that are part of the Korean War Veterans Memorial, by using them on a stamp. The Court of Federal Claims held that Gaylord was the owner of the copyright in the statues, but with some very generous reasoning the court found that it was a fair use.

    The ownership part of the case was a pretty easy call. The Corps of Engineers engaged Cooper-Lecky Architects (CLA) to create, construct and install the Memorial, which in turn engaged Mr. Gaylord to create the statues of soldiers that are known as “The Column,” below:


    The copyright ownership of the statues was a matter of some contention from the beginning. The parties to the contract could not initially agree on ownership, but ultimately CLA and Gaylord entered into agreements which said that Gaylord was the sole owner of the copyright, and which included a royalty schedule. There is some mention in the case that the government demanded ownership, but that the government “had suddenly withdrawn their claim for copyright ownership and/or royalties received from same.” Gaylord later terminated the agreements, claiming that CLA had breached them. Gaylord also registered the copyrights in the works at various stages and times.

    John Alli took a photograph of the statues in the snow as a gift for his father. The photograph won a photography contest and was featured on the cover of the Naval Institute’s “Proceedings” magazine. When Alli wanted to sell reproductions of the work, he contacted CLA and was told that it owned the copyright “outright.” Alli agreed to, and did, pay a 10% royalty to CLA on his sales.

    Then the Postal Service decided to issue a stamp based on Alli’s photograph:

    The Postal Service paid Alli for his rights. Alli told the Postal Service that it would need permission from the owner of the copyright in the statues, referring the Postal Service to CLA. The Postal Service did not get permission.

    The government was smart enough not to make the always-futile argument that The Column was a work made for hire. Instead, it argued that it was a joint owner of the work. The government claimed that various different participants made contributions to the sculptures: background stories for the soldiers, whether they should wear ponchos, and various other changes to the models for the statues. But the court held that these were suggestions and constructive criticisms, not evidence of contributions to joint ownership. Moreover, the parties never intended to create a joint work – the agreements, although terminated, showed that the parties agreed that sole ownership was Gaylord’s.

    A win for Gaylord on the ownership, but the critical question of infringement went in the government’s favor on a fair use defense. First, the court found that the use was transformative, waxing on:

    The artistic expression of “The Column” can be summarized as a three-dimensional sculptural snapshot of a group of solders on an undefined mission during the Korean War, captured as a single moment in time. Mr. Alli, though his photographic talents, transformed this expression and message, creating a surrealistic environment with snow and subdued lighting. The viewer experiences a feeling of stepping into the photograph, being in Korea with the soldiers, under the freezing conditions that many veterans experienced. Mr. Alli took hundreds of pictures of “The Column” before he achieved this expression, experimenting with angles, exposures, focal lengths, lighting conditions, as well as the time of year and day. Mr. Alli also achieved his vision using various photographic effects and equipment. Mr. Alli’s efforts resulted in a work that has a new and different character than “The Column” and is thus a transformative work. The Postal Service further altered the expression of Mr. Gaylord’s statues by making the color in the “Real Life” photo even grayer, creating a nearly monochromatic image. This adjustment enhanced the surrealistic expression ultimately seen in the Stamp by making it colder. Thus, the Postal Service further transformed the character and expression of “The Column” when creating the Stamp.

    In my book what this describes is two derivative works, not a transformative use. I’m in the school that the “transformation” in the fair use analysis refers to whether the second work has a different use and purpose than the original, not how far removed the second is from the original (which instead goes to substantial similarity). See Laura A. Heymann, Everything is Transformative: Fair Use and Reader Response (SSRN link here).

    But once the court found that the stamp was transformative those boots kept getting pulled higher. Although the original was creative (and thus more entitled to protection), “the second factor may be of limited utility to the fair use analysis where the challenged work is transformative,” therefore the factor had “limited weight.”

    On amount and substantiality, although the Postal Service used most of Gaylord’s sculpture, the court reasoned this factor away with the same description of Alli’s and the Postal Service’s contributions that made the stamp “transformative”:

    The Postal Service’s use of many of the statues weighs against fair use. This fact is somewhat mitigated, however, by the quality and importance of the statues to the Stamp. . . . Mr. Alli and the Postal Service used variables to lessen the quality and importance of “The Column” and to alter the expression of the Stamp. Mr. Alli used the snow covering the statues as a tool to obscure the statues and create a heightened surrealistic effect. He added to this effect by sharply reducing the color of the statues through controlled lighting. The Postal Service reduced the color even further when producing the Stamp, creating a nearly monochromatic image. The efforts of Mr. Alli and the Postal Service this changed the qualitative message of “The Column” and mitigated the weight of the third factor.

    [Ed. note: look at the stamp – is it really the snow that’s the most significant element of the stamp?]

    Finally, on the effect of the use upon the potential market for or value of the copyrighted work, the court blew past the fact that the Gaylord-CLA agreement contemplated and made a valuation of royalties, and that the Postal Service routinely pays for the right to reproduce images on stamps (as it had to Alli). Instead, the court noted that Gaylord hadn’t successfully commercialized his copyright and that stamps aren’t a commercial substitute for Gaylord’s future products, weighing the factor in the government’s favor.

    The classic split the baby maneuver, ownership of the copyright to Gaylord but noninfringement to the government. Gaylord v. United States, No. 06-539C, 2008 U.S. Claims LEXIS 357 (Ct. Cl. Dec. 16, 2008).

    © 2008 Pamela Chestek

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  • The Watchman Returns

    The Law Blog at the WSJ reports that a California court held that 20th Century Fox owns at least the right of distribution in the soon-to-be-released Warner Bros. film The Watchman. I couldn’t find the decision on Pacer, but the complaint gives the background. An interesting insight into how production and distribution rights for movies move around.

    © 2008 Pamela Chestek

  • Race To the Swiftest Without Notice

    The U.S. patent, trademark and copyright statutes all have recording provisions (“race-notice,” if my property law recollection is correct) that provide a bona fide purchaser in good faith defense to the second purchaser. I don’t remember the last time I read a case that dealt with the assignment of the same intellectual property to two different entities, I suppose because it doesn’t happen that often – indeed here, the second purchaser acknowledged that it had no claim to the property. But it had granted a license, and the licensee is claiming the defense.

    A computer software program called “Pathways Through Jerusalem” is a “multimedia tour through the historic city of Jerusalem.” The copyright was registered in 1996 by The Learning Company, f/k/a SoftKey Multimedia, Inc. The Learning Company assigned the copyright to Harry Fox in 1997 but he did not record the assignment.

    In September 2001, defendant Riverdeep acquired The Learning Company’s educational software. It then licensed Barbara Cash to manufacture and distribute the Pathways program, representing in the license that it owned the rights. During negotiations for the license the name “Harry Fox” came up, so Cash’s lawyer checked with the Harry Fox Agency (the agency that licenses copyright mechanical rights) and was told that the agency didn’t own the copyright – it didn’t because Harry Fox was just a guy who happened to have the same name as the agency. Since Harry Fox hadn’t recorded his assignment, the Copyright Office records still showed SoftKey as the owner. Cash went ahead with the license.

    Cash then told the current distributor that she owned the rights and it could no longer distribute the work. The distributor reported the news to Harry Fox. Fox sent a cease and desist letter to Riverdeep and also told Cash that he owned the rights. Riverdeep entered into negotiations with Fox and told Cash that it expected an amicable resolution. Riverdeep and Fox never came to an agreement and the lawsuit ensued.

    In the suit, Riverdeep acknowledges that it does not own the Pathways copyright. The Copyright Act, however, has a provision for the grant of a license to an innocent licensee:

    A nonexclusive license, whether recorded or not, prevails over a conflicting transfer of copyright ownership if the license is evidenced by a written instrument signed by the owner of the rights licensed or such owner’s duly authorized agent, and if (1) the license was taken before execution of the transfer; or (2) the license was taken in good faith before recordation of the transfer and without notice of it.

    17 U.S.C. § 205(e). Cash moved for a summary judgment that she qualified as a good faith licensee under § 205(e)(2). It was undisputed that Fox had not recorded before Cash took the license from Riverdeep, so the only question was whether Cash had actual or inquiry notice of Fox’s ownership. The court denied summary judgment, holding that it was a question of fact whether Cash’s lawyer had done enough to uncover the possible ownership by “Harry Fox.”

    I’ve seen the sticker shock on the faces of transactional lawyers when they find out how much recording the assignment of a lot of IP properties will cost. This case is good ammunition for explaining that, yes, it really must be done now.

    Harry Fox v. Riverdeep, Inc., No. 07-13622, 2008 U.S. Dist. LEXIS 101633 (E.D. Mich. Dec. 16, 2008).

    Recording statutes below.

    Patent
    35 U.S.C. § 261 – “An assignment, grant, or conveyance shall be void as against any subsequent purchaser or mortgagee for a valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.”
    Trademark
    15 U.S.C. § 1060 – “An assignment shall be void against any subsequent purchaser for valuable consideration without notice, unless the prescribed information reporting the assignment is recorded in the United States Patent and Trademark Office within 3 months after the date of the assignment or prior to the subsequent purchase.”
    Copyright
    17 U.S.C. § 205(d) – “As between two conflicting transfers, the one executed first prevails if it is recorded, in the manner required to give constructive notice under subsection (c), within one month after its execution in the United States or within two months after its execution outside the United States, or at any time before recordation in such manner of the later transfer. Otherwise the later transfer prevails if recorded first in such manner, and if taken in good faith, for valuable consideration or on the basis of a binding promise to pay royalties, and without notice of the earlier transfer.”
    17 U.S.C. § 205(e) – A nonexclusive license, whether recorded or not, prevails over a conflicting transfer of copyright ownership if the license is evidenced by a written instrument signed by the owner of the rights licensed or such owner’s duly authorized agent, and if (1) the license was taken before execution of the transfer; or (2) the license was taken in good faith before recordation of the transfer and without notice of it.”

    © 2008 Pamela Chestek

  • Who Owns “Joyce Theater”? – the Mark, Not the Building

    John Welch at The TTABlog® (my go-to resource for TTAB law) has blogged on my favorite kind of case, where two different entities claim to be the owner of the same mark. John summarizes the holding of the dispute (landlord wins), but I’m more interested in how the Board got there analytically.

    It’s the same story that we see over and over, where trusting, good-hearted people run a business but the relationship ultimately goes south. Petitioner Ballet Tech Foundation, Inc. purchased a movie theater in downtown New York as a space for dance performance. Originally called the Elgin Theater, it was renamed the Joyce Theater to honor a major donor. For business reasons, Ballet Tech established the respondent/applicant and registrant The Joyce Theater Foundation, Inc. (the “Theater Foundation”) to run the facility. The Theater Foundation signed a lease with Ballet Tech to rent and operate the space, and as expected the ownership of trademark rights was never addressed in any of the formal documents. Initially the work of the two organizations was done by the same people who had overlapping roles within the two entities, although they became more separated over time.

    There are many facts discussed in the decision, but a few are of particular interest given the outcome. The Theater Foundation’s registration of several trademarks for JOYCE formatives was at the behest of one of the founders of both organizations.* Also interesting was that the non-profit operating the theater was told it must use the name Joyce Theater Foundation for its corporate name.

    The Board considered ownership a binary question: either the Theater Foundation owned the marks, or Ballet Tech owned the marks and the Theater Foundation was an implied licensee. The Board’s analysis is therefore effectively in two parts: (1) who owns the mark (Part A); and (2) did Ballet Tech control the Theater Foundation’s use of the marks, i.e., was the Theater Foundation a controlled licensee whose use, under Section 5 of the Lanham Act, would inure to the benefit of Ballet Tech (Parts B-E)? The second half of the analysis relied heavily on the law of abandonment in evaluating whether there was sufficient control.

    In a thorough discussion of the facts, the Board held that Ballet Tech was the owner of the mark and that it indeed sufficiently controlled the Theater Foundation’s use of the marks. It therefore cancelled the various registrations and sustained the opposition.

    I find it interesting that the Board treated the two questions separately – what if the Board found that Ballet Tech owned the mark but that there was no implied license? Would the Board have held that the mark was abandoned, the legal result of finding that there are uncontrolled licensees? This is one of my pet peeves, that is, courts that hold that a trademark is abandoned when it is still functioning as a mark. If it functions as a mark how can it be abandoned, which is defined as losing significance as a mark? Isn’t the only proper question WHO it is identifying, in other words, who owns it?

    In this case, it seems to me that if the term was functioning as a mark (which no one questioned) and the evidence showed Ballet Tech was the owner, the Board went about it exactly backwards. Rather than investigating whether there was an implied contract (for which if the answer was “no” the trademark would be abandoned), it should have instead held that the legal result of Ballet Tech’s ownership of the mark was that the Theater Foundation’s use was pursuant to a contract implied in law.

    I think the case is a closer call than the Board made it appear, and the Board looked to be a bit sympathetic to the petitioner in several instances. Notably, while the Board traversed the founder’s statement that it was the Theater Foundation that should register the mark, the Board did not even acknowledge that the certificates of registration were prima facie evidence of the Theater Foundation’s ownership of the marks. See DM Enter. & Dist., Inc. v. Ruta Maya Royalty, Ltd., Cancellation No. 92029327, 2004 WL 2368492, at *3 (TTAB May 28, 2004) (not citeable) (“The registration petitioner seeks to cancel is entitled to the prima facie presumptions under Section 7(b) of the Trademark Act, 15 U.S.C. §1057(b), of the validity of the registration, of respondent’s ownership of the registered mark, and of respondent’s right to exclusive use of the mark in commerce in connection with the identified goods. Petitioner thus has the burden of submitting sufficient evidence to rebut these presumptions.”).

    Ballet Tech occasionally itself rented the theater from the Theater Foundation and signed the standard rental agreement, which had some language in it about the Theater Foundation’s control over the use of the mark. In a squirrelly piece of analysis, the Board held that this was Ballet Tech’s delegation to the Theater Foundation to police the use of the JOYCE marks. Can a delegatee actually tell a delegator what to do? (But now some ammunition for all those wholly-owned subsidiary trademark holding companies out there).

    The case does a thorough job of laying out in detail the evidence and the relevance of it. These kinds of cases are fairly rare, so it’s a great road map describing the kinds of evidence one might want to gather in a similar situation.

    Ballet Tech Foundation, Inc. v. The Joyce Theater Foundation, Inc., Opposition No. 91180789 and Cancellation No. 92042019 (December 11, 2008).

    * This is my favorite part: after learning that a non-profit could “trademark your name,” one witness said “I then began to proselytize wherever I went and speak to everybody about the fact that you could protect the name of a non-profit by registering it with the trademark entities, whatever they’re called.” The Board noted dryly “Ms. Cahan is not an expert in trademark law.”

    © 2008 Pamela Chestek

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  • UK “Own Name” Defense

    The IPKat posts on a new case involving the “own name” defense under UK trademark law. The Trade Marks Act 1994 provides that “A registered trade mark is not infringed by – the use by a person of his own name . . . provided the use is in accordance with honest practices in industrial or commercial matters.”

    The IPKat reports that the court wouldn’t extend the defense beyond a company’s registered name to its trading name. Post here.

    © 2008 Pamela Chestek

  • Disarmed

    Han Nee invented, and patented, the use of various silver alloys to be used in reflective and semi-reflective layers of CDs and DVDs. He may have done it while employed for Sony DADC US Inc. (“DADC”) and Sony, Inc. (“Sony”), a company related to DADC somehow. Nee had worked for both companies at different points of time and different events occurred while he was at the different companies. Whether Nee was covered by the employment agreements, whether he invented what he patented while employed by the Sony companies, and whether continuation patents were for only minor improvements are all facts in dispute, but the court did decide when one may or may not rely on the statute of limitations to defeat an ownership claim.

    Nee signed two employment agreements (one with DADC, one with Sony) that provided for the automatic assignments of any patent rights invented during his employment. At the very end of his employment with DADC he sent a patent disclosure to a patent attorney. In the following years he filed the original application and a number of continuation and CIP applications.

    The following is the court’s explanation of the procedural posture: “In 2004, [Nee’s company] Target sued the Williams Defendants for infringement of Patent No. 6,790,503 (the “‘503 Patent”). Sony and the Williams Defendants contend that the ‘503 Patent is related to the [original] ‘889 Patent. The Williams Defendants raised Sony’s ownership as a defense to the infringement suit. Williams and Sony also entered a “joint defense agreement,” where DADC granted Williams a license under the ‘889 Patent in consideration for Williams’ good-faith efforts to establish that Sony owns the ‘889 Patent. . . . Subsequently, Nee sued Sony for infringement in Indiana. On April 26, 2007, DADC moved to intervene in this action, claiming, inter alia, that it owned the ‘889 Patent based on the January 1992 Agreement. Subsequently Nee counterclaimed against Sony Corp. and [another Sony entity]. The two were then designated as plaintiffs in intervention.”

    Nee moved for summary judgment that a Sony parties’ affirmative claim of ownership was barred by the statute of limitations. Sony responded that there was no statute of limitations on its ownership claim. In DDB Tech., LLC v. MLB Advanced Media, LP, 517 F.3d 1284 (Fed. Cir. 2008), the Court of Appeals for the Federal Circuit held, in this same type of licensing arrangement, i.e., where an accused infringer licenses strategically from a potential co-owner after suit is filed, that MLB Advanced Media could raise a defense based on the absence of subject matter jurisdiction because not all owners of the patent were plaintiffs. Id. at 1287. Notably in the DDB case, under Texas state law the statute of limitations defense was unavailable.

    Here, though, Sony was making an affirmative claim of ownership rather than asserting a defense. The court held that the statute of limitations would apply to the claim, since it is well-established that the statute of limitations is only a shield, not a sword. Whether the statute of limitations had run was a question of fact the court would not decide on summary judgment, however, because Sony alleged Nee fraudulently concealed his patent ownership, which would toll the statute of limitations.

    Although not specifically mentioned by the court, presumably the Williams Defendants’ licensing defense will remain, even though the same issue – whether either Sony or DADC are the actual owners of the patents – in an affirmative posture may be defeated by the statute of limitations. Where does it go from here? Nee had brought a declaratory judgment claim of ownership, but there’s no mention of the status of that claim – presumably it rises and falls with Sony’s claim. But can the Williams Defendants have a license to patents from Sony when Sony does not have vested ownership rights? Will Sony have an equitable ownership but just not a legal one? Will Nee be able to enforce his patents against other parties? Can Sony just grant similar licenses in future cases to immunize future defendants?

    Target Tech. Co. v. Williams Advanced Materials, Inc., No. SACV 04-1083 DOC (MLGx), 2008 U.S. Dist. LEXIS 97247 (C.D. Cal. Nov. 21, 2008)

    © 2008 Pamela Chestek

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  • Mattel Now Owns Bratz

    As it last stood, Mattel had moved for an order on declaratory judgment that it owned all right, title and interest in the Bratz dolls created while the designer, Carter Bryant, worked at Mattel; for a permanent injunction that MGA cease manufacturing dolls; and that the court impose a constructive trust and transfer the “Bratz” and “Jade” marks to Mattel. Mattel scored huge, 3 and 0. On the motion for declaratory judgment:

    The Court hereby DECLARES that Mattel owns all right, title and interest, including any and all copyright rights, in and to the Bratz-related works, ideas, and concepts that Carter Bryant conceived or created while employed by Mattel, as found by the jury in this case, including the idea for the name “Bratz” and the idea for the “Bratz” characters . . . .  In addition, the Court hereby ORDERS that all copyright registrations MGA has obtained in and for the Bratz works . . . are subject to a constructive trust in favor of Mattel and have been held by MGA for Mattel’s benefit. Mattel is the beneficial owner of such registrations. . . .

    Order here. On the motion for permanent injunction:

    MGA, MGA Hong Kong, and Larian, along with their respective officers, directors, principals, agents, representatives, servants, employees, affiliates, successors or assigns, and any person or entity acting on their behalf or in concert or participation with them, are hereby PERMANENTLY ENJOINED from manufacturing, procuring the manufacture of, making, producing, reproducing, copying, distributing, transferring, displaying, marketing, advertising, shipping, importing, exporting, licensing, offering to license, selling or offering to sell . . . [a]ny doll, product, packaging or other item that embodies or depicts in whole or in part, or incorporates or uses in any manner, any of the Jade, Cloe, Yasmin and Sasha Bratz characters . . . .

    At Defendants’ expense, Defendants shall deliver to Mattel’s counsel for impoundment, at such location in the Central District of California as Mattel’s counsel may direct, all dolls, products, product packaging, labels, signs, prints, dies, wrappers, receptacles and advertisements, in the direct or indirect possession, custody or control of Defendants . . . .

    Defendants are hereby ORDERED to procure the return, and to withdraw and recall, from any and all channels of trade and distribution, including without limitation from retail shelves and from on-line retailers, all of the dolls and doll products . . . .

    Add also an onerous reporting requirement and a requirement that a notice be posted on the MGA Entertainment home page, order here. On the trademark constructive trust:

    A constructive trust in favor of Mattel on all rights to trademarks, service marks and domain names held by MGA or Larian, or any person or entity acting on their behalf or for their benefit, anywhere in the world that include the terms “Bratz” or “Jade,” including all such trademark registrations and trademark applications and the good will inhering therein, as well as all such domain name registrations, is HEREBY ORDERED and all rights therein are ORDERED transferred to Mattel.

    Order here. The only good news for MGA is that, according to its press release, the orders are stayed until February 2009 pending some additional post-trial motions.

    MGA statement on the orders here.

    © 2008 Pamela Chestek

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  • Paying Royalties in the Hereafter

    Contract cases (like patent cases) often come down to one word. In Imation Corp. v. Koninklijke Philips Electronics N.V., it was the little word “hereafter.”

    In 1995 Imation’s predecessor 3M and Philips entered into a patent cross-license for CD and DVD technology. The license terminated on March 1, 2000, except that the patent licenses granted in it survived for the life of the patents.

    The grant clause said:

    PHILIPS agrees to grant and does hereby grant to [Imation] and its SUBSIDIARIES a personal, non-exclusive, indivisible, nontransferable, irrevocable, worldwide, royalty-free license under PHILIPS LICENSED PATENTS to make, have made, make for others, use, lease, distribute, offer to sell, sell, import, or otherwise dispose of LICENSED PRODUCTS . . . .

    SUBSIDIARIES were defined as:

    [A]ny corporation, firm, partnership, proprietorship or other form of business organization as to which the party now or hereafter has more than a fifty percent (50%) ownership interest . . . .

    There was one other use of the word “hereafter,” which was in the clause defining the licensed patents:

    “LICENSED PATENTS” shall mean any and all patents . . . which:
    (1) are owned or controlled by the granting party or any of its SUBSIDIARIES such that such party or its SUBSIDIARIES now has or hereafter obtains the right to grant the licenses within the scope of this Agreement;
    (2) relate to optical or magneto-optical information storage and retrieval technology; and
    (3) have a filing date, or claim priority from a date, or are or were entitled to claim priority from a date, on or before the expiration date of this Agreement . . . .

    Imation acquired two subsidiaries after the expiration of the agreement on March 1, 2000: in February, 2003 it created a joint venture named Global Data Media FZ-LLC of which it was a 51% owner, and in 2006 it acquired Memorex International as a wholly-owned subsidiary.

    Imation brought (for the second time) a suit for declaratory judgment. Imation claimed that these two subsidiaries were direct licensees under the cross-license because they were subsidiaries of which it “hereafter” had ownership; the termination clause was only to limit the patents in the pool. It argued that had Philips meant to cut off the time frame for subsidiaries “hereafter” acquired it would have done so expressly, as it did in the definition of Licensed Patents. Philips countered that the license was only for subsidiaries in existence during the life of the agreement.

    On a motion for judgment on the pleadings, Philips’ argument won the day. There was no suggestion that the termination clause (in an article entitled “Expiration of This Agreement” – did the agreement disclaim the meaning of headings, BTW?) did not terminate the agreement for all purposes except for any patent licenses “which ha[d] been granted.” Since the two subsidiaries were not in existence at the termination of the contract, they had not been granted licenses that could survive.

    The reference to future “hereafter” subsidiaries in the definition of “Subsidiary” meant only those subsidiaries that came into existence during the term of the agreement, not those that came into existence afterwards. It was an question of expectation; one could not reasonable expect rights to spring into existence after an agreement ended.

    Two counts of the complaint dismissed on the pleadings, the remaining patent infringement counts remain.

    It’s curious that the prospect of after-acquired subsidiaries was not more clearly contemplated in the agreement since it’s such a foreseeable possibility. Perhaps Philips thought the agreement was clear enough – it was right, the Imation arguments were a stretch. It would also be interesting to find out how much of Imation’s budget and strategy, in creating a JV and acquiring Memorex, were based on an assumption (or hope) that these entities had a royalty-free license to the patents.

    Justia entry for the first case here.

    Justia entry for the second case here.

    Imation Corp. v. Koninklijke Philips Electronics N.V., Civ. No. 07-3668 (DWF/AJB), 2008 U.S. Dist. LEXIS 96357 (D. Minn. Nov. 26, 2008).

    © 2008 Pamela Chestek

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