Property, intangible

a blog about ownership of intellectual property rights and its licensing

  • Hot N’ Ready For All

    Pinnacle Pizza Co. v. Little Caesar Enterprises, Inc., does some contract interpretation on ownership of trademarks in a franchise relationship – not the trademarks originally licensed, but a trademark created by a franchisee.

    Pinnacle Pizza was a franchisee for Little Caesar Enterprises pizza (I’ll use “Little Caesar” to refer to the company; the trademark is with an “s,” “Little Caesars”). In 1997 Pinnacle developed a successful promotion called “Hot N’ Ready,” where it guaranteed customers could purchase a medium pepperoni pizza for four dollars every Tuesday, ready within five minutes. By 1999 Little Caesar was promoting the program itself with all its franchisees, providing advertising materials for the program and asking the franchisees to report sales information on the program. Little Caesar registered the trademark for HOT N’ READY with the USPTO, using Pinnacle’s first use date in the application. Pinnacle sued in 2004; the matter was before the court on cross-motions for summary judgment.

    The ownership of the trademark was controlled by the franchise agreement, with what Pinnacle argued were competing clauses. First, Section V., entitled “Proprietary Marks and Inventions,” stated:

    A. Franchise Owner acknowledges that the name “Little Caesars” and such additional names and marks as have been hereinabove recited are in themselves, or incorporated and included with them, valid trademarks or service marks, solely owned by LITTLE CAESAR, and that LITTLE CAESAR and its licensees have the sole right to use such trademarks, service marks, and trade names, presently existing or to be acquired in the future, in the operation of a restaurant or food service business in connection with products and services to which they are applied by LITTLE CAESAR [.]

    B. Franchise Owner expressly acknowledges that any and all goodwill associated with said Proprietary Marks, including any goodwill which might be deemed to have arisen or to arise in the future through the activities of any Licensee of LITTLE CAESAR, inures directly and exclusively to the benefit of LITTLE CAESAR.

    F. Any and all improvements or modifications in the LITTLE CAESAR System, franchise trade secrets, or know-how licensed hereunder whether made by LITTLE CAESAR or by Franchise Owner or by another LITTLE CAESAR licensee, shall be and become the sole property of LITTLE CAESAR which shall have the sole and exclusive right to patent, copyright, register, or otherwise protect the same; provided, however, that in no event shall advertising created by Franchise Owner be considered to be an “improvement or modification in the LITTLE CAESAR System.”

    The “LITTLE CAESAR System” was defined in the recitals as “a business plan and method in connection with the operation of such restaurants for providing products and services, utilizing certain standards, specifications, methods, procedures, techniques, management systems, identification schemes and proprietary marks and information.”

    Section XII.D., pertaining to advertising, stated:

    Franchise Owner, at its sole expense, may utilize LITTLE CAESAR’s television and radio advertising materials (for its sole benefit or jointly with other LITTLE CAESAR Franchises), by dealing directly with LITTLE CAESAR’s advertising agency. LITTLE CAESAR may not use the original advertising materials created by Franchise Owner without its prior written consent.

    The question was whether the “Hot N’ Ready” mark was “original advertising materials” that could not be used by Little Caesar without consent. Using standard contract interpretation principles, the court found that the advertising clause in XII.D. was a reference to any written materials or audio or television materials, not the underlying related ideas or concepts. Instead, the ownership of the slogan “Hot N’ Ready” was controlled by Section V, particularly Section F, which placed ownership of “improvements or modifications in the Little Caesar System . . . or know-how” with Little Caesar. The court was right to not read V.A. as the operative section; Section V.A. is the trademark license grant and its reference to “future” trademarks is only a grant of a license to them, not a provision that describes how it might come to own them in the first place.

    Once the slogan was deemed an improvement, modification or know-how of the “Little Caesar System,” it was forgone that the goodwill associated with it inured to Little Caesar per Section V.B. And because the goodwill in the mark inured to Little Caesar, the trademark application was not invalid because it used Pinnacle’s first use date.

    The agreement was not very clear on ownership of marketing slogans developed by franchisees but the outcome seems right; the concept of a franchise is that the consumer perception is of a unitary organization. Consumers would probably believe that “Hot N’ Ready” was a slogan for the Little Caesars brand, not the individual franchise owner, and so Little Caesar the rightful owner.

    Pinnacle Pizza Co. v. Little Caesar Enter., Inc., No. Civ 04-4170-KES, 2008 WL 2381678 (D.S.D. June 5, 2008), available here.

  • Devil in the Details

    In Angel Flight of Georgia, Inc. v. Angel Flight America, Inc., the 11th Circuit decision left open more questions than it answered. Two entities with an admirable purpose, providing free transportation for donated organs and medical patients, were using the same trademark, ANGEL FLIGHT, in the same territory – plaintiff Angel Flight Georgia (AF-GA) and defendant Angel Flight Southeast (AF-SE). AF-SE was a member of national organization and intervenor Angel Flight America (AFA) but AF-GA was not. The suit had cross-claims for trademark infringement; clearly it was a case about priority of use. The 11th Circuit decision said nothing about priority though; the only issues for appeal were a hearsay objection, an appeal of the laches defense, the scope of the injunction, and the cancellation of AFA’s trademark registration. The lower court had held for AF-GA on priority and likelihood of confusion but there was no appeal on these issues.

    The decision doesn’t even mention in passing the obvious question – that it could hardly be a coincidence that both parties adopted the same mark. Digging into the trial record, it turns out it is an oft-told tale of trust and cooperation eventually displaced by bickering and turf wars, with the trademark caught in the middle. It’s a situation that trademark law is ill-equipped to deal with in a way that seems fair to all concerned, the trademark combatants and the public.

    Below is a summary of salient facts gathered from the trial court’s Findings of Fact and Conclusions of Law (adopting the Plaintiff’s Proposed Findings of Fact and Conclusions of Law) and the Defendant’s Proposed Findings of Fact and Conclusions of Law. I have tried to make it clear where the parties disagree (which is often) and also to make my editorializing clear. Links to both documents are at the end of the post.

    In this case, the first entity to use ANGEL FLIGHT was a Nevada organization started by Jack Welsh. “American Medical Support Flight Team” (AMSFT) used the mark ANGEL FLIGHT and a caduceus logo in 1982, below:

    The plaintiff started its organization in 1983, also calling it “American Medical Support Flight Team” and using ANGEL FLIGHT as a trademark. There were other organizations formed in the early 1980’s that were also called “American Medical Support Flight Team” and that used the ANGEL FLIGHT mark. The plaintiff’s version is coy: “several organizations based loosely on Welsh’s concept formed independently in different areas of the country”; the defendant says “Mr. Welsh recruited volunteers in the early 1980s to form the AMSFT chapter in Los Angeles. He also recruited Mary Webb to form AMSFT-Central Florida [which became defendant AF-SE] and he recruited James Shafer to start AMSFT-GA [which became plaintiff AF-GA].” The plaintiff agrees that it helped Mary Webb start AMSFT-Central Florida. It was formed in 1986.

    AF-GA acknowledges that it used both ANGEL FLIGHT and the Welsh caduceus logo from its inception. There quickly was some distancing placed between Mr. Welsh and at least the LA chapter (plaintiff’s version) if not all of them (defendant’s version), but they all continued to operate. At least four other organizations using ANGEL FLIGHT formed by no later than the 1990s: East, Oklahoma, South Central, and Mid-Atlantic. Ultimately all organizations’ corporate names were “Angel Flight” with a geographic indicator.

    In 1986 the Nevada organization dissolved. The LA organization, after learning that the Nevada organization was gone, filed a trademark application for ANGEL FLIGHT and Design (modified from the original Nevada logo), below:

    There was no formal assignment of rights from the Nevada organization to the LA organization.

    (NB there was a successful challenge to the registration based on fraud. It is irrelevant for the purposes of this discussion, though, since the plaintiff’s first use date was prior to the date of registration and it only sought the right to use its mark in the territory in existence at the time of registration.)

    For several years beginning in the mid-1990s, by express written agreement AF-SE coordinated flights for AF-GA. There were also discussions about the merger of the two entities during that time, but it didn’t happen. For some period of time, everyone agrees, AF-GA used the LA logo as well as the ANGEL FLIGHT mark. There was testimony that during this time the various entities, including the trademark owner LA, thought that LA’s trademark rights extended only to the design and that no single entity had the right to use the words ANGEL FLIGHT.

    Reading between the lines it looks like AF-GA and AF-SE were cooperating and working towards a merger, but in 1999 had a falling out and started to work independently again. Around the same time, some of the organizations were trying to form a national organization. Eventually six of them, including AF-SE, formed intervenor AFA. AF-GA, as well as the Oklahoma and East organizations, did not join. There is no explanation why some joined and some did not. The six organizations that became members of AFA divided the country into territories that included areas covered by the non-members. LA assigned its trademark registration to AFA.

    In 1999, at the time AF-GA and AF-SW parted ways, AF-GA modified its logo to this:

    Bitter warfare ensued. AFA was trying to create a unified national organization, and it appears that member AF-SW undertook a deliberate campaign to supplant non-member AF-GA in its territory. For 20 years there had been no confusion, but in 2001 AF-SW opened an office in Georgia for the first time, circulated false rumors that AF-GA was “closing their doors,” and staged promotional activities in AF-GA’s hometown of Atlanta. The court found that there were hundreds of incidents of actual confusion. It ultimately held that AF-GA was the senior user in a six-state territory and enjoined AFA and its members, including not only defendant AF-SE but two other non-party AFA members, from using the mark in the AF-GA territory.

    So, everyone copied ANGEL FLIGHT from the long-defunct Nevada organization. It is a situation where multiple entities deliberately adopted the same mark (not to mention the same corporate name) in order to gain the benefits of recognition of the mark. When there was a failure of cooperation, trademark law was ill-equipped to find an equitable solution. On one hand we have an organization that is admirably trying to establish a unified nationwide organization to exploit the benefits of scale for a charitable organization. On the other hand, we have an entity that is being deliberately stripped of a mark it has used for 20 years, and used first. Nevertheless, although AF-GA was technically first, both organizations likely started at Mr. Welsh’s instigation and AF-GA merely hit the lottery because it was up and running earlier than AF-SE was.

    Defendants tried almost all conceivable defenses to infringement (note that it also argued confusion as the senior user, but failed to prove it was senior user). It argued that AF-GA was not the owner of the mark, but instead a licensee of either AMSFT-Nevada or LA; the court held there was insufficient proof of control by either to show they were licensors. Defendants argued that AF-GA abandoned its mark during the period that AF-SE was coordinating AF-GA’s flights, but AF-GA did not discontinue use and there was no intent not to resume use. Defendants argued laches and acquiescence, but AF-GA successfully countered progressive encroachment. Defendants argue unclean hands based on a Georgia state registration but did not convince the court there was any fraud in procuring the state registration. Defendants did not argue genericism, but that would have been a poison pill since Defendants also claimed trademark rights in ANGEL FLIGHT.

    The most natural argument in a case where one entity copies another’s mark was not raised at trial. AF-GA was junior to the Nevada entity’s use and clearly copied that entity’s mark, but there was no argument that AF-GA was NOT a junior user in good faith because it lacked the “good faith” element of the defense. “With respect to the good-faith requirement, courts are divided on whether the junior user must establish a lack of actual knowledge that the mark was already in use, see 4 J. McCarthy, supra, § 26:9 (majority view), or merely that there was no intent to infringe, see id. at § 26:10 (minority view).” Emergency One, Inc. v. American Fire Eagle Engine Co., Inc., 332 F.3d 264, 271 (4th Cir. 2003). What’s missing here, of course, and perhaps why it was an argument not made, is that the owner of the trademark copied does not exist. There was no true successor to the Nevada rights; LA claimed to have successor rights (the fraudulent date of first use was Nevada’s first use, not its own) but it was in no better a position to claim it was a successor than AF-GA. I do not recall seeing a case where the defense was raised when the third-party owner was absent from the proceeding; please comment if you know of one.

    A complicated set of facts, even more complicated in full. Here they are.

    District Court Findings of Fact and Conclusions of Law (not published), available here.
    Defendants’ Proposed Findings of Fact and Conclusions of Law (not published), available here.
    District Court summary judgment opinion, Angel Flight of Georgia, Inc. v. Angel Flight Southeast, Inc., 424 F.Supp.2d 1366 (N.D. Ga. 2006), available here.
    Angel Flight of Georgia, Inc. v. Angel Flight America, Inc., 522 F.3d 1200 (11th Cir. 2008), available here.

    News report on court’s decision on likelihood of confusion here.
    Blog report here.

  • Shifting IP

    Update: See more recent post on related case here.

    In large corporate entities, intellectual property is often placed and moved around to improve the company’s tax position. The IP department may not be consulted on the shift, finding out only at the last minute when it is asked to execute the assignments that the ownership is changing. Mars, Inc. v. Coin Acceptors, Inc. demonstrates some pitfalls with licensing subsidiaries to intellectual property rights and moving ownership. At the end of the day, Mars lost years’ worth of damages and its recovery was limited to a reasonable royalty rather than lost profits, all because of its corporate structure and shifting patent ownership during the suit.

    Mars, the candy company, owned patents for vending machine coin changers. Mars did not make the coin changers; instead, its wholly-owned subsidiary, Mars Electronics International, Inc. (MEI-US), did. Before 1996 MEI-US had a royalty-bearing, non-exclusive license from Mars for the patents whereby MEI-US would pay Mars on the gross sales of changers it sold. On January 1, 1996, as part of a settlement of a tax dispute with the UK tax authorities, Mars entered into agreements with MEI-US and another subsidiary also called Mars Electronics International (MEI-UK), a UK company that also had a non-exclusive, worldwide license to the patents. In the transaction Mars assigned all the rights in the subject patents to MEI-US.

    In 1990, before the assignment of the patents to MEI-US, Mars had sued Coin Acceptors (Coinco) for patent infringement. The assignment of the patents to MEI-US in 1996 gave Mars a standing problem, though, since it no longer owned the patents-in-suit. To repair the problem, in March, 2006 Mars and MEI-US entered into a purchase agreement selling some parts of the MEI-US business back to Mars. The purchase agreement was not entered into evidence; counsel for Mars stated that the purchase agreement “did not clearly state what [was] needed to be stated for this case,” and that it would “not rear its ugly head” in the litigation.” (Brackets in case). Instead, it entered into evidence an April, 2006 “Coinco Confirmation Agreement.” That agreement said “Mars and [MEI] do hereby acknowledge that Mars owns and retains the right to sue for past infringement of the Litigation Patents.”

    As a result of the original structure and license, i.e., Mars’ ownership and MEI-US’s non-exclusive license, Mars could not recover lost profits for Coinco’s infringement. Mars argued that MEI-US’s lost profits flowed “inexorably” to it, so it should be able to recover lost profits. The problem was the license terms; MEI-US owed Mars royalty payments whether it made a profit or not. The income to Mars would not have been affected by MEI-US’s profit losses or gains, so MEI-US’s lost profits did not flow “inexorably” to Mars. As a result, Mars was entitled only to a reasonable royalty for Coinco’s infringement.

    Mars tried to amend its complaint to add MEI-US as a plaintiff on the pre-1996 infringements so that MEI-US would have a lost profits claim, but it was unsuccessful. MEI-US was not an exclusive licensee (the only non-owner that can bring a patent infringement suit) because MEI-UK was also a licensee with a territory that included the United States.

    Although Mars could only get a reasonable royalty for the infringing products before 1996, it could collect nothing for infringement after that. The Confirmation Agreement, designed to allow Mars to collect damages for the period after 1996 when MEI-US was the owner, was ineffective. While under Schreiber Foods, Inc. v. Beatrice Cheese, Inc., 402 F.3d 1198 (Fed. Cir. 2005) it is possible to retroactively correct a jurisdictional defect that arises during a suit by transferring the patents back to the original owner, it was ineffectively done in this case. The Confirmation Agreement by its terms only assigned the right to sue, not full ownership of the patents, so the standing problem was not corrected before the entry of judgment.

    Mars managed to escape one bullet, though. In the UK tax action Mars stated that “the historical royalty payment with respect to the Covered Intellectual Property was excessive to the extent it exceeded a net royalty of 4% . . . .” The lower court had awarded a 7% royalty, which Coinco argued Mars admitted was excessive. The appeals court pointed out that it was an intra-company license agreement, not to a competitor, so there was no error in awarding a 7% royalty rate.

    The case reveals how things can go wrong. The original license, while probably favorable for tax purposes, limited Mars’ recovery theories. It seems unlikely that a UK subsidiary performing the same function as a US subsidiary would actually exploit the patents in the US, but presumably there was a tax benefit to such a wide-reaching license. The assignment in settlement of the UK tax problem may have solved the UK tax problem, but it killed all patent damages after that. Finally, while there was a theoretical way to recover from the harm caused by the assignment, it was not effective here. The “Confirmation Agreement” was probably worded as carefully as possible to avoid breaching the UK tax settlement or upsetting Mars’ tax position, but unfortunately it couldn’t go far enough to correct Mars’ standing problem. And while Mars was able to avoid the harm caused by its statement that anything beyond a 4% royalty was excessive, another plaintiff might not be so lucky.

    There’s no right or wrong way to manage ownership of IP to capture the full benefit for the company. Here, this may have been the outcome that Mars anticipated, because it was the best way to handle both its patent infringement and tax problems. But the case serves as a reminder that everyone in the company should be talking.

    Mars, Inc. v. Coin Acceptors, Inc., Nos. 2007-1409, 2007-1436, 2008 WL 2229783 (Fed. Cir. June 2, 2008), opinion here.

  • Work Made for Hire Doctrine Trashed by Trailer Trash

    It turns out that the success of Trailer Trash Barbie was indeed the fact that it was a Barbie. After Paul Montwillo (doing business under the name Paul Hansen) and his business partner, William Tull, settled a lawsuit Mattel brought in 1997 against them for their sale of Barbie dolls turned into “Trailer Trash Barbie,” “Hooker Barbie” and the like, they started a business making trailer trash-themed dolls that weren’t based on Barbie. The business was an abysmal failure and, as one could have predicted, the two turned on each other.

    Tull and Montwillo had formed a new company for the new dolls, a partnership that was converted into a limited liability company of which both were managing members. Tull was in charge of business affairs, sales, distribution and manufacturing. Montwillo was in charge of design and advertising of the product line, including product design and packaging. Upon dissolution of the company (triggered by Montwillo’s personal bankruptcy), Tull claimed to own the copyrights in the five dolls created by Montwillo for the new business as satisfaction of a company debt owed to him. Montwillo claimed that he was the owner of the copyrights in the doll designs.

    The district court’s decision on summary judgment is most remarkable for the weakness of the advocacy and reasoning. The court held that the doll designs were not works made for hire under Section 101 of the Copyright Act, which defines a work made for hire as “a work prepared by an employee within the scope of his or her employment.” (Emphasis in decision). Tull admitted in a Request for Admission that Montwillo “was never an employee” of the company. The court therefore stated, “Here, it is undisputed that plaintiff was not an ’employee’ of [the company]. Defendants have not cited any cases applying the ‘work for hire’ doctrine to a non-employee, and the Court is not aware of any such authority. In the absence of any such authority, and because the statute defines a ‘work for hire’ as ‘a work prepared by an employee . . . ‘, the Court finds that the ‘work for hire’ doctrine is inapplicable.” Note that the Court doesn’t even get the name of the doctrine right; it is correctly “work made for hire,” not “work for hire.”

    The reasoning is nonsensical; of course one would not apply a statute about an employee to a non-employee, but the question is “what is an employee?” The Court and the parties must not have searched very hard to have missed the Supreme Court’s authority on this very point in Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989). CCNV held that whether a person is an employee is a matter of the common law of agency, with 13 factors to consider. Surely a managing member of a limited liability company whose responsibility was the design of the dolls might fall into the “employee” category as defined by CCNV, or at least Tull deserved a passing mention of the 13 factors in the decision. Indeed there was his admission that Montwillo was not an employee, but Montwillo had also stated in his bankruptcy petition that he did not own any “patents, copyrights, [or] other intellectual property,” and he had designed the packaging for the dolls that listed the LLC, not himself, as the copyright owner in the copyright notice. Certainly whether the dolls were works made for hire could not be so easily decided on summary judgment.

    Case is Montwillo v. Tull, 2008 WL 2264574, No. C 07-3947 SI (N.D.Cal. June 2, 2008).

  • No Peace in the Inner Peace Movement

    Francisco Coll-Monge (deceased at the time of the suit) founded two non-profit companies in the 1960’s, Inner Peace Movement, Inc. (IPM) and Peace Community Church (PCC), to promote self-actualization programs. He registered various trademarks, including INNER PEACE MOVEMENT and PEACE COMMUNITY CHURCH, in his own name. The district court got it wrong but the court of appeals got it right, that Coll indeed owned the trademarks.

    In Section 5 the Lanham Act recognizes the commercial reality that trademarks are used by entities other than than the registrant – such as motorcycle logos used on jackets – but that the goodwill arising from the use should nevertheless accrue to the registrant. The statute calls these entities “related companies.” Section 5 defines a “related company” as “any person whose use of a mark is controlled by the owner of the mark with respect to the nature and quality of the goods or services on or in connection with which the mark is used.” The district court wrongly held that the non-profits could not be “related companies,” and that instead Coll had registered the mark on behalf of the non-profit companies. The district court erred by interpreting “related companies” in the corporate law vein, i.e., formal corporate control through ownership, rather than the specialized definition in Section 5. The court of appeals corrected the misinterpretation and found that there was enough evidence of Coll’s control over the services offered by the non-profits to avoid summary judgment against the estate.

    The district court’s conclusion was wrong in a second way not discussed by the court of appeals, which is the conclusion that Coll could be a registrant but the non-profits the true owners of the marks. Under Section 1 of the Lanham Act an application must be filed by the “owner” of the mark; if Coll was not the owner then the registrations were invalid.

    The estate had advertised a meeting of the Board of Directors for the “Inner Peace Movement®” at the same time the Board of Directors meeting for IPM was scheduled. The district court enjoined the estate’s meeting and the estate was ordered to pay for corrective mailings to sort out the confusion. Perhaps counter-intuitively this was upheld by the court of appeals, despite the fact that it reversed on the trademark ownership claim. The court of appeals was right, though; the estate was using its trademark in a way that created confusion for the corporation, actionable under the expansive language of Section 43(a).

    The relationship between the non-profits and the estate looks like it’s soured. If the conflict continues it could be interesting sorting out the trade name/trademark confusion problem. Four trademark registrations, Reg. Nos. 1806494, 1801163, 1894364 and 1899284, were assigned to Inner Peace Movement, Inc. and Peace Community Church, Inc. because of the district court order. In the usual related company situation, i.e., a standard licensor-licensee relationship, the contract generally requires cessation of the use of the trademark and any confusingly similar trade name at the end of the relationship. With the court of appeals holding that the estate owns the trademark, rather than there being a unity of ownership of the trademarks and trade names, the larger battle about who gets to use what names and marks in the future could be just beginning. The web site at (last modified in 2006) both uses the ® symbol and states it is a 501(c)(3) non-profit corporation.

    Estate of Coll-Monge v. Inner Peace Movement, Inc., 524 F.3d 1341 (D.C. Cir. 2008), available here (Findlaw, free subscription required).

  • Bratz!

    A blog on IP ownership appropriately starts with Bryant v. Mattel, Case 2:04-cv-09049-SGL-RNB in the Central District of California, otherwise known as Mattel v. MGA Entertainment. This, of course, is the case about Bratz dolls – seems the designer, Carter Bryant, worked at Mattel twice and claims to have designed the dolls between his gigs with Mattel, even shopping them around during his second stint with Mattel.

    Bryant had an agreement with Mattel that it claims gave it the ownership of his designs. Mattel filed a motion for summary judgment on ownership of at least some of the designs on a contract theory. The language of the contract is quoted here starting at page 4; it could be clearer that it covered copyrighted works as well as patentable inventions. There’s no mention in the motion about Mattel’s potential ownership as a work made for hire under section 101 of the Copyright Act (defining a work made for hire as “a work prepared by an employee within the scope of his or her employment”; Bryant apparently designed for the Barbie line of dolls). Query whether Mattel is making this claim at trial instead or why it elected not to — although the case has thousands of docket entries and a number of related cases, which I didn’t review. The case started as a declaratory judgment action by Bryant in 2004, so the argument may already have been made and rejected somewhere else along the way.

    As of today the trial is still going on. Don’t miss the highlight so far, Bryant’s use of a software program called “The Evidence Eliminator” two days before investigators copied his hard drive. Bryant invoked the deleting porn justification as his reason.