Second Circuit Decision Extends Non-Compete Law to IP Licensing Agreements

Licensing is a critical component in the economic exploitation of intellectual property —  allowing the IP owner to leverage a licensee’s resources to exploit the IP for mutual benefit. Intellectual property licenses often contain terms that restrict the licensee’s use of the protected technology or design outside the terms of the license.  These terms are usually not thought to present any special legal problems.

But a recent Second Circuit decision should change that thinking.  Crye Precision LLC v. Duro Textiles, 689 Fed.Appx. 104 (2d Cir. 2017), extends the common-law restrictions on non-compete provisions to a new area:  intellectual property licenses.  Crye appears to break new ground in applying this law to restrictions in an intellectual property license.  Counsel who draft licensing agreements need to consider whether restrictions often found in such agreements would be enforceable under the non-compete principles.     

Federal Court Broadly Applies Preclusion from TTAB Decision

Parties involved in trademark disputes should be aware of a federal district court opinion that broadly applies preclusive effect to a prior Trademark Office administrative proceeding.  In 2015, the Supreme Court ruled that decisions of the Trademark Trial and Appeal Board (TTAB) are to be given the same preclusive effect as a prior court decision under traditional rules of res judicata.  But because the issues decided before the TTAB are often different than those decided in district court, it remains unclear how such preclusion would be applied. 

A recent decision of a New York federal court, Cesari SRL v. Peju Province Winer LP, applies the doctrine of collateral estoppel broadly, and the defendant was precluded from re-visiting the issue of likelihood of confusion.

Parties involved in trademark disputes need to carefully consider whether to litigate in the TTAB or federal court, since a decision in one forum may well lead to unexpected results in later litigation.  If it is expected that infringement litigation will result, then it is often advisable to bring an action in federal court (either an infringement or declaratory judgment action) and stay the TTAB proceeding, so that all issues can be decided together.

Federal Circuit Interprets AIA “On-Sale” Bar to Include Confidential Sales, Leaves Open Issue of Completely Secret Sale

Companies who seek patent protection for their technology should be aware of a recent Federal Circuit decision that broadly construes the “on sale” bar to include confidential sales, and thus increasing the time pressure to file for a patent.  The Federal Circuit’s recent denial of en banc review in Helsinn Healthcare v. Teva Pharmaceuticals leaves standing a prior construction of the “on sale” bar under the America Invents Act. 

It often happens that parties enter into confidential agreements for commercial exploitation of technology they intend to patent.  These parties need to be aware that these agreements might well be deemed a “sale,” triggering the one-year clock for the on-sale bar.

The issue revolves around whether the American Invents Act of 2011 changed the scope of the patent “on sale” bar – by which protection is barred for inventions that are commercially offered for sale more than one year before filing of the patent application − to include confidential or secret sales.  The Federal Circuit opinion holds that “[i]f the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale.”  The Federal Circuit refused to address the broader question of completely secret transactions.

Counsel advising companies seeking patent protection should look out for any commercial exploitation – including by confidential agreement with other parties – of technology in the process of a patent application.  Where that has occurred, there may be a need to move quickly to file a patent within the one-year window.  

Celebrity Chef Disputes with Restaurants Highlight Importance of IP Protection

This is the age of the celebrity chef – and their names and personas are valuable commodities in promoting both restaurants and related food businesses.

Many restaurants are founded on the merging of up-and-coming talent with money backers seeking to exploit that talent and renown. In the early stages, both sides are excited to combine their resources to invest in what will hopefully become a successful project. Later, however, when something goes wrong in the relationship between the talent and the money, there can be bitter disputes over who can exploit the chef’s famous name.

We were recently quoted in an article, Why Restaurants Can’t Always Fire Chefs Accused of Sexual Misconduct, that discusses the legal entanglements that can surround disputes between celebrity chefs and restaurant owners.

Among other things, we are quoted as discussing how a chef can ensure that he retains control of his name and the reputation that goes with it, by structuring part of the deal as a trademark license.

To read the article click here

Are you a Trademark Bully? How to Avoid Being and Being Labelled As One

Trademark Bully.  A label often used to characterize a trademark owner by targets of enforcement efforts. 

Sounds bad – conjures up images of a powerful, large corporate entity trying to crush the little guy. Congress even asked the Trademark Office to research and prepare a report about it.  As a defense to enforcement efforts by trademark owners, some targets of enforcement efforts have taken to social media to attempt to generate negative publicity against trademark owners. 

A trademark bully is a trademark owner who uses its trademark right to harass and intimidate another business beyond what the law might be reasonably interpreted to allow.  It does not mean big vs. little – to the contrary, big trademark owners are often expected and even required to be the most aggressive in enforcing their rights.

In this post, we consider how to assess whether an enforcement action is reasonable, how to avoid being labelled a “bully,” and how to fight back against such a charge.

Vuitton Win Against LVL XIII Highlights Fashion Startup Challenges in Protecting Their Designs

Louis Vuitton scored a win against start-up sneaker manufacturer LVL XIII, when a federal appeals court affirmed dismissal of the latter’s trade dress suit against Vuitton.  The case illustrates the difficulty of protecting new designs, particularly for small fashion and luxury goods startups. 

LVL XIII asserted “trade dress” rights in its design of a metal plate at the sneakers’ toe-end – meaning that the design functions as its trademark by identifying the sneakers as it brand.  But such claims require a strong showing of consumer association – that the public identifies the design with a single brand owner.  That takes time and significant investment of resources to promote and market the design.  

As LVL XIII learned to its chagrin, until a high level of consumer association is reached, others are free to copy.  And, the very act of copying by others takes away from exclusivity in the design, which can destroy any chance of reaching the required consumer association.  This can be especially challenging to small design companies.

Design companies need a strategy for protection.  They should consider using additional forms of intellectual property to protect the designs.  These rights include design patents and copyright, neither of which require a showing of consumer recognition.  That then allows time for the company to build up consumer recognition in the design and gain trade dress rights.

Heads I Win, Tails You Pay: Challengers Pay PTO’s Legal Fees

Two recent decisions should strongly influence any decision as to how challenge Patent and Trademark Office decisions in court.  Parties have two options: bring a civil action in district court against the PTO (which has the advantage of a de novo trial, with new evidence allowed and no deference to the PTO), or appeal to the Federal Circuit (deferential review, limited to the record before the PTO).  

But recent decisions (one for trademarks, one for patents) now require challengers to pay the PTO’s legal fees for district court challenges – win or lose.  Fees awarded have been significant – in one case exceeding $75,000.  Appeals to the Federal Circuit, in contrast, do not require payment of the PTO’s fees.

Companies deciding how to appeal an adverse PTO decision must now balance the advantages of de novo review in district court against the prospect of paying out heavy fees to the PTO.  Unless there is a strong reason to take the district court option (and the IP involved is very valuable), the better option in most cases is an appeal to the Federal Circuit. 

Making “Terms of Use” Stick

A recent Second Circuit decision (Meyer v. Uber Technologies (2017)) provides important guidance on ensuring that Terms of Use contained in websites and apps bind their users as contractual agreements. Terms of Use that may be particularly important for companies may include arbitration and no-class-action clauses.

The decision is notable because it held the terms to be binding, even though they were not visible during the registration process, though they could be accessed by a hyperlink.

Companies are well advised to have legal counsel review the layout and registration process on their websites and apps that are intended to bind users to such terms, and ensure that best practices are followed to maximize enforceability. What is critical is that “the layout and language of the site give the user reasonable notice that a click will manifest assent to an agreement.”

Key lessons that can be gleaned from the decision include:

  • require affirmative assent to the terms of use;

  • there should be a clear, easily readable statement positioned next to the registration (or assent) button indicating agreement to the terms; and

  • if the terms are on a separate page connected with a hyperlink, the hyperlink label should be clearly demarcated by color and underline.

More pointers are outlined in our detailed discussion of the case

Look Before You Leap: Trademark Decision Highlights Importance of Thorough Pre-Litigation Assessment of Case

A recent Ninth Circuit decision, Virag, S.R.L. v. Sony Computer Entertainment America LLC, highlights that companies considering litigation need to ask two hard questions:

  • What are our chances of success, and what are the other side’s best defenses?
  • What is the business purpose of bringing suit?

All indications are that this was a case that should never have been brought. The case involved display of a trademark (for commercial flooring products) in a race-car video game by Sony. The court affirmed summary dismissal based on a long-standing First Amendment limitation on trademark suits. Apart from that, the claims appear both very weak under basic trademark law and to have little business purpose. Meanwhile, the plaintiff spent significant legal fees and now faces defending a big fee application from the defendants.

The takeaway: don’t be led down the primrose path. Ask the hard questions before bringing suit. And make sure you are getting frank advice from your counsel.

Forever 21 Amended Complaint Against Gucci Highlights the Need for Vigilant Enforcement to Maintain Trademark Rights

In a prior post, we discussed Forever 21’s lawsuit against Gucci, seeking to cancel Gucci’s registrations for its Blue-Red-Blue and Green-Red-Green striped marks, and for a declaration that its clothing and accessory products that incorporate similar striping are not infringing.

In response to a dismissal by the court, Forever 21 filed a massive, 145-page amended complaint. The complaint mostly repeats the same allegations, but now also includes over 100 pictured examples of products sold by other brands and retailers, including Nordstrom, Bloomingdale’s, Tory Burch, J.Crew, Louis Vuitton, and Balenciaga.

Forever 21’s argument is that Gucci’s striped designs are not perceived as trademarks, but are merely decorative elements used by numerous brands across a wide range of price points.

While it remains to be seen how strong Forever 21’s proofs are, this argument raises an important point for trademark owners. “Enforce it or lose it” is the takeaway here.

Trademark owners who wish to keep their rights in their marks need to vigilantly police the market and make sure that their marks do not lose their source-identifying power through widespread use.

New Patent Ploy: Let’s Make a Deal with an Indian Tribe

Companies involved in patent disputes should be aware of a new tactic they may either face or wish to employ.  Some patent owners have recently utilized a new strategy to avoid inter partes proceedings (IPRs) in the Patent Office. The strategy: sell (and then obtain a license back) the patents to an Indian tribe, retaining all marketing rights, and then assert that tribe’s sovereign immunity to avoid an IPR.  At least two patent owners have revealed their implementation of such a strategy in recent filings, which has seen significant push-back from both the courts and Congress. 

If you are a patent owner who expects heavy litigation on your patents, you might wish to consider using a similar strategy.  If your company regularly faces claims of patent infringement (by competitors or patent trolls), then be prepared to have such a strategy employed against you by a patent owner.

Patent Venue Restricted and Settlement Balance Shifted in Patent Disputes

Two key recent cases have shifted the balance of negotiation leverage in patent disputes between patent owners and accused infringers.  The cases restrict the venues where patent cases against corporations can be brought.  This change will tilt the balance away from patent owners and more in favor of accused infringers.

The decisions limit venue forum shopping as to a corporate defendant to

  • The defendant’s state of incorporation; or
  • A district where the defendant has a physical location, a regular and established place of business which is operated by the defendant, and where an alleged act of infringement must have occurred.

Companies facing threats of patent litigation from trolls and others should be aware that such litigation just got harder for those asserting infringement.  The choice of possible venues has now been considerably narrowed, and for many companies, those districts which meet the new criteria are often both more friendly and more convenient

Knockoffs: Creating an Effective Strategy on a Tight Budget

Part IV: Implementing an Effective and Cost-Efficient Enforcement Strategy

This is the fourth in our four-part series about developing an effective strategy to deal with knockoffs and counterfeits when faced with a limited budget.  We assume that each of the three steps outlined in our prior posts  have been implemented and are used to inform and support the company’s enforcement efforts.

Planning an appropriate company enforcement strategy is not a once-size-fits-all approach.  As the scope and prioritization of the knockoff problem vary, so too will the company’s enforcement plan. We outline the main issues to be considered and determined as steps in designing an enforcement strategy:

Recent Copyright Decisions Highlight Need to Rethink IP Protection Strategies for Product Designs

Many industries, from fashion and luxury, to consumer goods to industrial goods, use unique and innovative product designs to set themselves apart from the competition and provide an aesthetic attractive product for their customers.   Protection of innovative designs against competitors and knockoffs is an important part of their business strategy.  Such designs traditionally were protected by design patents. 

But the Supreme Court’s decision earlier this year in Star Athletica LLC v. Varsity Brands Inc., 137 S.Ct. 1002 (2017), seemingly expanded the scope of copyrightable designs that are incorporated into useful articles.  Subsequent district court cases further elucidate how that case is to be applied, and its effect on the scope of copyright protection.  These decisions point to a need to rethink protection strategies for product design, and consider increasing use of copyright protection.

Knockoffs: Creating an Effective Strategy on a Tight Budget

Part III: Securing the IP Foundation

This is the third in our four-part series about developing an effective strategy to deal with knockoffs and counterfeits when faced with a limited budget.  In this post, we discuss how to ensure the company has a proper IP foundation well before embarking on enforcement. 

For a number of reasons, having a proper IP foundation is crucial – but one reason which runs counter to most people’s thinking stands out above all.  In American law, in the absence of a positive right, copying is both permitted and encouraged.  

No less than the United States Supreme Court has opined: “in many instances there is no prohibition against copying goods and products. In general, unless an intellectual property right such as a patent or copyright protects an item, it will be subject to copying.”

Luxury goods companies generally rely upon four types of IP.   We outline here the due diligence needed for each.

Gucci Infringement Case Against Forever 21 Raises Issues About Limits of Trademark Rights

One way of protecting design elements for products is trademark law. Certain signature designs, when associated with a single brand, gain trademark rights, also known as trade dress. But, unlike patents and copyrights, trademark rights have built-in limitations stemming from their purpose: to identify the source of the goods.

Fashion/luxury goods house Gucci is now embroiled in a litigation against Los Angeles based discount retailer Forever 21. Gucci accused Forever 21 of copying its registered trademarks – the Green-Red-Green and Blue-Red-Blue stripe designs (which it calls its “webbing” designs) and incorporating them on cheap knockoff clothing items.

Jumping the gun, Forever 21 filed an action for declaratory judgment of non-infringement and invalidity of the marks; Gucci counterclaimed.

The case well-illustrates that trademark claims, while seemingly simple, often implicate a host of legal issues. Among other things, the Forever 21 court will need to consider:

  • Validity – Does Gucci’s design function as mark? Has it achieved “secondary meaning?” Is there an issue of “functionality?”
  • Infringement – does the public perceive Gucci’s design to be a mark at all? Do point-of-sale circumstances – use of other marks on the Forever 21 website – obviate confusion? Did Forever 21 act in bad faith? Is there “post-sale” confusion?
  • Dilution – Gucci has asserted a “dilution” counterclaim. But federal and California dilution laws have been amended to require a very high level of fame – virtually a household name. Will Gucci be able to prove its stripe designs meet that test?

3 Takeaways from the Tiffany Verdict Against Costco for Misuse of Marks

A court decision in a trademark case awarded substantial damages in favor of luxury jeweler Tiffany against discount wholesale warehouse marketer Costco for misuse of the TIFFANY mark on jewelry. The decision teaches several valuable lessons in trademark enforcement:

  • Generic Meaning Is Not A Free Pass To Infringement

Although it was conceded that “Tiffany Setting” is a generic term in the jewelry industry, Costco was still found to be an infringer for confusing use of the TIFFANY mark.

  • Courts Will Look At The Entire Story To Assess Bad Faith

In trademark cases, bad faith can be a major factor both in finding infringement and obtaining enhanced damages. In the Tiffany case, Tiffany used both undercover investigation and discovery to build a compelling case of bad faith – by examining the total circumstances of Costco’s marketing strategy for jewelry.

  • Look To The Full Value Of Infringements In Assessing Profits

Trademark owners generally seek the defendant’s profits as damages. Profits may include not only the immediate profits on infringing goods, but the secondary profits gained by using infringing luxury goods to draw customers into the store. In Costco’s case, the court found that the jewelry items were used as a draw to gain members, and a portion of Costco’s membership fees were also awarded as part of the damages – increasing the award by close to four times.

Macy’s Trademark Decision Confirms Importance of Surveys

Trademark cases turn on public perception – of the asserted trademark by the purported owner, and of the use by the accused infringer of the accused infringing mark. Unless the case is very small, or the infringement is very clear (in a counterfeiting case, for example), to prevail in a trademark litigation, a party will need to commission a legally valid confusion survey.

A recent trademark dispute between fashion retailer Macy’s and British luxury brand Joules Ltd. involved competing marks.

The case illustrates the potential flaws that a trademark survey may suffer from, and the importance of designing and executing a survey in a way that will likely be accepted by the courts.

Knockoffs: Creating an Effective Strategy on a Tight Budget

Part II: Prioritizing Among the Problems

This is the second in our four-part series about developing an effective strategy to deal with knockoffs and counterfeits when faced with a limited budget.  

The first post detailed how to assess the scope of the problem in the marketplace, create a list of sources of knockoffs, and categorize them by type and by harms they cause your company.  In this second post, we consider how to use this categorized list to prioritize dealing with the different knockoffs your company faces.  

Fastener Case Presents Supreme Court with Opportunity to Resolve Long-Standing Trademark Remedies Issue

Obtaining full relief against infringers is an important part of any trademark enforcement effort.  In trademark cases, trademark owners generally seek the defendant’s profits from infringement.  But while it is clear that the Trademark Act provides such a remedy, courts are split about what standards to apply.  A recent Connecticut case, Romag Fasteners Inc. v. Fossil, Inc., presents the Supreme Court with an opportunity to clarify when and under what circumstances profits may be awarded.