SCOTUS Bankruptcy Decision Has Major Impact on Trademarks and Licenses

The Supreme Court’s recent decision in Mission Product Holdings, Inc. v. Tempnology, LLC (2019) ruled on the effect of a rejection of trademark licenses in bankruptcy. 

 What happens when a trademark license is rejected as an executory contract, as is permitted by Chapter 11 of the Bankruptcy Code? Can the licensee continue using the trademark? 

 The Supreme Court resolved a Circuit split on that question, holding that the licensee may continue to use the license. 

 Counsel for parties involved with trademark licenses now need to take this decision into account when drafting these agreements.  If one of the parties seeks bankruptcy protection, then the license terms will become important both in preserving the trademark (by providing for quality control and maintenance of trademark registrations) and regulating the parties’ continuing relationship. 

 On the licensor side, the license could provide, in the case of financial insolvency or bankruptcy, that the licensor would either have to commit in writing to continue the license (including quality control) or agree to assign the trademark.  Provisions for maintenance of any trademark registrations could also be included.

 On the licensee side, the license could provide, in the case of financial insolvency or bankruptcy, that the licensee would have to commit in writing to continuing to pay royalties and cooperate in quality control, or terminate the license. 

FTC Enforcement Highlights Importance of Compliance with Consumer Review Protection Act

As the internet matures, the laws regulating commerce on the internet have matured with it.  One such law is the Consumer Review Fairness Act of 2016 (CRFA), which makes illegal use of contractual provisions that restrict customers from communicating honest reviews of a business and its goods and services. 

 Not only does the CRFA declare such clauses void (and hence unenforceable), they are also construed as a deceptive trade practice – and the Federal Trade Commission (FTC) is empowered to investigate and assess penalties for its violation.  Last month, the FTC brought three separate actions against companies using allegedly illegal clauses in violation of the CRFA.  

 The FTC’s comments made clear that it is taking this enforcement seriously:

“Many online shoppers use customer reviews and ratings to get information, but these companies used gag clauses in their form contracts to stop customers from posting honest but negative feedback,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “These gag clauses are illegal, and companies that know it but use them anyway will be subject to civil penalties.”

 The FTC’s actions should spur companies marketing on the internet to review their selling contracts – including terms which are typically contained as part of the sales transaction – to ensure they are in compliance with the CRFA.

Second Circuit Holds that Statutory Right to Adapt Software Preempts Contractual Terms

A recent Second Circuit decision, Universal Instruments Corp. v. Microsystems Engineering Inc. (2d Cir. 2019) provides important lessons for parties involved in negotiating software and other technology development contracts.

One key holding is that where the copyrighted software was licensed to the customer pursuant to terms of a development contract, then the customer had a statutory right, under Section 117(a) of the Copyright Act, to have a different developer modify and adapt the software for the customer’s use.  And, that statutory right pre-empted any claim that the contract limited such adaptation rights. 

The Second Circuit also construed license terms to allow both MSEI and the second developer to use the software anywhere in the world to service MSEI’s system.  

Together, these rulings meant that once the developer had created and licensed the software, it was powerless to stop the customer from employing other companies to use, adapt, and modify the software, at least for the customer’s own business. 

Parties involved in negotiating development licenses should be aware that the Copyright Act may vest additional rights in a customer beyond that provided in the contract – and that contrary contracts terms will be preempted by the law.

Forum Selection Clause Precludes PTAB Review of Validity

A recent Federal Circuit decision provides an important lesson for patent owners:  forum selection clauses may bar an accused infringer from petitioning the Patent Trial and Appeal Board (PTAB) to review a patent’s validity under the America Invents Act. 

Dodocase Vr, Inc. v. Merchsource, LLC (Fed. Cir. 2019) affirmed an injunction granted by a district court requiring the defendant to withdraw three petitions for review it had filed with the PTAB, based on a forum-selection clause between the parties.

The case was a dispute between a patent owner and its licensee (who had stopped making royalty payments and claimed the patents were invalid).

But the parties’ license agreement contained a forum-selection clause that required all disputes to be resolved in a court located in certain counties in California.  That meant that the claims of invalidity had to be raised in one of those courts, not the PTAB.

PTAB reviews are generally considered to be disadvantageous to patent owners, both for procedural and substantive reasons. 

Given the Dodocase Vr decision, patent owners are well advised to include forum-selection clauses in any agreements concerning their patents. 

And, if a petition for review is filed by a party with whom the patent owner had some sort of contractual relationship, review the contract terms closely to determine whether a forum selection clause might not be applicable.

Kardashian Case Limits Standing to Assert Trademark Infringement

The Kardashian sisters are well-known (some say notorious) media personalities and businesswomen. 

Their extensive business activities often result in legal disputes.  And where there are disputes, often interesting and important legal decisions are produced. 

A recent Eleventh Circuit decision, Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc. (2019) involved a suit in which the Kardashians were accused of trademark infringement.  They and their company successfully moved to dismiss the case because the plaintiff – a licensee of the asserted trademark – lacked standing to bring a trademark infringement claim. 

Key to the Eleventh Circuit’s holding was that the license provided that the owner retained all rights, including the right to enforce the mark against infringers.  The licensee’s only remedy was to complain to the trademark owner and be compensated for any infringement damages. 

This arrangement meant that only the trademark owner had standing to sue for trademark infringement.

The lesson for trademark owners and licensees is that, in drafting license agreements. they should carefully consider who will have both the right and responsibility to enforce the mark, and what happens if one party fails to enforce. 

For those accused of infringement, the lesson is to carefully consider whether the plaintiff even has a basis to sue.

Must-Know Basics of Copyright Law for the Fashion and Luxury Goods Industry

Designs are a cornerstone of the fashion and luxury goods industry. The latest design for an item of apparel, an accessory, or a jewelry piece can distinguish it from other products and can be a major selling point.

But as night follows day, a successful design is followed by copyists and pirates.

So, luxury and fashion goods marketers need protection for their designs – and that is where intellectual property rights come in.

One of the most powerful protections for designs is copyright. Copyrights arise immediately upon creation; they are relatively inexpensive to secure through registration, and they last a long time – sometimes over 100 years.

Understanding the fundamentals of copyright law strengthens the ability of fashion and luxury goods companies to protect their designs when making decisions about how to use these designs in their business.

Must-Know Basics of Trademark Law for the Fashion and Luxury Goods Industry

Brand names are the most valuable asset of many luxury goods companies. 

Such famous names as Rolex, Louis Vuitton, Chanel, Cartier, and Hermes each lie at the center of multi-billion-dollar businesses. 

What protects this valuable asset?  Trademark law. 

As an intangible right, trademarks can’t be protected with a security system – only the legal system keeps thieves at bay. 

Understanding the fundamentals of trademark law strengthens the ability of fashion and luxury goods companies to protect this most valuable asset when making business decisions about use of their trademarks. 

Federal Circuit Rules That Use of a Trademark in Advertising Can Infringe Another’s Mark

A federal district court ruled that use of another’s trademark in advertising cannot, as a matter of law, constitute trademark infringement. 

The Federal Circuit reversed that ruling in Versatop Support Systems, LLC v. Georgia Expo, Inc. (Fed. Cir. 2019), holding, to the contrary that advertising use can constitute infringement.

Why should advertising use not qualify as infringement? 

The answer has to do with the convoluted history and language of the Trademark Act.  Briefly, it has long been held that use of a trademark in advertising is not sufficient to acquire trademark rights.  But what many courts struggled with is whether use of a trademark in advertising suffices to infringe on another’s, already established, trademark rights.

The Federal Circuit’s ruling means that advertising now may constitute trademark infringement – giving broader protection to trademark owners.

Fourth Circuit Rules Use of Stock Photo Not Fair Use

Photographs and other graphics are important elements of many commercial websites. 

The internet abounds with photographs that appear to be free for the taking. Many website developers simply search for and copy photographs (and other graphics) that fit their site.

But a recent Fourth Circuit decision, Brammer v. Violent Hues Productions, LLC  (4th Cir. 2019), stands as a warning that commercial websites are expected to pay a license fee for use of a photograph, and in almost all cases, such use will not be excused as a “fair use.”

Caution thus must be used before appropriating photographs or other graphics, as they may well be protected by copyright, and their copying and use will constitute infringement. 

Webpage Trademark Specimen Invalid Because It Did Not Show Point of Sale Use

Websites today commonly promote sales of products; trademarks are used to identify their source.

So, one would think that use of a trademark on a website promoting a company’s products would qualify as a basis to acquire trademark rights and a trademark registration.

But a recent Federal Circuit decision, In Re Siny Corp. (Fed. Cir. 2019), affirmed refusal of a registration because the specimen, a website page that featured the goods with the trademark, did not contain sufficient information to render it a “point of sale” use of the trademark.

Companies that use websites and trademarks to promote their products should consider how to conform them to the minimum legal requirements for what is known as “technical trademark use,” or consider whether to make other uses of the trademark that qualify for registration.

Bending the Truth in Mediation and Settlement Negotiations

Lawyers involved in civil litigation invariably have to deal with settlement negotiations of some kind, often under the aegis of court ordered mediation.

Negotiations involve a great deal of back-and-forth posturing about the claims in the case. 

How far can an attorney go in bending the truth – can he exaggerate, make false statements, or conceal important information?  And if he or she does, what exposure does he or she have?

A recent New York federal court decision, Otto v. Hearst Communications, 2019 U.S. Dist. LEXIS 35051 (S.D.N.Y. 2019), denied a motion for sanctions against an attorney who supposedly misrepresented certain facts in a settlement conference, although the Magistrate Judge opined that the case was a “close call,” and cautioned the attorney from overstepping in the future.

Wisconsin Insurance Case Provides Guidance to IP Owners in Preparing Infringement Complaints

Trademark and other IP owners who file lawsuits against infringers are the masters of the complaints that start the litigation.  One consideration often overlooked is insurance coverage; many defendants have commercial general liability insurance policies that might provide coverage on the claims. 

Sometimes having a defendant with coverage is desirable; insurance can be a source of funds to pay a settlement.  Other times, coverage will make the litigation more protracted. 

A recent decision of the Wisconsin Supreme Court, West Bend Mutual Insurance Co. v. Ixthus Medical Supply, Inc. (Wis. 2019) found coverage for an insured that had been sued for trademark infringement. 

The decision provides guidance to IP owners in points to include (or exclude) in an infringement complaint that would implicate insurance coverage for the target defendant.

Copyrighted Works Deemed “Published” When Shown to Potential Wholesale Purchasers in Salesmen’s Look Books

The Copyright Act protects both published and unpublished works, but there are a number of differences between them. 

One important difference is registration.  For many copyright owners, a collection of unpublished works can be registered as a unit, which generally cannot be done for published works. 

Registering works as a collection is a major cost efficiency for copyright owners having large numbers of works.

But a recent Ninth Circuit decision, Urban Textile, Inc.  v. Rue 21, Inc.  (9th Cir. 2019) highlights a trap for the unwary.  It held that inclusion of the claimed copyrighted fabric designs in a look book of fabrics used by the manufacturer to solicit orders from its customers constituted “publication” of the designs.  That invalidated the registrations and led to dismissal of the infringement claims on summary judgment.

This kind of “publication” is common in many industries, especially those involving fashion.Many companies will show their next season’s line to buyers well in advance of making them available for sale to the public.Such companies need to be aware that this kind of pre-showing can constitute a publication – and if copyright is important, the works should be registered before the showing

PTAB Issues First Derivation Proceeding Decision

The America Invents Act of 2011 (“AIA”) made a fundamental change in U.S. patent practice:  prior law awarded patent rights to the “first to invent,” while the AIA changed that to the “first to invent and file.”  

Now, someone who independently invents something after someone else, but files first get the patent rights.

To avoid someone taking someone else’s invention as his own, the AIA created a little-known procedure called a Derivation Proceeding.  If someone can show (a) that he conceived of the invention first; (b) that he communicated the invention to one of the inventors of the first-filed patent prior to its filing; and (c) that the first-filed patent was filed without his authorization, then that person will be deemed the true “inventor” and own the patent rights.  Such proceedings must be instituted within one year of the patent application being published.

The PTAB issued its first final decision in such a proceeding.  Andersen Corp. v. GED Integrated Solutions, Inc.  (PTAB 2019).  The decision provides some valuable lessons for would be patent owners to navigate the new AIA regime, which include (a) act quickly and diligently to file a patent application; (b) document both inventions and any communications about them meticulously; and (c) monitor competitor patents filings.

Partial Dismissal of Copyright Claims Teaches Additional Strategies to Deal with Trolls

We have previously written about strategies to defend against claims by copyright trolls, Copyright Case Teaches How to Deal with Trolls. A recent decision by a federal court in New York, Minden Pictures, Inc. v. Buzzfeed, Inc. (S.D.N.Y. 2019), teaches some further valuable strategies to deal with such claims.   

Minden Pictures is a wildlife and nature photo licensing agency that has filed 36 copyright infringement lawsuits since 2010.  In this case, Minden alleged that the copyrighted photographs were displayed on Buzzfeed’s website at various times since 2011.  Buzzfeed moved to dismiss, and the district court granted much of Buzzfeed’s various dismissal motions.

One key ruling was that the three-year statute of limitations applied to any pictures posted more than three-years prior to suit.  Minden tried to avoid the statute of limitations by invoking the Second Circuit’s “discovery rule.”  But the court ruled that as a sophisticated party that had brought numerous copyright suits, Minden was expected to exercise considerable diligence to protect its rights.  It could have discovered the infringements had it reviewed Buzzfeed’s site.

Other rulings include dismissal of conclusory allegations of willful infringement, barring of statutory damages (and attorney’s fees) for pictures that had not been registered before infringement, and limiting statutory damages to one award for an entire “collection” of works registered as such.

The overall strategy highlighted by the Minden decision is that, even if one cannot achieve full dismissal of a troll’s case, paring down the claims as much and as early as possible can be an effective and useful strategy.

Federal Circuit Disqualifies Firm for Conflict with Corporate Affiliate

A recent Federal Circuit decision, Falk Pharma GmbH v. Generico, LLC (2019), disqualified a large firm from prosecuting three appeals, because, at the same time, the firm was representing a corporate affiliate of the adversary. 

Key to the decision was the fact that the firm’s retainer agreement with the affiliate specified – when read together with the General Counsel’s operating guidelines which were incorporated into the retainer agreement – that the firm had an attorney-client relationship with all of the client’s affiliates. 

Apart from that, the Federal Circuit held that the two adversary affiliates were closely related to the third entity (the firm client) in terms of operations and financial dependence for the purpose of professional ethics to constitute one client.

Counsel for corporations with affiliates are well advised to consider adding language to retainer agreements that specify whether affiliates of the primary “client” also have the status of a client of the retained law firm.  The Falk Pharma case indicates that such will generally be honored and if a conflict arises may result in disqualification.

Fourth Circuit Upholds Finding That Booking.com Is Not Generic

It is a truism that generic terms cannot be protected as trademarks.  And usually when additional generic terms are added, the result is itself still generic.

But a recent Fourth Circuit ruling in Booking.com B.V. v. U.S. PTO (2019) upheld a district court finding that, taken as a whole, the mark BOOKING.COM for hotel reservation services was not generic.  Although each of the elements (BOOKING) and (.COM) by itself was generic, the mark, considered “as a whole” and given the survey evidence introduced, the district court found was not generic (rather it was found descriptive, and protectible with a showing of secondary meaning).

Counsel and parties dealing with trademarks should take into account that combinations of words, even generic words, might still be protectible, assuming that the public perceives the combination not as a generic term, but a descriptive one or a brand.  This could favor parties seeking protection for such marks. Conversely, parties against whom such combination marks are asserted should take this into account when such marks are asserted against them.  

Avvo Decision Raises Important Questions About Opinion-Fact Dichotomy in False Advertising Cases

Rating websites have become a popular means to review products and services – from restaurants and vacation spots,  ordinary consumer goods, to professionals like doctors, dentists and lawyers.  But rating sites can be a double-edged sword – good ratings can increase business and market share, but negative ones can hurt the bottom line.  

 What can companies do about negative ratings – especially when they believe they are the result of some flawed methodology or calculation?

Examining a recent decision of a New York federal court, dismissing false advertising claims against the attorney rating site Avvo.com, sheds light on what can and cannot be done legally to deal with what may be unfair or flawed ratings. 

 While ratings themselves are generally construed as non-actionable opinion, representations about how a site creates and calculates its rating are often factual and, if misrepresented, could form the basis of a legal claim.

Rolex Case Highlights Importance of Dilution Claim

When a trademark achieves fame and renown, free-riders and pirates are often not far behind. Usually the attempt to exploit someone else’s mark comes in the same or related competitive space, and a regular infringement charge will work. 

What happens, though, when someone uses the same mark in a totally different and unrelated field?  Trademarks generally only confer rights within a particular market for particular goods or services, and an infringement claim (requiring a likelihood of confusion) may be harder to prove. 

So what can the trademark owner do in that situation?  A recent suit filed by Rolex in federal court in Texas may shed light on this issue. If the mark is a very famous and renown mark, then there may be a claim for what is known as “dilution.”

 

Federal Circuit Bases Personal Jurisdiction on Enforcement Letter

A patent owner sends a cease and desist letter to a would be infringer in a remote location.  The recipient of the letter files a declaratory judgment claim of non-infringement in its home district; the patent owner’s only contact to the district is the enforcement letter.  Is that sufficient for jurisdiction? 

Since Red Wing Shoe Co. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355 (Fed. Cir. 1998), the Federal Circuit has held that such letters, as a matter of policy, do not suffice to give rise to jurisdiction.

But in December, the Federal Circuit upheld jurisdiction in just such a situation.  Jack Henry & Assocs. v. Plano Encryption Techs. LLC, 910 F.3d 1199 (Fed. Cir. 2018).  Although it did attempt to distinguish Red Wing Shoe on the facts of the case, it is now unclear when an enforcement letter could lead to jurisdiction in a distant forum.

Patent owners for now must be more careful when sending out such letters and understand that they may be risking litigation in a distant forum.  Conversely, recipients of such letters, especially from non-practicing entities (often referred to as trolls) may have greater leverage to sue in their own forum.