• IP BLAWG

    Will Assign Doesn’t Mean Did Assign

    Beverly A. Berneman
    Tuesday, 24 April 2018

    Agreeing to assign a patent in the future isn’t an assignment at all. Three co-inventors of a patent were employed by Company A. The co-inventors signed an employment agreement stating they “will assign” their rights to any patentable invention they created during their employment. Company A transferred its assets to Company B. Only two of the inventors assigned their patent rights to Company B. Based upon the employment agreement between the original company and the third inventor, the USPTO allowed Company B to prosecute the patent without the third inventor actually assigning the patent. Company B dissolved and its assets were transferred to Advanced Video Techs, LLC. Advanced Video then brought a patent infringement suit against HTC Corp. The district court dismissed the case holding that Advanced Video didn’t have standing to bring a patent infringement suit without joining the non-assigning inventor in the suit. On appeal, the Federal Circuit Court of Appeals affirmed the decision that Advanced Video didn’t have standing. The Federal Circuit reasoned that the agreement to assign something in the future, is not an assignment. The third co-inventor only promised to assign a future patent so she still had part ownership of the patent and had to be a party to the infringement suit.

    WHY YOU SHOULD KNOW THIS. Inventors hold the rights to a patentable invention until those rights are assigned. Over the years, employment agreements contemplated that employee-inventors would always be innovating and there’s no way to anticipate which inventions will be patented. So a lot of employment agreements have the employee agree to assign inventions to the employer in the future. According to this decision, just having an agreement to assign something in the future, isn’t a present assignment. So what’s an employer to do? A two prong approach may be required. First, instead of a future assignment, have the employee make a present assignment of all Intellectual Property rights. Second, decide at what point in the research and development process, the employee will assign his or her patent in a particular invention and then follow through with it. One thing that the decision didn’t seem to address is whether the employer would have a cause of action against the employee who breached the employment agreement by failing to assign the patent as agreed.

  • IP BLAWG

    The Long and Winding Road of Tom Brady Photos

    Beverly A. Berneman
    Tuesday, 17 April 2018

    Embedding a Twitter photo can be copyright infringement. It all started when Justin Goldman took photos of Tom Brady and posted them on Snapchat. Content on Snapchat is supposed to disappear after a while. These photos didn’t. Instead, the photos ended up being reposted on various social media sites, including Twitter. Some media outlets then embedded the third party tweets with the photos in articles on their respective websites. Goldman filed suit against the media outlets for copyright infringement. The defendants brought a motion to dismiss arguing that they aren’t liable because they were protected under the “Server Test”. The Server Test says that images generated by a search engine, like Google, aren’t copyright infringement because search engines don’t store images. The court denied the motion. This wasn’t a case of linking to the origin of the photos. The defendants actively embedded the images which were immediately available upon opening the offending webpage.

    WHY YOU SHOULD KNOW THIS. For now, this case is considered an outlier. But since it’s out there, the best practice is to use extreme caution. The web is full of great content, especially photographs. But there’s a line between linking (which is ok) and embedding without permission (which isn’t ok).

  • IP BLAWG

    The Case of the Disappearing Discount

    Beverly A. Berneman
    Tuesday, 10 April 2018

    Advertising a discount that disappears at point of purchase is a problem. A customer of Hobby Lobby, wanted to buy a picture frame. She believed she was getting a 50 percent discount on a photo frame due to an in-store sign stating "Photo Frames 50% OFF the Marked price.” Hobby Lobby didn’t honor the discount but instead pointed to disclaimer language that said, "DISCOUNTS PROVIDED EVERY DAY; MARKED PRICES REFLECT GENERAL U.S. MARKET VALUE FOR SIMILAR PRODUCTS." The customer brought a class action suit based on false advertising as well as other causes of action. Hobby Lobby’s motion to dismiss was denied. The court held that a reasonable consumer could have been misled despite the disclaimer language. So the suit will proceed.

    WHY YOU SHOULD KNOW THIS. This is just one example of recent cases and settlements involving phantom discounts. Federal Trade Commission regulations and state laws govern advertising. The basics of proper advertising are pretty standard. Don’t use unfair, deceptive, untrue or misleading advertising. Advertising a price or a discount and then not honoring it falls squarely within prohibited conduct. Hobby Lobby’s disclaimer language didn’t excuse it from complying with the advertising rules.

  • Benefits Bulletin

    DOL Decrees New Rules For ESOP Fiduciaries

    Andrew S. Williams
    Monday, 09 April 2018

    All transactions involving the purchase or redemption of employer stock by an Employee Stock Ownership Plan (“ESOP”) must be conducted at fair market value. This assures that the statutory prohibited transaction exceptions available to compliant ESOPs will apply. Fair market value for private companies must be determined by an independent appraisal. This would include annual valuations and, more important, the valuation of the ESOP’s critical acquisition of the employer stock that it is required to maintain as its “principal investment.”

    ESOP appraisals can be influenced by misleading information provided by company management. Appraisers can even give their approval to ESOP transactions that leave the employer-sponsor insolvent as in the case of the Chicago Tribune ESOP. The resulting litigation was concluded by a settlement agreement with the Department of Labor that charges ESOP fiduciaries with the responsibility of performing their own due diligence investigation of any ESOP appraisal report.

    A recent Department of Labor settlement agreement with First Banker Trust Services (“FBTS”) resolves three separate cases and outlines additional valuation guidelines that ESOP fiduciaries (including the employer-sponsor of an ESOP) should consider any time they deal with a valuation report issued by the ESOP appraiser, or “Valuation Advisor.”

    Each of the three cases alleged that FBTS approved ESOP transactions without undertaking a thorough investigation of the value of the company stock involved. Because the stock valuations were based on unrealistic projections of future company earnings, they overstated the value of the stock of each sponsor. As a result, the three subject ESOPs allegedly overpaid for the stock purchased by each of them. As part of the settlement agreement, FBTS also agreed to pay $15.75 million to the three ESOPs.

    The FBTS settlement agreement sets out the following requirements and, although they technically apply only to FBTS, ESOP trustees and administrative committees should consider them as generally applicable compliance guidelines (these are just highlights of the new requirements):

    • The selection process for any Valuation Advisor must include at least three references and review of any regulatory proceedings involving the Advisor. The Valuation Advisor cannot have previously worked for either the ESOP sponsor or a committee of its employees.

    • Any valuation report must comment on, among other things, the financial impact of a proposed ESOP transaction and related securities acquisition debt on the ESOP sponsor (remember the Tribune ESOP!).

    • Valuation reports should be based on audited financial statements of the sponsor for the prior five year period. If unaudited or qualified financial statements are used, any selling shareholders who are officers, managers or directors of the ESOP sponsor must agree to compensate the ESOP for any losses attributable to inaccuracies in the sponsor’s financial statements.

    • If the ESOP pays a control premium for company stock, ESOP fiduciaries must document that the ESOP is obtaining voting control in fact. Any limitations on such voting control must be identified and valued in terms of amounts paid to the ESOP as “consideration” for those limitations.

    • Valuation reports must consider whether a proposed ESOP loan is at least as favorable to the ESOP as any loan between the ESOP sponsor and any of its executives in the prior two years.

    • The ESOP trustee must provide the Valuation Advisor certain specific information about the sponsor, including offers to purchase or sell its stock in the prior two year period as well as any sponsor defaults under a loan agreement, any management letters from the sponsor’s accountant and information relating to any sponsor valuations provided to the IRS during the prior five years.

    • The ESOP trustee must consider whether or not it is appropriate to include a purchase price adjustment or claw-back provision in any share purchase agreement in order to take into account a future corporate event or other event that might adversely affect the value of the sponsor’s stock.

    • The ESOP trustee must meet certain documentary requirements, including a certification by its employees who participated in decision making with respect to an ESOP transaction that they have read the valuation report and considered the reasonableness of its underlying assumptions and value conclusion. 

    Takeaways:

    ESOP sponsors and financial institutions involved in ESOP transactions should consider the new territory staked out in the FBTS settlement agreement. First of all, note the requirement that company insiders agree to compensate the ESOP for errors in company financial statements if those statements are not audited financial statements. Second, the normal practice of assigning a control premium in the valuation of majority stock interests purchased by ESOPs must now be questioned by ESOP fiduciaries. This means that typical arrangements that leave incumbent management in control of the voting of ESOP stock must not only be investigated by ESOP fiduciaries but also may require the fiduciaries to determine a value for any such limitations on control – and to provide that the ESOP be “compensated” accordingly.

  • IP BLAWG

    Tequila and Cigars

    Beverly A. Berneman
    Friday, 30 March 2018

    Tequila and cigars go together like love and marriage; or maybe not. El Galan Inc. tried to register the word “Ternura” for a brand of cigars. The USPTO refused registration because Don Francisco Spirits LLC had already registered the same word for tequila. The USPTO said that the two products are “related”, meaning that they are complementary and linked in the minds of consumers. El Galan appealed to the TTAB. The TTAB affirmed the refusal. The TTAB reached back into history and cited a 1955 ruling by the Fifth Circuit in favor of the famous Scotch whiskey brand, Johnnie Walker, against a company that wanted to use the name for cigars. Because, after all, everyone connects whiskey and cigars. So according to the USPTO and the TTAB, the same is true for tequila and cigars. The TTAB pulled back a little by saying that the opinion should not be interpreted to mean that cigars and alcoholic beverages will always be considered related.

    **WHY YOU SHOULD KNOW THIS. ** Frankly, this ruling is a stretch. Alcohol and tobacco don’t always go together in the minds of the consuming public. This is the problem with the “relatedness” argument that can form the basis of a refusal to register. There should be some limit on a refusal to register when the same mark is being used for goods or services that don’t actually compete with each other.

  • IP BLAWG

    Peeling the Software Onion Can Cause Tears

    Beverly A. Berneman
    Tuesday, 20 March 2018

    Software can have lots of layers like an onion which can be trouble for an infringement lawsuit. In CSS, Inc. v. Herrington, CSS complained that the defendants infringed on three of its copyrighted software programs. The programs were made up of a lot of different components, including third party software and abstract ideas. The court’s opinion peeled the layers of CSS’s software onions to get to the decision. First, the court peeled off the function that each program performed because they were "ideas" of the programs and not their expression. Then the court peeled away the client/server architecture used by each of the programs because that was non-copyrightable industry-standard. Next came the third party components because they didn’t belong to either party. Next came the arrangement of the third party components didn’t have enough creativity for copyright protection. Then the court peeled away the layer that was the name/address algorithm because it was unoriginal and not copyrightable. Once the court got to the small onion core of protectable software that was left, the court held that CSS didn’t prove substantially similarity between CSS’s onion core and the defendants’ onion core. CSS may have had something that was protectable, but after peeling away the uncopyrightable components of its software it couldn’t prove infringement.

    WHY YOU SHOULD KNOW THIS. This opinion is a good road map for any pre-litigation due diligence involving software copyright infringement.

  • IP BLAWG

    March Madness Comes in Like a Lion

    Beverly A. Berneman
    Tuesday, 13 March 2018

    With March Madness upon us, we must remember its bumpy trademark road. March Madness is the uber-famous trademark of the National Collegiate Athletic Association’s championship basketball tournament. But the NCAA was not the first to use the trademark. The Illinois High School Association was. The IHSA unsuccessfully tried to stop the NCAA from using it. The court held that both had the right to use the name. Eventually, the NCAA acquired the IHSA’s rights. Once the NCAA acquired the rights, it aggressively protected the trademark. The NCAA has been able to squelch the unlicensed use of the trademark and anything that comes perilously close such as “April Madness” (for entertainment service), “Markdown Madness” (for auto sales services), “Skate Madness” (for skateboarding competitions) and “Freestyle Madness” (for various entertainment services).

    WHY YOU SHOULD KNOW THIS. It’s so tempting to use “March Madness” in an ad campaign to bring in business; especially at the retail and food industry. But to do so, a business has to be ready to pay the hefty license fees demanded by the NCAA or face the NCAA’s wrath. As the owner of the trademark, the NCAA can protect its trademark from any use that would be likely to cause customer confusion about the source or sponsorship of the product or service. And because the trademark is famous, the NCAA can protect against any use that might dilute its brand. Even if the use has nothing to do with a basketball championship.

  • IP BLAWG

    Trademark Peaceful Coexistence

    Beverly A. Berneman
    Tuesday, 27 February 2018

    Similar trademarks don’t necessarily result in a likelihood of confusion. Two recent decisions considered whether similar trademarks can coexist without causing customer confusion. In Allstate Insurance Co. v. Kia Motors America Inc., Allstate argued that Kia’s “Drive Wise” brand infringed on its “Drivewise” trademark. Kia’s product was a high end add-on for Kia’s cars. Allstate’s product was a program to reward safe driving by its insurance customers. The court held that the goods offered by the parties were not identical or even related. Customers who wanted an add-on for their car would not be confused by similar words used for an insurance company’s safe driving incentive. And the reverse would be true as well. Another case involved a similar set of facts and came out the same way. In Destileria Serralles Inc. v. Kabushiki Kaisha Donq DBA Donq Co. Ltd., the Trademark Trial and Appeal Board ruled that a Kabushiki’s Japanese bakery chain named “Donq” was not confusingly similar to Destileria’s rum brand “Don Q”. Destileria argued that many brands of liquor cross over into other types of goods and so there would be “overlap” in the minds of the consuming public. The TTAB rejected the argument because Destileria’s brand is marginally famous and purchasers would be less likely to expect expansion into other goods.

    WHY YOU SHOULD KNOW THIS. The goods offered by trademark owners need not be identical or even competitive for a customer to be confused. Even if the goods really have nothing to do with each other. The operative question is whether consumers would assume the different goods would have the same origin. In these two cases, the adjudicating body found that the goods weren’t related enough to cause overlap in the minds of customers.

  • IP BLAWG

    Divorce, Trade Secret Style

    Beverly A. Berneman
    Tuesday, 20 February 2018

    Trade secrets can be an asset in a divorce. Donald Bailey and his ex-wife, Geraldine Bailey, were in the midst of a very messy divorce. As part of the proceedings, Geraldine wanted to determine the value of their marital assets. So Geraldine’s law firm sought discovery against Donald’s two companies, Zegato Solutions Inc. and Aldmyr Systems, Inc. The two companies had trade secrets that were worth about $350 million, according to Donald. Donald then brought a suit against the attorneys claiming that they stole and copied the trade secrets. Dismissal of the suit was affirmed by the Fourth Circuit Court of Appeals. The Fourth Circuit agreed with the lower court that the law firm was entitled to explore Donald’s assets on behalf of Geraldine.

    WHY YOU SHOULD KNOW THIS. When a couple decides to cut ties with each other, a host of issues are involved. One of the primary issues is who gets what from the assets that the couple acquired during the marriage. In this case, the court had to balance Donald’s companies’ right to protect their trade secrets and Geraldine’s right to know the value of Donald’s assets. Since access to the trade secrets had nothing to do with actually using them, Geraldine’s right to discovery won.

  • IP BLAWG

    I’ve Been Framed

    Beverly A. Berneman
    Wednesday, 14 February 2018

    Website framing can be copyright infringement. “Framing” is the display of content on a website that is independent of the original content creator. In Leader’s Institute LLC v. Jackson, Robert Jackson left Leader’s Institute to work for a competitor, Magnovo Training Group. Leader’s Institute sued claiming misappropriation of trade secrets and trademark infringement. Magnovo brought a counterclaim alleging that Leader’s Institute had committed copyright infringement by framing Magnovo’s copyrighted content on Leader’s Institute’s website. The court granted partial summary judgment to Magnovo on the copyright infringement claim. The court held that programming its website to display Magnovo’s copyrighted works is considered an unauthorized public display of a work of authorship under Copyright Law.

    WHY YOU SHOULD KNOW THIS. Many websites are designed to provide access to another’s website content. In some cases, it can be done without resulting in copyright infringement. For instance, a hyperlink that directs the user to the original website is probably ok. But in this case, Leader’s Institute did more. It programmed its website to incorporate the copyrighted work belonging to its competitor. Leader’s Institute was held to have infringed by an act of public display through an automated process.

  • Benefits Bulletin

    Coach Will Cost Alabama $2 Million More Under Tax Reform

    Andrew S. Williams
    Wednesday, 07 February 2018

    Nick Saban is the highest paid college football coach in the country. In 2017, he was reportedly paid $11 million by the University of Alabama. If he is paid that amount in 2018, the recently passed Tax Cuts and Jobs Act (the “Act”) will impose an excise tax on Alabama, his employer, of over $2 million!

    Why is Congress picking on Alabama?

    Well, the Act applies not only to Alabama but also to other tax-exempt organizations. In order to level the playing field between tax-exempt and for-profit entities, the Act imposes a 21 percent excise tax on compensation in excess of $1 million paid to “covered employees” (the organization’s top five earners for the current and any preceding tax year). This excise tax also applies to excess “parachute payments” made to covered employees upon separation from employment. In the for-profit realm, such payments are penalized with a loss of the employer’s corresponding income tax deduction.

    So, who are the likely targets of the new tax? In addition to football coaches, college presidents and highly paid executives of public charities come to mind. However, there is an exception for compensation paid to doctors, nurses, veterinarians and other licensed professionals for providing medical services. So, superstar physicians may not subject their tax-exempt employers to the new excise tax.

    Takeaway:

    Tax-exempt employers may want to consider deferred compensation arrangements for executives in order to reduce current compensation. Medical service providers like public hospitals that pay compensation primarily for medical services may want to revise physician employment agreements to separate compensation paid for administrative and teaching services from compensation paid directly for medical services. In any event, there is no grandfather provision so the excise tax will apply to existing compensation arrangements for taxable years beginning after December 31, 2017 (that’s January 1, 2018 for employers with calendar tax years).

  • IP BLAWG

    Lawyers Can Have Problems Crafting Trademarks

    Beverly A. Berneman
    Wednesday, 07 February 2018

    A trademark can’t block competitors from using descriptive words. Attorney, Candace L. Moon, wanted to become the “on-stop shop” for the legal issues in the craft beer industry. So she tried to register “The Craft Beer Attorney APC” as a trademark. The uproar from other attorneys was deafening. No less than 10 other law firms filed oppositions to registration of the trademark. They argued that the words “Craft Beer Attorney” were generic because other attorneys need to use those words to describe their services. One firm wrote: “Such use is and would be in derogation and violation of the First Amendment rights of third parties, who have a bona fide need to use such a generic term or phrase to accurately describe and reference their own similar services.” Candace withdrew her application and the TTAB entered judgment in favor of the opposers.

    WHY YOU SHOULD KNOW THIS. Candace’s experience is a good example of the problems with choosing a descriptive mark. Candace had a bright idea to brand herself by describing her services. But, her competitors needed to use those words to describe their services too.

  • IP BLAWG

    An Oracle’s Prophecy of Infringement

    Beverly A. Berneman
    Tuesday, 30 January 2018

    You don’t need an Oracle to predict the outcome of working outside the scope of a license. Rimini Street, Inc. was hired by one of Oracle USA, Inc.’s licensees to develop and test updates for the licensee’s customers. But Rimini started using Oracle’s software to develop products for its other clients who didn’t have a license from Oracle. Oracle sued and won a copyright infringement judgment. Rimini appealed and lost at the 9th Circuit Court of Appeals. Rimini had two interesting affirmative defenses that were rejected by the court. First, Rimini said it had an express license. While it had an express license with respect to a single licensee, it didn’t have a blanket express license to use the software for anyone else. Second, Rimini argued that Oracle was misusing the copyright. Copyright misuse is an equitable defense against copyright infringement allowing copyright infringers to avoid infringement liability if the copyright holder has engaged in abusive or improper conduct in exploiting or enforcing the copyright. In other words, Rimini was accusing Oracle of being a copyright bully because Oracle wasn’t allowing Rimini to get a head start with Oracle’s future software licensees. The court rejected this argument. As the owner of the software, Oracle had every right to control the use of its software by potential future licensees.

    WHY YOU SHOULD KNOW THIS. Rimini had an uphill battle. It went beyond the scope of a license. And Rimini’s copyright misuse argument was misguided. Classic copyright misuse involves elements of fraud and extortion. Oracle wasn’t doing that. It was only protecting its software in a specific case. That isn’t copyright misuse.

  • IP BLAWG

    First Sale Can Make You Feel Nauseous

    Beverly A. Berneman
    Tuesday, 23 January 2018

    If you want a patent, be careful about when you make your first sale. Helsinn Healthcare S.A. applied to patent a formula that would reduce nausea and vomiting resulting from chemotherapy. When it sued Teva Pharmaceuticals USA Inc. for patent infringement, Teva argued that the patent was barred because Helsinn sold the formula more than a year before it applied for the patent. The Patent Act bars the patentability of an “invention [that] was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.” An invention is made available to the public when there is a commercial offer or contract to sell a product embodying the invention and that sale is made public. There was no question that Helsinn had entered into a distribution agreement more than a year before the patent application. So the issue was whether the agreement between Helsinn and its distributor was a “sale” which would bar the patent. The Federal Circuit Court of Appeals ruled that the sale to the distributor qualified as a commercial sale that would bar the application.

    WHY YOU SHOULD KNOW THIS. Although this case involves big pharma, every inventor can benefit from Helsinn’s sad experience. There is some discussion among the Patent Bar as to whether making the sale “confidential” would mean the sale wasn’t “commercial”. But it may not be an easy fix. The issue involves an analysis of both commercial law as well as patent law. To be safe, a first sale shouldn’t take place before the patent application is filed. Failing that, advice of counsel is absolutely necessary.

  • IP BLAWG

    *!&% Trademarks

    Beverly A. Berneman
    Tuesday, 16 January 2018

    The USPTO can no longer ban scandalous and immoral trademarks. Erik Brunetti wanted to register the word “FUCT” for his apparel line. The USPTO refused registration because the word sounded like a swear word. Erik appealed to the Federal Circuit. The appeals court overturned the ruling saying that the government’s rule against registering profane, sexual and otherwise objectionable language violates the First Amendment. Acknowledging that the government didn’t have a substantial interest in policing offensive speech, the Federal Circuit opined that the First Amendment “protects private expression, even private expression which is offensive to a substantial composite of the general public.”

    **WHY YOU SHOULD KNOW THIS. ** With this decision and the decision in the Slants case (“Bleeping Trademarks” Blawg post of 1/12/2016 and 3/29/2016), the courts have drawn the line in the sand regarding trademark choice. The USPTO is being told not to determine registrability of trademarks based upon whether something is offensive to a certain segment of the population. But the impression a trademark makes is very subjective. A trademark should always take the potential consuming audience into account. In this case, Erik’s market is the skateboarding crowd. To them, the jokey and offensive nature of the mark might be a good selling point. However, the same may not be true if Erik’s market was a more a sedate one, like banking for instance.

  • Benefits Bulletin

    Does your Retirement Plan need a 3(16) Fiduciary?

    Andrew S. Williams
    Thursday, 11 January 2018

    Your retirement plan may have an outside third party administrator (TPA) to assist with plan administration. However, a TPA typically is not a fiduciary to the plan and does not act as “plan administrator” (that’s usually the employer itself as provided in a typical TPA services agreement). This leaves the employer ultimately responsible for the plan’s compliance with all applicable legal requirements. So, even if your TPA makes a mistake, the employer is likely on the hook for any resulting liability because the TPA’s services agreement usually imposes damage limits and employer indemnities that protect the TPA.

    An independent service provider (maybe your current TPA) can be engaged to act as the “plan administrator” pursuant to Section 3(16) of ERISA. As a 3(16) fiduciary, the service provider assumes fiduciary responsibilities in administering the plan. The 3(16) fiduciary is responsible for all compliance activities, including the following:

    • Determining employee eligibility
    • Retaining plan service providers
    • Preparing and filing annual reports
    • Maintaining fidelity bond coverage for employees who handle plan assets
    • Interpreting and applying plan provisions
    • Distributing summary plan descriptions and supplements on a timely basis
    • Preparing an investment policy statement
    • Administration of participant loans, hardship withdrawals, as well as benefit computations and distributions
    • Distributing participant notes such as summary annual reports and, as applicable, annual qualified default investment alternative (QDIA) notices, safe harbor notices and investment fee disclosures
    • Reviewing and acting on reports of plan investment advisors and any private auditor
    • Reviewing and implementing qualified domestic relations orders (QDROs)

    Are your bases covered on all of the above? If your TPA is not involved in these compliance functions, are they adequately performed by your own employees? If not, your plan may need help from an outside service provider or even a 3(16) fiduciary.

    Takeaway:

    Engaging a competent 3(16) fiduciary should provide any retirement plan the maximum compliance protection available. Just bear in mind that the employer still retains a legal obligation to prudently select the 3(16) fiduciary and to monitor the fiduciary’s ongoing performance of its duties.

  • IP BLAWG

    2017 Crippys - The IP Criminals Hall of Fame

    Beverly A. Berneman
    Tuesday, 09 January 2018

    Welcome to the Second Annual Crippys. The Crippys are awarded to those who achieved infamy by committing Intellectual Property crimes during the previous year. In other words, an IP Criminals Hall of Fame. The field of candidates was crowded last year. But the award winners rose to the top. The 2017 Crippys go to:

    Second Runner Up Crippy Goes to David Nosel: David was an executive with Korn/Ferry International. After he left, his ex-assistant gave him a password with which he could access his former employer’s computer system. He used the password to hack into the system and steal trade secrets. David’s conviction for violating the Computer Fraud and Abuse Act (“CFAA”) was affirmed by the Ninth Circuit Court of Appeals. The CFAA criminalizes accessing a computer without authorization or exceeding authorization to obtain anything of value from a protected computer. David argued that it wasn’t hacking because he had a valid password. Somehow, David missed the point. David didn’t have authorization to use the password. So his actions fell squarely within the prohibited acts in the CFFA.

    First Runner Up Crippy Goes to Walid Jamil: Walid pled guilty to conspiracy to commit criminal copyright infringement and conspiracy to introduce misbranded food into interstate commerce. A predecessor of Walid’s company, Midwest Wholesale Distributors, was a legitimate exporter of the 5-Hour Energy drink to Mexico. Jamil and his cohorts replaced the Spanish labels with fake English ones so they could sell to the U.S. market. When the stock ran out, Walid switched to fully counterfeit drinks made in a filthy factory. He distributed more than 4 million bottles putting the health of millions of customers into jeopardy. And if that weren’t enough, Walid is also alleged to have been involved in similar schemes involving Equal, Splenda, Truvia, Uncle Ben’s Rice and Pillsbury products. Walid has been sentenced to 7 years in jail plus payment of criminal restitution in the amount of $555,800.00. Walid wins this award for shear audacity and tenacity. He’ll need those skills in prison.

    Grand Prize Crippy Goes to Gregory David Justice: Gregory (whose last name has a good sense of irony), a former employee of a defense contractor, pled guilty to one count of economic espionage and one count of attempting to violate the Arms Export Control Act. He tried to sell information about his (now former) employer’s satellite security systems which included trade secrets. Unfortunately for Gregory, he offered the sale to an undercover agent who was posing as a Russian spy. He told the ersatz Russian spy that he loved spy movies and television shows like “Jason Bourne” and “James Bond” and “The Americans”. He sold the secrets for $3,500.00 telling the undercover agent that he needed it for his wife’s medical expenses. Actually, he sent the money to his on-line girlfriend, an alleged European model named Chay. Actually, the “girlfriend” wasn’t named Chay nor was she a model. She was some woman who lived in Florida with her boyfriend and son. Gregory was sentenced to 60 months in jail. U.S. Attorney Sandra R. Brown said, “This defendant sold out his employer and betrayed his country in exchange for a few thousand dollars. His actions posed an imminent threat to our national security.”

    WHY YOU SHOULD KNOW THIS. Criminal Intellectual Property activity is no laughing matter. Those who criminally interfere with the Intellectual Property of others cause damage, endanger public health and harm national security. They justly face jail time and fines. So no one should strive to be awarded a Crippy for 2018.

  • IP BLAWG

    You're a Mean One, Dr. Seuss

    Beverly A. Berneman
    Tuesday, 19 December 2017

    Dr. Seuss’ Estate doesn’t have the Christmas spirit. Matthew Lombardo wrote a play called “Who’s Holiday”. It’s a sort of sequel to Dr. Seuss’ “How the Grinch Stole Christmas” in which Cindy-Lou Who is all grown up and has issues. Dr. Seuss’ estate is aggressive about protecting the original works (See more below). So, of course, the Estate sued for copyright infringement to block Who’s Holiday. The Estate lost. The court held that “Who’s Holiday” falls squarely within the defense of fair use. Using the four prong fair use test, the court found that the nature of the use was obviously parody and weighs in favor of fair use. “The play subverts the expectations of the Seussian genre, and lampoons the Grinch by making Cindy-Lou's naiveté, Who-Ville's endlessly-smiling, problem-free citizens and Dr. Seuss' rhyming innocence all appear ridiculous. . .” The court found the second prong, the nature of the original work, didn’t play a big role in the analysis. For the third prong, the court held that parody gives a long leash to quote and refer to the original. Even though Who’s Holiday used a substantial amount of the original work, it was not excessive in relation to the purpose of parody. The fourth prong determines whether the alleged infringing work supplants the market for the original. The court found that there was virtually no possibility that someone looking to buy a children’s book would buy tickets to an adult themed play about one of the characters instead.

    WHY YOU SHOULD KNOW THIS. As you may remember, Dr. Seuss’ Estate sued ComicMix for copyright infringement. ComicMix had started a Kickstarter campaign to fund the development of a comic mashup between Dr. Seuss’ “Oh, the Places You’ll Go” and Star Trek titled “Oh the Places You’ll Boldly Go.” The Estate’s first complaint was dismissed. (June 27, 2017, “Horton Hears a Vulcan”). The Estate amended its complaint and just defeated a motion to dismiss by ComicMix. So ComicMix’s mission to boldly go to fair use places continues.

    Happy Holidays and see you next year with more IP News for Business.

  • IP BLAWG

    Tipsy and Ugly Fight Over Holiday Sweaters

    Beverly A. Berneman
    Tuesday, 12 December 2017

    Unraveling an ugly holiday sweater Google search could create potential liability. Google AdWords is an advertising service offered by Google that allows a sponsor to pay for advertising and a website link to appear prominently. A problem arose when Ugly Christmas Sweater, Inc. used Tipsy Elves, LLC’s name in its Google AdWords. Tipsy Elves sued Ugly Christmas Sweater for trademark infringement and other related causes of action. Tipsy Elves had a slippery hill to climb to prove its case. The vast majority of trademark infringement cases involving Google AdWords come out against the plaintiff. It appears that the parties settled their differences and Tipsy Elves dismissed its case. Ugly Christmas Sweaters’ Google AdWords no longer come up in a Google search of Tipsy Elves.

    WHY YOU SHOULD KNOW THIS. Google AdWords creates an opportunity for competitive advertising that might not be available in any other medium. Pursuing ad words for trademark infringement has problems, so far. Yet it shouldn’t chill pursuing the issue as the courts knit a remedy for sponsored misleading search engine results.

    This post is in honor of Golan Christie Taglia LLP’s first annual Ugly Holiday Outfit Contest which is coming up on December 15, 2017. The photo shows GCT associate, Anthony J. D’Agostino, modeling his contest entry.

  • Benefits Bulletin

    No Plan Document? No Problem!

    Andrew S. Williams
    Thursday, 07 December 2017

    Many of us have believed that every ERISA plan must have both a plan document and a summary plan description (“SPD”). An SPD is required for all ERISA plans in order to explain them in plain English. ERISA also requires subject plans to have a “written instrument” and it is the usual practice, for retirement plans in particular, to have both a plan document and an SPD.

    In the absence of a separate plan document, can a plan’s SPD itself also satisfy the ERISA “written instrument” requirement? A recent decision of the Firth Circuit Court of Appeals (Rhea v. Alan Ritchey, Inc. Welfare Benefit Plan) says yes.

    Because many insured group health plans have no documentation other than an SPD, this decision may provide a defense to employers who are sued because their group health and other welfare plans are documented only by an SPD and, therefore, are alleged to fail to meet ERISA’s so-called “plan document” requirement.

    In reaching its decision in Rhea, the Fifth Circuit rejected arguments that the defendant’s SPD was deficient because it referenced a separate, non-existent “plan document.” The Court also found that the SPD’s short hand description of procedures for amending the plan and its funding arrangement satisfied applicable ERISA requirements.

    Although the decision in Rhea recognizes the reality that most sponsors of insured group health plans do not have a separate plan document, note that many of those plans do not even have an SPD. This is because their insurance company has provided only an insurance company “certificate of coverage.” That type of documentation as well as SPDs that lack all the required provisions are not covered by the decision of the Court in Rhea.

    Takeaway:

    Sponsors of insured group health plans with only an SPD and not a separate plan document can relax – but only if their SPD’s satisfy the applicable ERISA “written instrument” requirements. Also bear in mind that there are other reasons to have a separate plan document. SPDs are prepared by insurance companies and may not include optional provisions that plan sponsors frequently include in separate plan documents. Also, more employers are adopting “wrap plan” documents that consolidate all of their welfare benefits such as group health, group life and group disability plans into a single plan to allow ERISA annual reporting on just one Form 5500.

  • IP BLAWG

    No Vicarious Thrills Here

    Beverly A. Berneman
    Tuesday, 05 December 2017

    Be careful not to control someone else’s infringing activities. Barcroft Media Ltd. provides a video and image library available for download. Photographer, Jeffrey R. Werner, filed suit against Barcroft alleging that it allowed Valnet Inc. to download his photos without his consent. Jeffrey alleged that Barcroft materially contributed to Valnet’s infringement by granting Valnet a retroactive license. Barcroft brought a motion to dismiss arguing that Jeffrey didn’t state a claim. The court denied the motion deciding that Jeffrey stated a claim for vicarious liability and contributory infringement. Although the court expressed some doubt as to whether Jeffery’s going to be able to prove the facts to support his case.

    **WHY YOU SHOULD KNOW THIS. ** A party that is one step removed from infringing activity can get caught in the litigation net under two theories of secondary liability. One type is vicarious liability which has two elements: (1) the right and ability to supervise or control the infringing activity; and (2) a direct financial benefit from that activity. The other type is "contributory infringement" in which one induces, causes or materially contributes to copyright infringement. To avoid secondary liability, it’s always best to step away and not enable potential copyright infringement.

  • IP BLAWG

    There is no Shame in That

    Beverly A. Berneman
    Tuesday, 28 November 2017

    Submitting an idea doesn’t mean you own it. Author, Dan Rosen, had a screenplay called “Darci’s Walk of Fame”. For those who are not ‘in the know’, the standard elements of a walk of shame are: (1) a one night stand; (2) waking up the next morning in someone else’s bed; and (3) having to walk (or taxi or Uber or Lyft) home in the clothes you wore the night before. Dan was lucky to get a meeting with actress and producer, Elizabeth Banks and her husband to present his screenplay. After discussing the plot line, characters, and themes, Banks and her husband took a pass. Not long after the meeting, Banks starred in the 2014 movie “Walk of Shame” which wasn’t exactly a box office hit. Dan’s assignee, Shame on You Productions, Inc. sued Banks, her husband, and the film’s production based on copyright infringement and an implied contract. The court applied the extrinsic test to determine if infringement occurred. The extrinsic test focuses on specific similarities between two works. Scenes a faire (standard situations that flow naturally from the plot) are disregarded. The two works shared the “walk of shame” premise and some natural elements that flowed from it, but the narratives and characters were different. Shame on You’s case was dismissed and affirmed on appeal.

    WHY YOU SHOULD KNOW THIS. When Dan submitted his idea to Banks and her husband, he believed that his idea would belong to him. But, an idea alone is not protectable by copyright. Only the expression of the idea is. This is a prime example of the problem with idea submission cases. When submitting ideas, there’s a Catch 22. It’s best to make sure that proper protections are in place. But anyone in an industry that is prone to idea submissions is reticent about accepting any unsolicited ideas or signing any idea protection documents such as non-disclosure agreements.

  • IP BLAWG

    Yummy Bread – But It’s a Secret

    Beverly A. Berneman
    Tuesday, 14 November 2017

    Trade secrets are a good way to protect a recipe. Sycamore Family Bakery Inc. sold its assets to Bimbo Bakeries USA. Included in the assets was Sycamore’s secret recipe for Grandma Sycamore’s Home-Maid Bread. When Leland Sycamore went to work for US Bakery, US Bakery started selling bread made from the same recipe. US Bakery also mimicked Bimbo’s packaging. Bimbo sued for trade secret misappropriation and false advertising. A jury awarded Bimbo $2 million.

    WHY YOU SHOULD KNOW THIS. There are two primary lessons here. First, a properly protected trade secret has a lot of value. Trade secrets are pretty much the only way to protect a recipe. Second, when you sell your trade secret, you can’t use it anymore.

  • Benefits Bulletin

    DOL Targets Plans With Missing Participants

    Andrew S. Williams
    Wednesday, 08 November 2017

    It's a Familiar Story

    You or your retirement plan’s third party administrator (TPA) need to make a benefit distribution to an ex-employee. But the employer’s records are out of date and the former employee cannot be located. Worse yet, the missing participant has attained age 70½ so the plan is required to make minimum distributions (RMDs) but cannot do so.

    Can you sit back and wait for the missing ex-employee to come forward and claim their benefits? If they never show up, can you forfeit their benefits?

    The U.S. Department of Labor (DOL) is reported to be targeting retirement plans with missing participants for audit. By examining Form 5500 annual reports, the DOL discovered that some plans were reporting a larger number of terminated vested participants who were not receiving benefits. Worse yet, the DOL was able to contact a significant number of these “missing” participants by simply sending a certified letter to their last known address. As a result, the DOL has reportedly initiated a national audit campaign targeting plans with missing participants with a view towards treating lackadaisical efforts to locate them as a breach of fiduciary duty. And, the IRS can weigh in with additional penalties for failure to make RMDs to those ex-employees who have attained age 70½.

    What to do? Well, the IRS has recently provided a get out of jail card that works if you follow the mandated procedure for finding missing participants. So, what is the secret sauce?

    If the plan has taken all of the following steps, the IRS will not challenge your plan for failure to make RMDs:

    • Searched plan and related plan, sponsor, and publicly-available records or directories for alternative contact information.
    • Used any of the search methods below:
      • A commercial locator service;
      • A credit reporting agency; or
      • A proprietary internet search tool for locating individuals.
    • Attempted contact via United States Postal Service certified mail to the last known mailing address and through appropriate means for any address or contact information (including email addresses and telephone numbers).

    Also bear in mind that the DOL expects employees to be proactive and take steps to locate missing participants before their benefit start dates.

    Takeaway: You or your plan’s TPA need to take appropriate steps to locate missing participants before their plan benefits are payable. This is likely to be successful with a significant number of ex-employees. However, for those who stay missing, you will want to follow the IRS drill set out above before those participants reach age 70½.

  • IP BLAWG

    Trademark Goes Down for the Count

    Beverly A. Berneman
    Tuesday, 07 November 2017

    A licensee can’t knock out a confusingly similar trademark. Julie A. Moreno licensed the Mexican trademark, DEPORTES CASANOVA, for sports equipment. Julie challenged Pro Boxing Supplies, Inc.’s trademark applications and registrations for CASANOVA due to a likelihood of confusion. The TTAB denied Julie’s petitions. While this looked like a priority of use problem, the real problem was that a licensee and not the owner/licensor was claiming priority of use. The TTAB ruled against Julie because: “Allowing a licensee to claim priority for itself in an inter parties proceeding based on the licensor’s use of the mark (whether through the license or otherwise), could result in a licensee being able to claim de facto ownership of the licensed mark.”

    WHY YOU SHOULD KNOW THIS. This was a case of first impression for the Board. The Board had dealt with many cases in which the owner and its licensee jointly enforce the trademarks. But this was the first time the Board had to address whether a licensee alone had standing to enforce a licensor’s trademark rights. The Board said no. So a licensee should always insist that a trademark license either require the owner to challenge confusingly similar marks or join with the licensee to do so.