Siny Corp tried to register its trademark “Casalana” for a knit textile used in the manufacture of outerwear, gloves and the like. As its specimen of use in commerce, Siny submitted pages from its website. But the United States Patent and Trademark Office refused the specimen because it was mere advertising and not evidence of use in commerce. Siny appealed the decision all the way up to the Federal Court of Appeals and lost. Where did Siny go wrong?
In order to claim rights in a trademark, the owner has to use the trademark in commerce. Siny argued that the website showed use in commerce because it had the text “For sales information” followed by a phone number. That wasn’t enough. The website has to provide a means for ordering the goods, such as through a “shop online” or “add to cart” button or link, or through information contained on the page. “For sales information” isn’t the same as “order now” or “to order, call this number”. According to the Federal Court of Appeals, “if virtually all important aspects of the transaction must be determined from information extraneous to the web page, then the web page is not a point of sale.” If it’s not a point of sale, it’s not use in commerce. So Siny has to go back to the website drawing board and make some changes.
WHY YOU SHOULD KNOW THIS. At first glance, the Siny decision seems like splitting hairs. But it points out an important distinction between mere advertising and use in commerce. A website that shows pictures of a product doesn’t mean that the product is actually being sold. Even having contact information for the seller, doesn’t mean it’s being sold. The consumer visiting the website has to have enough information about how to actually purchase or get the product.
Stella McCartney, the fashion designer daughter of former Beatle, Paul McCartney and his late wife, Linda, tried to register the trademark “Fur Free Fur”. The United States Patent and Trademark Office (USPTO) rejected it as being merely descriptive of Stella’s use of fake fur in her fashion designs. The Trademark Trial and Appeal Board (TTAB) disagreed and overturned the decision.
The TTAB held that the USPTO failed to recognize the multiple meanings of the use of the word “fur” in the trademark. Judge Thomas Shaw, writing for the TTAB described the “Fur Free Fur” trademark as really being two things at once like Schrödinger’s Cat (see below for more information) being dead and alive at the same time. “In the first instance, ‘Fur Free,’ the term ‘fur’ refers exclusively to animal fur. In the second instance, ‘fur’ alone, the term ‘fur’ refers to imitation fur.” The “internal inconsistency” in “Fur Free Fur” would give consumers pause making the trademark distinctive. In other words, the juxtaposition of the words required some imagination on the part of the consumer to recognize the trademark as being connected to the goods and service.
WHY YOU SHOULD KNOW THIS. The “Fur Free Fur” trademark is a good example of how a trademark can be created from seemingly generic or descriptive words by adjusting word placement. The word placement of “Fur Free Fur” created a play on the words. The key is to make sure the words require some imagination on the part of the consumer when they see the trademark. Note, that this case had a rare dissenting opinion where the judge disagreed that consumers needed any imagination or perception to recognize the words as a trademark. So care must be taken when developing a Schrödinger’s Cat trademark.
More information about Schrödinger’s Cat: In 1935, Erwin Schrödinger illustrated a problem in quantum physics by presenting a hypothetical scenario where a cat may be alive and dead at the same time. For any further explanation, please consult your friendly neighborhood physicist.
Ahlam Ramzy, a former employee of Perfect Brow Art, Inc., left and started her own Tennessee eyebrow threading salon. Perfect Brow brought suit against Ahlam in Chicago for trademark infringement, trade dress infringement, false designation of origin, trade secret misappropriation and unfair competition.
Ahlam brought a motion to dismiss the Chicago case for lack of personal jurisdiction. Personal jurisdiction is dictated by the reach of where the court sits. Ahlam had never been to Chicago and hadn’t done any business there. Ahlam argued that the Chicago court only would have personal jurisdiction over her if she was located in Illinois or she had sufficient minimum contacts with Illinois to justify jurisdiction over her. Perfect Brow sought to get around the fact that Ahlam had no contacts with Illinois by pointing to a clause in Ahlam’s employment agreement where the parties agreed that the employment contract would be interpreted under Illinois law. The District Court dismissed the case for lack of personal jurisdiction without prejudice. The court held that the choice of law term in the contract was not sufficient to confer personal jurisdiction over Ahlam. Note that the case was dismissed without prejudice. That means Perfect Brow can still bring suit against Ahlam in Tennessee.
WHY YOU SHOULD KNOW THIS. Companies often use employment agreements to make sure that an employee won’t take the company’s Intellectual Property with them after the employee leaves. Companies can also use employment agreements to keep any lawsuits in the company’s home state. It’s convenient and tames the costs of litigation. As Perfect Brow learned, getting the benefits of a contractual term is all in how the term is drafted. If the term had specifically stated that any litigation between the parties would take place in Illinois, then the Illinois case would probably not have been dismissed.
Express Oil Change used the service mark “Tire Engineers” for its tire sales, repair and maintenance services. The Mississippi Board of Licensure for Professional Engineers & Surveyors had a problem with that. According to the Board, no one can use the word “engineer” unless they are actually engineers and have registered for a license to practice engineering in Mississippi.
Express Oil Change brought a declaratory judgment action against the Board. On appeal from summary judgment in the Board’s favor, the Fifth Circuit Court of Appeals reversed. In its opinion, the Court held that commercial speech is protected by the First Amendment. Anyone challenging commercial speech has to justify any restrictions. And the challenger has a heavy burden. The Board didn’t meet that burden. The Board tried to argue that Express Oil Change’s use of the word “engineer” was misleading. The Court rejected the argument for two reasons. First, the word engineer is generally defined as someone having technical skills and does not exclusively refer to a person who designs, builds, or maintains engines, machines, buildings or public works. Second, the essential character of how Express Oil Change used the word is not deceptive or misleading.
WHY YOU SHOULD KNOW THIS. What the Board failed to understand is that there’s a difference between holding yourself out as an engineer for engineering services and using the word “engineer” for marketing other types of services. Many professions are regulated for public policy reasons. For example, someone can’t call themselves a medical doctor without proper degrees and registrations. But someone can call their clock and watch repair business “The Clock Doctor” without having to register with a medical professional board. The essential character of using “doctor” for fixing clocks isn’t deceiving the public.
VidAngel Inc. removed nudity and violence from films and then sold the ‘redacted’ versions. Disney Enterprises, Inc. its subsidiary Lucasfilm Ltd. LLC, Twentieth Century Fox Film Corp. and Warner Bros. Entertainment Inc. sued VidAngel for copyright infringement.
This case has boomeranged between the District Court in California and the Ninth Circuit Court of Appeals. The courts have consistently rejected VidAngel’s defenses and affirmed injunctions against them. Among VidAngel’s defenses were First Amendment free speech and fair use. The District Court called these arguments “poorly developed” and “convoluted”. VidAngel also argued that an obscure 2005 statute called the “Family Home Movie Act” allowed it to edit dirty material from films and then sell the edited versions. The courts rejected this argument. The act permits the development of technology for consumers to skip content once they’ve purchased a film. The District Court has now entered summary judgment in favor of the Hollywood studios against VidAngel on the issue of liability. The case will proceed to the damages phase.
WHY YOU SHOULD KNOW THIS. VidAngel’s sanitized versions of popular films were derivative works. Derivative rights belong solely to the owner of the copyright. Without a license to create, copy and distribute those derivative works, VidAngel’s business model had a shaky foundation. Perceiving and acting on a need is a good business model. Infringing on someone else’s copyright is a bad business model.
Using someone’s trademarks when criticizing their products or services can be tricky. But if you do it the right way, it could be considered nominative fair use.
Applied Underwriters, Inc. owns the trademark “Equity Comp” for financial services. Providence Publications LLC, which describes itself as a provider of informative journalism, offered a webcast seminar titled: “Applied Underwriters’ Equity Comp Program: Like it, Leave it, or Let it be?” The seminar wasn’t very complimentary. Applied Underwriters sued for trademark infringement and unfair competition. Providence Publications moved to dismiss the complaint arguing that the use of the trademark was permitted as nominative fair use. The motion was granted and affirmed on appeal. Relying on the leading case of New Kids on the Block v. News Am. Publ’g, Inc., the Ninth Circuit Court of Appeals showed that the three factors of nominative fair use existed in this case. Those factors were (1) Applied Underwriter’s products and services could not have been readily identifiable without use of the trademark; (2) Providence Publications only used so much of the trademark as was reasonably necessary to identify Applied Underwriter’s products and services; and (3) Providence Publications did nothing that would suggest Applied Underwriters sponsored or endorsed the seminar.
WHY YOU SHOULD KNOW THIS. Providence Publications used Applied Underwriter’s trademarks in a non-competitive, public commentary/free speech kind of way. But what happens if a competitor uses another’s trademark? In other words, how far does commentary and free speech go between competitors? The New Kids on the Block factors should help figure out the answers to those questions.
The famous movie producer, Sam Goldwyn, is credited with saying that “An oral contract isn’t worth the paper it’s written on”. The son of Bob Ross, the Joy of Painting icon, found out that there’s an exception to this rule.
Bob Ross created a company, Bob Ross Inc., along with his wife and Walt and Annette Kowalski, two of their friends. There were no written assignments or other written agreements between Bob and the company. During Bob’s lifetime, the company registered his trademarks and managed his business. The company licensed Bob’s trademarks, his likeness and his name for the manufacture and sale of merchandise and collected the revenues. Bob also executed a trust that was administered by Bob’s brother. The trust had some language about the ownership of intellectual property. After Bob died, his son, Robert Stephen Ross, took over administering the trust and brought suit against the company alleging that the trust and not the company owned all of Bob’s intellectual property. The court entered summary judgment for the company. In granting summary judgment, the court held that it was clear that Bob wanted the right to his name and image to go to the company. He may not have formally assigned the rights on paper, but he did make a verbal grant and otherwise made his intentions clear.
WHY YOU SHOULD KNOW THIS. Bob and the company didn’t have anything in writing. Instead, the company proved years of custom and usage that the judge used as a substitute for a written agreement. But, these results are not typical. The lack of a written agreement can suffer from the passage of time which can cause divergent memories regarding the parties’ intentions. Don’t leave something as important as management of intellectual property to chance. Always choose a written agreement over an oral one.
Swarmfly Inc. and CloudFlare Inc. courted each for a potential acquisition and licensing relationship related to video streaming service technologies. Each party signed non-disclosure agreements. Sadly, the courtship didn’t lead to a marriage proposal and each party went their separate ways. Until, Swarmfly sued CloudFlare for trade secret misappropriation.
Swarmfly’s wings were clipped when the court denied Swarmfly’s motion for preliminary injunction. The court stated that Swarmfly’s trade secret claims were “moving targets” which didn’t bode well for its ability to ultimately prevail on the merits. Four months later, Swarmfly dismissed its case with prejudice. CloudFlare then brought a motion pursuant to the Defend Trade Secrets Act, the California Uniform Trade Secret Act and the court’s inherent powers seeking an award of the attorneys’ fees it incurred between the denial of the preliminary injunction and the dismissal. The motion was granted. It seems that during mediation, new facts came to light that "unquestionably rendered Swarmfly's misappropriation claim objectively specious." The court stated that Swarmfly was "ethically obligated to drop its misappropriation claim” at that time. Since Swarmfly didn’t, Swarmfly has to pay CloudFlare’s attorney’s fees.
WHY YOU SHOULD KNOW THIS. The best way to avoid Swarmfly’s cataclysmic outcome is to: (1) properly identify your trade secrets; (2) make sure you maintain reasonable measures to keep the trade secrets from public disclosure; (3) if you’re going to sue for trade secret misappropriation, make sure you did (1) and (2); and (4) if you find out that no misappropriation took place, back off immediately.
Marco Guldenaar Holding BV filed a patent application for a casino dice game. The claims in the patent covered unique markings on the dice and the rules of the game. Guldenaar Holding threw snake eyes when the United States Patent and Trademark Office rejected the application and the rejection was affirmed on appeal to the Federal Circuit of Appeals.
According to the Court, the US Supreme Court’s decision in Alice Corp. v. CLS Bank International prohibits patents for abstract ideas like Guldenaar Holding’s casino game. The game rules and markings on the dice lacked an “inventive concept” sufficient to transform the claimed subject matter into a patent-eligible application of that idea. Guldenaar Holdings argued that the dice markings aren’t conventional and the game isn’t just an abstract idea because it involves physical game-playing steps versus just mental game-playing steps. The Court disagreed, ruling that a game can still be abstract even if there are physical steps to playing the game. But, the Court was careful to say that not all games are ineligible for patent protection. In a concurring opinion, Circuit Judge Haldane Robert Mayer wrote, “While games may enhance our leisure hours, they contribute nothing to the existing body of technological and scientific knowledge. They should therefore be deemed categorically ineligible for patent”.
WHY YOU SHOULD KNOW THIS. All types of Intellectual Property Law have limitations on what they protect. Guldenaar Holdings butted up against the patent limitation for abstract ideas. Guldenaar Holdings is not alone. Owners of business process and software have watched their patent applications be denied and the issued patents be cancelled in light of the Alice decision. So if patent protection isn’t available, what then? Assuming the elements exist, other types of Intellectual Property such as copyrights and trade secrets could be available.
The shape of your next burger may be protected by a trademark registration.
Configuration trademarks are not easy to get. So Bubba Foods should rejoice that the USPTO approved its trademark application to register the unusual shape of the Bubba Burger. To show the USPTO that the shape could be registered as a trademark, Bubba Foods presented evidence that it was more costly and less efficient to use the unusual shape so the shape was not functional. The company wrote, "Producing hamburgers utilizing the 'Bubba Burger' design mark requires applicant to fabricate an expensive custom mold and maintain same rather than using an off-the-shelf standard round mold." Bubba Foods also had to prove that the shape acquired secondary meaning, i.e. over the 25 years of its use, customers connect the shape to the Bubba Burger product. Bubba Foods used its millions of dollars in sales and its advertising to show that customers identify the shape with the product. The application will now be published for opposition.
WHY YOU SHOULD KNOW THIS. Configuration trademarks are a species of trade dress. Trade dress is a legal term of art that generally refers to characteristics of the visual appearance of a product or its packaging (or even the design of a building) that signify the source of the product to consumers. Trade dress is not inherently distinctive. That’s why Bubba Foods had to prove 2 things. First, that the design was unusual and memorable and conceptually separable from the product. Second, the design served as a designator of origin of the product.
Anyone with a legitimate interest can oppose the registration of a trademark. But what does “legitimate interest” actually mean. It looks like Rapunzel may help answer that question.
United Trademark Holdings Inc. filed an application to register the name “Rapunzel” as a trademark for dolls. Professor Rebecca Curtin filed an opposition to registration with the Trademark Trial and Appeal Board (TTAB). Professor Curtin argued that the name belonged to a centuries old fairy tale princess so it was too generic to be registered as a trademark. United Trademark Holdings moved to dismiss the opposition. It argued that the Professor wasn’t a competitor and so she didn’t have standing to oppose the registration. The TTAB denied the motion to dismiss saying: “Consumers, like competitors, may have a real interest in keeping merely descriptive or generic words in the public domain, to prevent the owner of a mark from inhibiting competition in the sale of particular goods and to maintain freedom of the public to use the language involved.” This decision allows the Professor to continue the fight. We’ll have to wait and see if Rapunzel can’t be registered because it’s merely descriptive of a princess with the long hair who lived in a tower until she was rescued by a handsome prince.
WHY YOU SHOULD KNOW THIS. Fairy tales can come true. You probably already know that. But you should also know that anyone, even a member of the general public, can oppose the registration of a trademark that will interfere with a general right to use the name. This helps to keep generally accepted expressions and terms in the public domain.
In my blog post of August 1, 2017, I posed the copyright litigation dilemma: “To File or Not to File”. On March 4, 2019, the US Supreme Court resolved the dilemma once and for all.
The Supreme Court affirmed the Eleventh Circuit Court of Appeals’ decision in Fourth Estate Public Benefit Corporation v. Wall-Street.com, LLC. The Eleventh Circuit held that plaintiffs must register a work with the Copyright Office before bringing suit. Applying for registration is not enough. In a unanimous ruling, Justice Ruth Bader Ginsburg, writing for the Supreme Court, confirmed that “registered” means, well, “registered” and not just to apply for registration. Fourth Estate argued that a plaintiff might lose the right to enforce a copyright while waiting for the Copyright Office to register the work. Justice Ginsberg wrote that this fear is overrated. The Copyright Office’s average processing time is down to seven months and that’s more than enough time to file suit. Justice Ginsberg acknowledged that the administrative wheels of the Copyright Office might be slower than a litigant would like. But that isn’t a problem that the Supreme Court can solve.
Why You Should Know This. Now there’s no question that a plaintiff must register the infringed upon work with the Copyright Office before filing suit. The problem is that the infringement will continue while the plaintiff is waiting to get a registration certificate. Seven or more months of infringement is a long time to wait for a remedy. The best practice is to register a work as soon as it’s complete and not wait for the work to be infringed upon. The application process is pretty straightforward and the Copyright Office fees are very affordable ($35 to $55 per application). Failing that, the Copyright Office can expedite the process for a filing fee of $800.00 which can shorten the lead time to three weeks. Either way, copyright registration is a “need to have” for copyright owners if they want to protect their valuable works of authorship.
Public information can’t be a trade secret because it’s, well, public. But a combination of public information arranged or organized in a unique, economically advantageous way, can be a trade secret. That’s what Diego DeAmezaga learned to his chagrin. Diego worked for AirFacts, Inc. a software company that licenses auditing software for air fare comparisons. Diego worked painstakingly and expertly to create flow charts that AirFacts used in its software development. When Diego left AirFacts, he attached the flow charts to his resume. AirFacts brought suit against Diego for trade secret misappropriation under the Maryland Uniform Trade Secrets Act (MUTSA). The Maryland District Court dismissed the complaint. The Fourth Circuit Court of Appeals reversed the dismissal. The Court held that the flow charts had independent economic value separate from the public information they contained. AirFacts had taken reasonable measures to keep the flow charts secret by requiring employees to sign confidentiality agreements and giving only a few employees access to certain accounts. So the public information in the flow charts were trade secrets.
WHY YOU SHOULD KNOW THIS. The beauty of trade secrets is that they can encompass a wide range of economically advantageous methods, formulas, business process etc. There’s even room from taking information that everyone knows or is readily accessible and finding new ways to use it. Mark Halligan, the trade secret law guru, calls this the “Combination Analysis”. When does the Combination Analysis qualify as a trade secret? The nuances are many and varied. Experienced trade secret counsel can help with the analysis.
In the olden days, you’d buy an album and when you grew tired of it you’d sell the album to a used record store. That’s because you owned the physical record and once you bought it, that record was yours to do with as you please. This is called the “First Sale Doctrine”. Nowadays most people download their tunes. They still buy or rent it but now they don’t have a physical embodiment of the music. Relying on the First Sale Doctrine, ReDigi Inc. had offered a service whereby you could upload your digital music that you legally purchased from iTunes and resell it. Capitol Records LLC had a problem with that. Capitol Records sued ReDigi for copyright infringement arguing that the First Sale Doctrine doesn’t apply to digital files. The act of uploading the files to ReDigi’s server was creating a copy without permission. The Second Circuit Court of Appeals affirmed a judgment in Capitol Records’ favor. ReDigi also argued that its use was Fair Use. The court held against ReDigi on that as well because ReDigi was commercially motivated, made no changes to the copyrighted works, used the entire works, and resold the digital music files in the same market as the copyright owners.
WHY YOU SHOULD KNOW THIS. This is a good example of ownership in the copyright world. You can own the physical embodiment of a copyrighted work but you don’t own the copyright. You can do what you want with the album, the book or the painting, etc. The problem for ReDigi was that there was no physical embodiment of the music. It was all digital. And the only way to resell the digital file was to copy it and distribute it. Both of those rights belong exclusively to the owner of the copyright.
Using your name as a trademark is doable. Even if someone else has the same name. A surname is considered a descriptive trademark because it references a person or company who’s providing the goods and services. Generally, descriptive marks can’t be registered as trademarks. But, the recent case between The Saint Louis Brewery (“SLB”) and Phyllis Schlafly and Bruce Schlafly (the “Schlaflys”) demonstrated how to get a trademark in a surname. The Schlaflys are family members of the late Phyllis Schlafly who was a writer and political activist best known for her opposition to the women's movement and especially the Equal Rights Amendment. Bruce Schlafly is a doctor and he uses his name in his medical practice. SLB marketed its beer using a logo design that incorporated the name of one of the founders, Thomas Schlafly, for about 30 years. SLB sold more than 75,000,000 units of beer, not counting restaurant sales. SLB applied to register the word mark “Schlafly” saying that the surname has acquired distinctiveness through secondary meaning (connecting the name to the goods) and was no longer merely descriptive. The Schlaflys opposed the registration. The Schlaflys argued that being associated with beer was going to have a negative effect on the name. The Trademark Trial and Appeal Board (“TTAB”) denied the opposition. The Schlaflys appealed to the United States Court of Appeals for the Federal Circuit (“CAFC”) arguing that the use of the name violated the First Amendment and their Due Process Rights. The Schlaflys argued that the name “Schlafly” is recognized primarily as Phyllis Schlafly’s surname, and that the CAFC should adopt a new test called the “change in significance” test, “whereby a surname cannot be registered as a trademark without showing a change in significance to the public from a surname to an identifying mark for specified goods.” The CAFC rejected the Opposers’ arguments and affirmed the TTAB’s decision.
WHY YOU SHOULD KNOW THIS. The Schlaflys were up against a well-accepted trademark principle when it comes to registering surname trademarks. They thought that the fame of Phyllis Schlafly should change those rules. If you decide to adopt a surname as a trademark, keep in mind that you will most likely have to prove that the name acquired distinctiveness through secondary meaning. Three types of evidence may be considered to show secondary meaning: 1) Ownership of prior registration(s); 2) Five years substantially exclusive and continuous use in commerce; and 3) Other evidence (i.e. evidence showing duration, extent and nature of the use in commerce and advertising). Because there are a lot of nuances to this, it’s best to consult with an experienced trademark attorney.
Breaking attorney-client privilege can open a floodgate of information in infringement litigation.
Becton Dickinson & Co., a medical supplier, sued Thermo Fisher Scientific Inc. for infringement of its patents used in “Super Bright” fluorescent dyes. During discovery, Becton asked Thermo Fisher to hand over e-mails between its in-house counsel and Thermo Fisher’s subsidiary, Affymetrix Inc. Thermo Fisher refused claiming that those e-mails were privileged because they involved a licensing and development deal between Thermo Fisher and Affymetrix. The District Court entered an order that there was no privilege and compelled the production. Affymetrix brought a petition for mandamus which is where a party (or non-party in this case) petitions to a higher court to order the lower court to correct an abuse of discretion. Affymetrix argued that Thermo Fisher and Affymetrix had a common interest so the attorney communications were privileged. Federal Circuit Court of Appeals affirmed the District Court’s order. The Court held that common interest privilege only applies to communications between an attorney and different parties when the attorney is representing both parties.
WHY YOU SHOULD KNOW THIS. Attorney-client privilege is there for a reason. A client has to be open and candid with its attorneys so the attorneys can properly prepare a case. So it pays to be very careful about attorney communications to non-parties. Even if the non-parties have the same interests as the client.
The Copyright Act allows the recovery of actual damages; but not everything is included. Rachel Ann Nunes wrote a novel called Bid for Love. Tiffanie Rushton admitted that she copied some of Bid for Love for her book, The Auction Deal. Rachel sued Tiffanie for copyright infringement. Rachel claimed that her actual damages were the lost sales of two books she didn’t write because of the emotional distress she suffered as a result of the infringement. The court held that the Copyright Act does not provide for the recovery of damages for emotional distress. So Rachel had no actual damages. However, she still is entitled to statutory damages.
WHY YOU SHOULD KNOW THIS. The Copyright Act provides for injunctive relief, actual damages and, if the work was registered before the infringement, statutory damages and attorney’s fees. No question that copyright infringement can take an emotional toll on the owner of a copyright. Rachel tried to stretch the definition of actual damages to cover that emotional toll. But the Copyright Act does not stretch that far.
The grandkids didn’t play nice when it came to a famous restaurant trademark. The nationally famous Palm steakhouse was founded in New York City in 1926 by John Ganzi and Pio Bozzi. The Palm enhances their patrons’ steak eating experience by decorating the walls with caricatures of famous people contributed by cartoonists who often exchanged their cartoons for meals. Eventually, the grandchildren took over management. One set of grandchildren became the majority shareholders and the other set of grandchildren were relegated to the ignominious status of minority shareholders. In 2012, the minority filed suit against the majority for breach of fiduciary duty based upon gross mismanagement and self-dealing with restaurants that were owned and operated solely by the majority. The chief issue was the sweetheart trademark license deal the majority’s restaurants were getting. Even though Palm was a national brand with almost 100 years of fame, the majority’s restaurants only paid a flat license fee of $6,000 a year for decades. The court agreed with the minority and entered judgment in their favor. In assessing the damages, the court accepted the minority’s expert damage witnesses’ conclusions that the majority’s restaurants should have paid a reasonable royalty of 5% of gross sales. The court concluded that the undervalued license agreements were self-dealing by the majority and an example of textbook fiduciary misconduct. Even though the statute of limitations limited the damages to six years of royalties, the royalty damages were over $68 million. Additional damages for other breaches of fiduciary duty were also awarded, along with interest and attorney fees, which increase the total judgment to over $120 million.
WHY YOU SHOULD KNOW THIS. From a corporate governance standpoint, majority shareholders don’t get a free pass to do whatever they like. They have a fiduciary responsibility to act in the best interests of the company. When any one of the majority shareholders breaches that duty, minority shareholders can fight back. Trademark-wise, it’s not unusual for a company to have an Intellectual Property holding company that licenses the trademark to related companies. But the license fee should be at or near market rate. Otherwise, as the majority shareholders in the Palm learned, they’re going to end up paying that and more in the end.
Welcome to the Third Annual IP Hall of Fame. In past years, we have awarded Crippys to those who achieved infamy by committing Intellectual Property crimes during the previous year. This year we add the Hippy for an IP hero whose good deeds are an antidote for those with nefarious intent. Click here to see the winners.
The Inaugural Hippy Goes to The United States Navy:The US Navy announced that for the first time, it is transferring royalties collected from the use of the Navy’s logos to the Navy’s Morale, Welfare and Recreation program. The program is devoted to enhancing the quality of life for sailors and their families. The revenues are estimated at $3 million. The US Navy joins other branches of the military that support their military welfare programs using royalties collected from their branded products.
The 2018 Crippy is a Three-Way Tie. In 2018, trade secret theft reached new heights. Each of these trade secret thieves used different methods but deserve equal infamy. In no particular order, our Crippy winners are:
Jerry Jindong Xu. Jerry worked for DuPont and then its spin off company Chemours. Jerry plead guilty to stealing trade secrets related to Chemours’ sodium cyanide business and selling them to Chinese investors. He was sentenced to one year in prison with credit for time served.
Sinovel Wind Group Co. Ltd. A jury convicted Sinovel for various crimes related to the theft of trade secrets related to wind turbine production. Sinovel had partnered with AMSC, a company that developed software to control turbines. Taking advantage of this business relationship, Sinovel secretly downloaded AMSC’s source code and used it to run their turbine engines. AMSC lost over $1 billion in shareholder equity and about 700 jobs due to the theft. Sinovel has to pay restitution of more than $57 million, the maximum statutory fine in the amount of $1.5 million, and $850,000 to other victims of the trade secret theft.
Tao Li and Ye Xue. Tao and Ye plead guilty to conspiracy to steal trade secrets. These two scientists stole documents from GlaxoSmithKline PLC, their former employer. The documents related to the research and development of drugs. Ye emailed the documents from her GSK email to her personal email account and then forwarded it to Tao for the benefit of his Chinese company. The prosecuting U.S. Attorney, William McSwain, said in a press release: "The lifeblood of companies like GSK is its intellectual property, and when that property is stolen and transferred to a foreign country, it threatens thousands of jobs here in America. Not only is this a serious crime, but it is literally a form of economic warfare against American interests.” No word on sentencing yet but Tao and Ye face up to 10 years in prison, a $250,000 fine plus having to pay restitution that could add up to $2 billion.
I’m Dreaming of a White ...
Wait, can I sing that without paying a royalty? These days, we start hearing Christmas songs right after Halloween. Some holiday songs are in the public domain; while others are still protected by copyright. If the song is protected by copyright, it earns a royalty. How can you tell which songs are “free” and which are not? Copyright Law protects works of authorship for a limited number of years namely life in being of the author plus 70 years. After that, the works fall into the public domain. Still can’t tell? You better not shout, you better not cry, IP News for Business will give you a non-exhaustive guide:
In the public domain: Come all Ye Faithful; Deck the Halls; Hark, the Herald Angles Sing; Jingle Bells; Joy to the World; O Little Town of Bethlehem; Silent Night; The First Noel; The Twelve Days of Christmas; Toyland; We Wish You a Merry Christmas.
Not in the public domain: A Holly Jolly Christmas; Frosty the Snowman; Have Yourself a Merry Little Christmas; I’ll Be Home for Christmas; Jingle Bell Rock; Let it Snow, Let it Snow, Let it Snow; Little Drummer Boy; Rudolph the Red Nosed Reindeer; Santa Clause is Coming to Town; Silver Bells; Sleigh Ride; Winter Wonderland; White Christmas.
WHY YOU SHOULD KNOW THIS. Have a joyful and music filled holiday season.
Sometimes the long road of Intellectual Property infringement ends up in Bankruptcy Court. Then the normal rules can change. Tech Pharmacy Services, who owned patents for pharmaceutical dispensing machines sued Provider Meds LLC and its affiliated companies for patent infringement. The parties ended up settling. As part of the settlement, Tech Pharmacy licensed the patents to Provider Meds. The Provider Meds' companies filed Chapter 11 bankruptcy reorganization cases. The cases were later converted to Chapter 7 liquidation cases and a Chapter 7 trustee was appointed. But, Provider Meds somehow managed to not list the patent license on their bankruptcy schedules. The Chapter 7 trustee had 60 days from the date of conversion of the cases to assume the licenses. Since the trustee didn’t know about the licenses, the trustee didn’t assume them. Since they weren’t assumed, they were deemed rejected by operation of law. Rejection means that Tech Pharmacy would no longer have to honor the license agreements. The Chapter 7 trustee sold Provider Meds’ assets to RPD Holdings. Imagine RPD’s surprise when it realized the sale didn’t include assignment of the Tech Pharmacy patent licenses. RPD appealed. The Fifth Circuit Court of Appeals affirmed the lower court rulings that the rejected licenses couldn’t be resurrected.
WHY YOU SHOULD KNOW THIS. Here lies a cautionary tale. Whenever a transaction involves a party who is a debtor in bankruptcy, land mines abound. This case went wrong in a number of ways. First of all, the bankruptcy petitions omitted material information about their patent licenses. Second, the Chapter 7 trustee was kept in the dark and ended up involuntarily rejecting valuable patent licenses. Third, RPD erroneously assumed it was getting the licenses along with the other assets thereby violating the 11th Commandment, “Thou Shalt Not Assume.”
Updating a trademark can be risky if someone else gets in ahead of you. Inn at St. Johns, LLC registered its name “5ive Restaurant” in logo form. So far so good. Eleven years later, St. Johns decided to update its trademark to 5ive Steakhouse in logo form. But St. Johns got derailed. Three years after St. Johns registered its first trademark, OTG Management Inc. registered 5Steak. (All 3 mark drawings appear to the left). The United States Patent and Trademark Office (“USPTO”) refused registration of St. Johns’ 5ive Steakhouse due to a likelihood of confusion with the OTG’s 5Steak registration. The Trademark Trial and Appeal Board affirmed the refusal.
WHY YOU SHOULD KNOW THIS. What, if anything, could St. Johns have done to avoid this outcome? First, St. Johns could have monitored the USPTO to see if any applications were being filed to register similar trademarks and then oppose the registrations. There are services that will monitor the records for you. Some can be costly; others not so much. Second, St. Johns could have set up an alert on a search engine to let it know if anyone is using a similar mark on a common law basis. This could have given St. Johns a heads up about 5Steak in time to do something about it. Third, before applying to register the updated trademark, St. Johns could have conducted due diligence, discovered 5Steak and perhaps, worked something out with them.
A trade secret isn’t really a secret without proper measures of protection. Kevin Barker, a vice president of Yellowfin Yachts, left the company to start a competing company, Barker Boatworks. Yellowfin sued Kevin and his new company for trade dress infringement and for trade secret misappropriation. Yellowfin alleged that Kevin downloaded hundreds of files with customer specifications, and drawings. The Eleventh Circuit Court of Appeals affirmed summary judgment in Kevin and Barker’s favor. First, the court disposed of Yellowfin’s trade dress claims because it couldn’t prove any customer confusion between its designs and Barker’s designs. In addressing the trade secret misappropriation claim, the court affirmed the lower court’s ruling that the customer information wasn’t a trade secret because boat owners have to register with the State of Florida. Then the court focused on Yellowfin’s measures of secrecy and found them wanting. While the information was password protected and only certain employees had access, the Eleventh Circuit concluded that “Yellowfin effectively abandoned all oversight in the security” of the information at issue because Yellowfin: (1) encouraged Kevin to store the information on his personal devices and didn’t ask him to delete the information when he left the company; (2) didn’t ask Kevin to use security measures for the information on his personal devices; (3) allowed Kevin access to the information even though he refused to sign a confidentiality agreement; and (4) none of the information was marked ‘confidential’.
WHY YOU SHOULD KNOW THIS. Trade secrets have two primary attributes. First, they are not generally known or easily ascertainable. Second, they are subject of reasonable measures to keep the information from becoming publically available. It’s the second attribute that tanked Yellowfin’s trade secret misappropriation claims. Yellowfin has learned that reasonable measures of secrecy require procedures that are tailored to the function of the business and require vigilant enforcement. The best way to avoid Yellowfin’s mistakes is to have a written trade secret protection program tailored to your business, prohibit the storage of trade secrets on personal devices, and make sure that departing personnel are cutoff from access to the trade secrets.
Trade show materials may be a patent buster. Trade shows are a way to showcase products and innovations in an industry. Materials distributed at a trade show are usually promotional and are designed to get more sales and establish a beacon in the marketplace. But, trade materials that identify inventions could bust a patent. The US Patent Trial and Appeal Board (the “Board”), in an inter parties review (“IPR”) between Nobel Biocare Services AG v. Instradent USA, Inc., held that certain claims in Nobel’s patent for a dental implant screw were not patentable because they were anticipated. “Anticipated” is similar to “prior art” which means that the claimed invention isn’t new. Instradent, the IPR petitioner, argued that Nobel’s invention for a dental implant screw had already been disclosed in a product catalogue from Alpha-Bio Tech Ltd. (“ABT”). Instradent proved that ABT disclosed the product in a catalogue it distributed at a 2003 dental trade show in Cologne, Germany. ABT had a rather small booth at the show and not much of a presence. But people at the trade show had seen the catalogue. So it was considered publication of the prior art. On appeal, the Federal Circuit affirmed the Board’s determination that the ABT catalogue was prior art and so some of Nobel’s claims in the patent were not patentable.
WHY YOU SHOULD KNOW THIS. Patent protection is limited to inventions that are new, useful and non-obvious. Patents give the patent owner a monopoly on practicing the invention for 20 years. So, the U.S. Patent Office has to determine if claims are really new in order to issue a patent. The Instradent case shows that an invention is not new if there’s publication of prior art; even small publications with a limited distribution at a trade show outside the U.S. are published prior art so inventors should always conduct a prior art search before going through the time and expense of filing a patent application. And, for that matter, inventors should always be careful about disclosing their inventions at a trade show before they file the application.
Captain America, Thor and Iron Man can’t save your party guests without a license. Characters for Hire, LLC (“CFH”) advertises premium entertainment for parties and private events by booking actors dressed like popular characters. CFH offers hero characters and famous characters from popular scifi/fantasy movies. Understanding that Disney, Marvel and LucasFilm own the rights to characters that fall into those categories, CFH used generic names like "Big Green Guy" (Hulk) and “The Dark Lord” (Darth Vader). Similarly, CFH advertised themed parties that referenced Plaintiffs’ movies, such as “Frozen Themed” (Frozen), “Avenging Team” (The Avengers), and “Star Battles” (Star Wars). But CFH used the original images of the characters in its ads (see picture). After CFH ignored several cease and desist letters, Disney, Marvel and LucasFilm sued. The court entered summary judgment against the plaintiffs on trademark infringement. The court appeared to put a lot of weight on the fact that the plaintiffs couldn’t show actual confusion and there was enough notice that CFH was not affiliated with the plaintiffs. But the court will proceed on the other counts of unfair competition, dilution and copyright infringement. So CFH can’t breathe a sigh of relief yet.
WHY YOU SHOULD KNOW THIS. A themed party is a popular way to entertain at a child’s birthday party, a corporate event or even a brand awareness meeting. Character themed apparel is even more common. The problem arises when one wants to use protected characters and doesn’t have the permission to do so. CFH’s experience on the trademark infringement count is not typical. Whenever contemplating the use of protected characters for any reason, be sure to get the right permissions. And, always respond to a cease and desist letter.