The Intrepid Heroes of Copyright, Photographers

    Beverly A. Berneman

    No group of artists suffers copyright infringement more than photographers. Professional and amateur photographers post their photos on the Internet to proudly display their work. Photographers have a hard time reigning in unauthorized uses of their photos. It’s hard to track unauthorized downloads, hard to find the downloaders and the damages are usually not pursuing given the costs of litigation. That’s why VHT, Inc.’s $8.3 million judgment against Zillow Group, Inc. deserves acknowledgement. VHT licenses its photos of properties that are for sale to real estate agents. The real estate agents have a license to post the photos for marketing purposes. Zillow’s infringement resulted from use of the photos outside the scope of the license in two ways. First, it left the photos on its website even after the properties were sold. Second, Zillow posted the photos on its “Diggs” website which provides home design and improvement services.

    WHY YOU SHOULD KNOW THIS. A license has scope and parameters. The licensor has a right to limit the uses of a work. Going beyond the scope of the license creates liability for infringement.


    NDA Judgment is Real Reality

    Beverly A. Berneman

    When a virtual reality tech developer leaves, the real world intercedes. Zenimax, owned by programming guru John Carmack, worked with Palmer Luckey to improve his Oculus Rift virtual reality gaming device. Zenimax allowed Luckey access to its proprietary technology. Luckey signed a Non-Disclosure Agreement (NDA). Facebook bought Luckey’s company. Right after the sale, a group of Zenimax employees left to work with Luckey. Zenimax sued Luckey and his company seeking $4 billion for trade secret misappropriation, copyright infringement and trademark infringement. And, oh yes, breach of the NDA. After trial, the jury rejected all but the breach of the NDA claim and awarded $500 million to Zenimax.

    WHY YOU SHOULD KNOW THIS. The problems with protecting emerging technology may have played out in this case. Sometimes, the technology can’t be pigeonholed in a specific type of Intellectual Property. Zenimax didn’t take that risk and required a NDA. As Zenimax learned, the best time to anticipate protection is at the inception of the relationship. In other words, always have a written agreement with strong contractual provisions providing protection against the unauthorized sharing of information.


    Danish Enzyme Bites Chinese Dragon

    Beverly A. Berneman

    The conventional wisdom is that in a foreign company v. Chinese company patent suit, the Chinese company will always win. Maybe not. Danish company, Novozymes, had patented an enzyme for use in bioenergy and beverages. Novozymes sued two Chinese companies, Shandong Longda Bio Products and Jiangsu Boli Bioproducts for patent infringement. Novozymes brought the case in China. After six years of litigation, the Supreme People’s Court entered judgment against the Chinese companies. Two things make this victory even sweeter. First, certain types of biotechnology are harder to support under Chinese patent rules than patent rules in the U.S. and Europe. Second, the Chinese government devotes significant resources to Chinese companies’ research and development in the area of biotechnology.

    WHY YOU SHOULD KNOW THIS. This result is not typical. That’s why it’s newsworthy. High tech innovation is always vulnerable to patent infringers who want to get there faster without the expense of research and development. Patent enforcement can be hard in foreign, and sometimes hostile, jurisdictions. For a company, patent enforcement problems can be a critical element when looking to expand into extraterritorial markets. If the Supreme People’s Court has started a trend towards protecting the patents of non-Chinese companies, new market expansion evaluations may change.

  • Benefits Bulletin

    401(k) Plan Trustees: How Do You Select And Monitor Investments?

    Andrew S. Williams

    Many 401(k) plan sponsors have wisely selected investment professionals to assist in selecting the plan’s investment menu, typically a listing of various mutual funds. Other plan sponsors may allocate this duty to company officers and other key employees. In either case, the resident plan fiduciaries (the company officers and key employees who act on behalf of the sponsor as plan administrator or trustee) have a legal duty to “select and monitor” plan investments and, in the case of sponsors who have hired investment professionals – to monitor not only investment performance but also the performance of the investment professionals.

    So, how do you “select and monitor?”

    There’s only one hard and fast rule: Document what your investment-related decisions are and how you made them. But here are some guidelines on how to proceed:


    • Investigate available investment providers. This may include banks, insurance companies, stockbrokers and mutual fund companies and their broad array of investment options. Then solicit specific information on several investment programs. This could be done in a standard format such as a request for proposal (RFP).
    • Analyze costs and investment characteristics of available investments and select the investment menu that offers diversified investment options at competitive prices. Remember, your plan is not “free” if your participants pay administrative costs through reduced returns on their plan investments. So, get a handle on this kind of indirect compensation (“revenue sharing”) and make sure you take it into account.


    • The general requirement is endorsed by the Supreme Court in the Tibble opinion as a “separate” duty of a trustee to “monitor trust investments and remove imprudent ones.” You should review investment results on a periodic basis with a view towards replacing laggards in your plan’s investment array.
    • Compare investment results with criteria set out in your plan’s investment policy statement, or IPS (yes, having an IPS is a good idea). Also, document your decision-making process to prove that in-house plan fiduciaries have performed this duty.

    The Takeaway: Process, process, process! Just going through the procedure suggested above – and providing documentary proof – could satisfy an IRS or Department of Labor inquiry even if your plan has mediocre investment results.


    Blood From Insolvent Turnips

    Beverly A. Berneman

    When all else fails, file for Chapter 11. ATopTech Inc., a software developer and Hampshire Group, Ltd., a menswear supplier, have some things in common. First, they both filed Chapter 11 bankruptcy to sell their assets. Second, Intellectual Property played a significant part in their cases. Their road to Chapter 11 was different, though. ATopTech lost a copyright action brought by Synopsys, Inc. and was facing a $30.4 million it had no hopes of paying. Hampshire Group owed $15 million to its creditors which included $7.4 million to its secured creditor, Salus Capital Partners. Hampshire Group’s primary assets are its trademarks.

    **WHY YOU SHOULD KNOW THIS. **These cases show that bankruptcy can be an effective business tool when all else fails. For ATopTech, it’s a shield against the collection efforts of a judgment-creditor. For Hampshire Group, it’s a way to maximize its assets for the benefit of creditors. Intellectual Property is considered a general intangible for bankruptcy purposes. The value of general intangibles in a bankruptcy can fluctuate dramatically. The best test for value is what a willing buyer will pay for the assets. The bankruptcy sale process can help with maximizing the value.


    Judge’s Campaign Wasn’t Very Judge-Like

    Beverly A. Berneman

    False advertising in a judge’s election has consequences. West Virginia judge, Stephen Callaghan, thought it would be a great idea to literally paint a picture of his opponent partying while their county lost jobs. Callaghan Photoshopped a picture of his rival next to President Obama, gave the President a glass of beer and strewed party confetti in the background. Callaghan knew that nothing of the sort had ever happened. Turns out; using a false ad to keep your seat as a judge isn’t such a good idea. After winning the election by 220 votes, Callaghan had to face the wrath of the Supreme Court of Appeals of West Virginia. Upon hearing about Callaghan’s campaign ad, the Court suspended Callaghan without pay for 2 years and fined him $15,000. In a written opinion, the Court stated that the ad was “in every sense, materially false.” Callaghan argued that the ad was “substantially true”, hyperbole or parody. The Court didn’t accept any of his arguments. Callaghan has now filed suit contending that the disciplinary action violated his First Amendment rights.

    WHY YOU SHOULD KNOW THIS. Callaghan’s Intellectual Property defense of fair use - - parody is thin at best. Parody can be a basis for copyright fair use. But when intersected with advertising, parody has its limits. For parody to work, it has to be clear that parody was intended. Callaghan’s ad painted his opponent in a false light in order to gain an advantage in the election. That is not fair use. Callaghan now has two years without pay to contemplate the consequences for creating a false ad in a glaring breach of ethics.


    Hearts and Flowers and a Black Box

    Beverly A. Berneman

    On Valentine’s Day, expressions of love do not belong in a black box. The FTD black box may be a nice way to receive an elegant flower arrangement but it’s not a trademark. FTD wanted to register the color black on its packaging as a trademark. The examining attorney refused registration because the color was functional and non-distinctive trade dress. In other words, the proposed mark comprises a feature of the packaging for the identified goods that serves a utilitarian purpose.

    WHY YOU SHOULD KNOW THIS. In the trademark world, something that is functional cannot be registered as a trademark. But trademark registration is available if the functional part of the trademark has a non-functional significance. Color is usually functional. But, some colors transcend the functional and are associated with the goods and services of the trademark owners. Here are some examples: UPS Brown (“Pullman Brown”); John Deer Green; Tiffany Blue; Louboutin Red (on the soles of shoes).

  • Benefits Bulletin

    Affordable Care Act (ACA) Overhaul: Step One

    Andrew S. Williams

    The Affordable Care Act (ACA) has tied the hands of employers who would like to reimburse employees for the cost of their individual health insurance coverage. Under the ACA, tax-free reimbursement of employee health insurance costs was not permitted through a health reimbursement arrangement (HRA) unless it was “integrated” with an employer-provided group health plan. Stand-alone HRAs were prohibited even for small employers that were not subject to the ACA mandate to offer group health coverage.

    However, in the waning days of the Obama administration, the President signed the 21st Century Cures Act which allows “small employers” to adopt Qualified Small Employer HRAs (QSEHRAs) to reimburse covered employees for their own health insurance premiums as well as other qualified medical expenses.

    Small employer means an employer that does not employ at least 50 full-time plus “full-time equivalent” employees. In other words, employers that are not required to offer ACA coverage to their employees. Full-time employees for this purpose are those working 30 or more hours per week. If a small employer does maintain a group health plan, it cannot provide QSEHRA reimbursement benefits.

    QSEHRA benefits must be offered to all eligible employees. Some employees can be excluded (those under age 25, those who have been employed fewer than 90 days, part-time and seasonal employees). Annual reimbursement benefits are limited to $4,950.00 (individual) and $10,000.00 (family) with a proration of these limits for partial plan years. No employee contributions are permitted. Also, employees must personally maintain ACA minimum essential coverage to avoid taxable income on reimbursement benefits. There are additional employee notice and tax reporting requirements.

    The Takeaways: For small employers with employees covered by individual ACA policies, a QSEHRA can provide tax advantaged benefits at whatever benefit level the employer selects up to the permitted maximum. Qualifying employers with a young work force may find this benefit particularly attractive as it is young workers who are paying significantly increased premiums for individual ACA coverage.

    For shareholders of S corporations, their QSEHRA eligibility needs to be reviewed because of existing limits under the Internal Revenue Code on those who may have “other coverage” available through a spouse or otherwise. S corporation shareholders need to consult a tax professional if they intend to participate in their corporation’s QSEHRA. Additional guidance from the IRS on QSEHRA’s is expected, and such guidance could affect the current understanding of QSEHRA requirements.


    Trademarks for the Humor Impaired

    Beverly A. Berneman

    Louis Vuitton found nothing funny about “My Other Bag is a Louis Vuitton”. My Other Bag (“MOB”) manufactured and sold canvas bags that replicate pictures of famous and expensive brands. One of its bags replicated the Louis Vuitton bag. If you look at the picture of the bag, you can see that no one would mistake this for a real Louis Vuitton bag. The bag is meant to parody high priced leather goods and that not everyone can afford them. However, Louis Vuitton did not appreciate the humor. So it sued MOB for trademark infringement, dilution by blurring and copyright infringement. The District Court granted summary judgment to MOB stating that this was an obvious attempt at humor and is not likely to cause confusion. The Second Circuit agreed and affirmed the judgment. The Second Circuit noted that “A parody must convey two simultaneous – and contradictory – messages: that it is the original, but also that it is not the original and is instead a parody”.

    WHY YOU SHOULD KNOW THIS. Parody can be the sincerest form of flattery. In fact, in the MOB case, the district court reasoned that the parody was likely to reinforce and enhance the distinctiveness and notoriety of the original brand. Understanding that parody requires a reference back to the original, how can one avoid a claim of infringement? It all boils down to the point of the use of the trademark. For instance, in Starbucks Corp. v. Wolfe’s Borough Coffee, Inc., a competitor was prohibited from using the name Charbucks for its coffee brand in order to compete with the Starbucks coffee brand. The point of Wolfe’s Borough Coffee’s Charbucks name was to compete with Starbucks. In MOB, the point was to make fun of Louis Vuitton’s luxury image.


    Don’t Hurt Your Fans

    Beverly A. Berneman

    If you have a powerful brand, don’t use your power to alienate your fans. Last year, CBS and Paramount Studios sued Axanar Productions for copyright infringement. Using a 20 minute short film, Axanar had raised over $1 million through Kickstarter and Indiegogo to finance a full length fan fiction film (https://www.youtube.com/watch?v=1W1_8IV8uhA). The proposed film was to follow the story of Captain Kirk’s hero, Garth of Izar. CBS/Paramount, who own Star Trek, had a problem with it. This wasn’t the first fan fiction spinoff and CBS/Paramount usually encouraged it. Fan films can enlarge the universe, attract new fans and build loyalty among the current fan base. But Axanar got too close. Commentators speculate that the Axanar’s production values were too good and would have commercial potential. Star Trek fans were appalled at CBS/Paramount’s aggressive tactics. Even J.J. Abrams and Justin Lin, directors of the most recent Star Trek films, supported Axanar. CBS/Paramount tried to calm some of the bad press by coming out with guidelines for producing fan films (http://www.startrek.com/fan-films). Meanwhile, CBS/Paramount continued its lawsuit against Axanar. Last week, CBS/Paramount and Axanar announced that they have settled the dispute. In exchange for CBS/Paramount dropping the suit, Axanar has agreed to follow the fan films guidelines which include a restriction on the length of the films, requiring the use of official merchandise and keeping them family friendly.

    WHY YOU SHOULD KNOW THIS. This is not the only instance of the perils of attacking the fans. For example, Warner Bros. tried to crack down on Harry Potter fan sites that were written primarily by children. Bowing to the bad press of picking on kids, Warner Bros. withdrew their cease and desist letters. Every content owner should be able to protect its brand and copyrights. But when pursuing protection, the content owner must be cognizant of the message it sends to its fan and consumer base and not become an IP bully.


    Preliminary Injunction Backfire

    Beverly A. Berneman

    If you don’t own it, asking for a preliminary injunction is the wrong strategy. VitaVet Labs, Inc. sells horse vitamins. Its website was old and clunky. VitaVet hired Integrated Software Solutions, Inc. to update the site. According to the terms of the agreement, VitaVet owned the source code and had an absolute right to access it. VitaVita was to pay Integrated on an incremental basis upon receipt of deliverables. From almost the beginning, things went wrong. Integrated didn’t reach its project development goals. VitaVet paid some of the installments but VitaVet was not pleased with Integrated’s work. Meanwhile, VitaVet’s website was getting clunkier and harder to use. Integrated asserted that the software was finished but VitaVet didn’t agree. So VitaVet refused to pay the remaining installments. Integrated filed suit and sought a preliminary injunction. VitaVet countersued for a preliminary injunction seeking turnover of the source code. Usually, a preliminary injunction just maintains the status quo. The status quo was that Integrated had the source code and wouldn’t have to turn it over to VitaVet. But in this case, the trial court entered a preliminary injunction order that changed the status quo and ordered Integrated to turnover the source code to VitaVet. In affirming the decision, the California Appellate Court reasoned that the balance of equities favored disturbing the status quo in VitaVet’s favor. VitaVet owned the source code and VitaVet had a dire need to upgrade its website. So much for Integrated’s aggressive strategy against VitaVet.

    WHY YOU SHOULD KNOW THIS. VitaVet did a lot of things right in this case. It made sure that it owned what Integrated was developing for it. When challenged, VitaVet did a great job of showing that it was entitled to extraordinary relief. On the other hand, Integrated might have done well to think things through before going after VitaVet in the first place.


    2016 IP Criminals Hall of Fame

    Beverly A. Berneman

    The year 2016 had its share of notable people who got the attention of federal criminal authorities. Here are the winners. As we enter awards season, we recognize those who put considerable time and effort into criminal activity involving Intellectual Property. The awards go to:

    Second Runner Up: Alanzo Knowles. Alanzo pleaded guilty in May 2016 to copyright infringement and identity theft charges. Originally from the Bahamas, Alanzo flew to New York City to sell 15 scripts and celebrity personal information for $80,000. Unfortunately for him, his buyer was a law enforcement agent. In jailhouse writings, Alanzo boasted that he was going to write a book to “shake up Hollywood”, presumably admitting that he was going to continue his nefarious activities. The judge was not amused. In doubling Alanzo’s sentence, Judge Paul A. Engelmayer stated “So far, the criminal justice system has totally failed to get your attention”.

    First Runners Up: Artashes Darbinyan and Orbel Hakobyan. Artashes and Orbel pleaded guilty in a mass-mailing scam that targeted owners of U.S. trademark applications. The men admitted to stealing approximately $1.66 million from registrants and applicants of U.S. trademarks. They are part of a growing number of scam artists who set up companies to dupe the unwary trademark owner. Using the USPTO public records, they send out official looking documents that demand anywhere from $750 to $4,500 to “protect the trademark”. In fact, these companies don’t do anything but collect the money. The USPTO has tried to address these non-USPTO solicitations for years by giving numerous warnings to trademark applicants and registrants. But the number of these scam artists continues to grow. Lucky, Artashes and Orbel are among the first scammers to be caught and convicted. For more information, visit https://www.uspto.gov/trademarks-getting-started/non-uspto-solicitations.

    Grand Prize: Paul Hansmeier and John Steele of the Prenda Law Firm. Paul and John were attorneys with the now-defunct Prenda Law Firm. They have been arrested and charged in an 18-count indictment that includes fraud, perjury, and money laundering counts.* According to the allegations, the Prenda attorneys created a ‘honey pot’ of porn movies that invited illegal downloads. When the downloads occurred, the firm filed copyright infringement suits. The plaintiffs were actually owned or controlled by Prenda. The suits named hundreds of defendants as John Does and listed their IP addresses. Using subpoenas served on the ISPs, the Prenda attorneys discovered the identity of the John Doe defendants. Once they discovered the identity of the defendants, the firm sent cease and desist letters demanding $4,000 or the firm would reveal in court papers the embarrassing fact that the defendant downloaded porn. The vast majority of the defendants paid the $4,000. No one knows exactly how much the Prenda Law Firm raked in, but estimates are anywhere from $1.9 million to $15 million. It all came crashing down when some of the defendants refused to pay the demand and hired lawyers to defend them. The lawyers discovered the scheme. There’s much more to the story including court ordered civil sanctions, perjured deposition testimony, the untimely death of one of the Prenda attorneys, and lost law licenses. For more on this story, visit http://arstechnica.com/tech-policy/2016/12/breaking-prenda-law-copyright-trolls-steele-and-hansmeier-arrested/.

    WHY YOU SHOULD KNOW THIS. Our Hall of Famers, each in their own way, tried to game the system. They used Intellectual Property protections for greed and exploitation. Here’s hoping that in the coming year, would-be IP criminals turn their considerable energy to making the world a better place for us all.

    • Note that for those who have been indicted, the Hall of Fame Award is not meant to make it appear that they have been convicted.
  • Benefits Bulletin

    Breaking Up Is Hard To Do

    Andrew S. Williams

    Entrepreneurs who work hard and build a business over decades realize that, at some point, they need to think about slowing down and stepping back. Frequently, planning and specific decisions about transition are put off. Entrepreneurs worry about two things that can make delay an attractive option. Number one is a concern about their standard of living if they sell their business. Number two is facing the prospect of disposing of the entrepreneur’s legacy business that may represent a lifetime of work and achievement.

    Both of these concerns are very real. First, after payment of transaction costs and taxes, the possible investment of the net proceeds of the sale of the business very well may result in a reduced cash flow to the entrepreneur and family. And, unless there’s a family member who is capable – and interested – in taking over the business, the entrepreneur justifiably feels that the legacy business may have to be surrendered. Both of these factors make it hard to let go - or even to think about letting go.

    Here’s something for the reluctant entrepreneur to consider: there is a way to defer or even avoid taxes on the sale of your business, to undertake a transaction without the aggravation and delay of dealing with pesky buyers, to sell your business in installments or a lump sum - and still not give up control!

    These results can be attained if the business is sold to its current employees through an employee stock ownership plan, or ESOP.

    Maybe the entrepreneur you know would be more willing to plan for a business transition if he or she were aware of these ESOP possibilities.

    The Takeaway: ESOPs can be more than just retirement plans and for many entrepreneurs, they offer the best succession solution.


    Hot Topic: Fake News

    Beverly A. Berneman

    Extra. Extra. Popular art posting website steals an artist’s works and sells it to Hot Topic. Actually that didn’t happen. DeviantArt (“DA”) operates a website that features the works of visual artists. The artist submits a picture or photograph and DA posts it for the entire world to see. Under DA’s terms and conditions, the artist agrees to give DA a world-wide, non-exclusive license to publish, resize, make collages and use the work for DA marketing and promotion. The terms and conditions specifically state that the artist retains the copyright in the work and no one can use it without the artist’s permission. What could go wrong? A DA user discovered that his Adventure Time fan art (see the picture) appeared on a t-shirt sold by Hot Topic. A flurry of anguished and angry social media postings accused DA of selling the art to Hot Topic. DA denied selling the art to Hot Topic. DA pointed to its terms and conditions where it said that no one can download and use the art for commercial purposes without permission from the copyright owner. So the artist will have to follow up directly with Hot Topic.

    WHY YOU SHOULD KNOW THIS. The first lesson is to always read terms and conditions before posting something on or downloading from a website. It may seem like boring reading but it’s never a waste of time to know your rights and liabilities. The second lesson is, even in the world of copyright, you can’t believe everything you see and hear. For instance, a few commentators on the DA/Hot Topic issue asserted that Hot Topic’s use of the fan art was “fair use” because it could be found on the Internet. This is a popular misconception about fair use. If Hot Topic used the fan art without the artist’s permission and for commercial purposes, it was not fair use. Thanks to art student, Tory Lieberman, for the heads up on this topic.


    Episode IV of Smartphone Wars: A New Hope

    Beverly A. Berneman

    These are not the Apple damages that you are looking for. On December 6, 2016, a unanimous U.S. Supreme Court reversed a Federal Circuit ruling that Samsung had to pay Apple $399 million for infringing on Apple’s smartphone design patent for its interface. The judgment was calculated using Samsung’s profit on its entire phone and not just the profit related to the interface. At issue was how to interpret 120 year old design patent case. In the older case, the court held that a design patent infringer who applies any “article of manufacture” would be liable to the owner for its total profit. SCOTUS clarified this holding. In the case of a multicomponent product, the relevant “article of manufacture” for arriving at damages award, could be the end product. It could also be only a component of that product. SCOTUS refused to articulate a bright light test for determining whether the entire product or just the interface should be the basis for damages. The case has been remanded to determine the damages issue.

    WHY YOU SHOULD KNOW THIS. Samsung has had a dismal year considering that its fire hazard Galaxy 7 had to be taken off the market. This decision is a win for Samsung but with a lot of loose ends. Samsung will have to convince the trial court that the damages should be calculated by the component and not the whole product. Then Samsung will have to find valuation experts who can accurately trace the profits to just the interface. Certainly, Apple will find its own valuation experts to do the same analysis. Then it will come down to a battle of the experts. For any business facing an infringement suit, whether as plaintiff or defendant, the issue of damages can make or break the case. A party has to be clear about what is being valued. Then the party has to find a valuation expert who can give an opinion as to the object being valued.


    All's Fair When It Comes to Briefs

    Beverly A. Berneman

    A legal brief can be protected by copyright. Ezra Sutton represented Sakar International in a patent infringement case in Texas. Sakar and its co-defendant, Newegg, Inc. won at the trial level. They brought a motion for attorney’s fees which was denied. They separately appealed the denial to the Federal Circuit Court of Appeals. As time approached for filing their opening appellate briefs, Newegg agreed to provide Sutton a draft of its brief only if Sutton agreed in writing that he would only use it for reference purposes and not copy any excerpts. On the day before Newegg filed its brief, Sutton filed a brief on behalf of Sakar that was virtually identical to Newegg’s draft brief. Newegg sued Sutton for copyright infringement. Newegg brought a motion for partial summary judgment that Sutton couldn’t use fair use as a defense. The court granting summary judgment by analyzing the four fair use factors. (1) The purpose and character of the use weighed in favor of Newegg because Sutton’s brief was identical to Newegg’s brief. (2) The nature of the copyrighted work weighed in favor of Sutton because the briefs were functional presentations of law and fact. (3) The amount and substantiality of the copyrighted work used weighed in favor of Newegg because Sutton used the entire work and not just what was needed for a specific purpose. (4) The degree of harm to the potential market, weighed in favor of Sutton because Newegg couldn’t identify a market for its brief. The court tipped the balance with its own factor. Sutton could have used federal appellate rules that allow a party to either join in or adopt by reference a part of a co-party’s brief.

    WHY YOU SHOULD KNOW THIS. Generally attorneys don’t sue other attorneys for adopting their brilliant arguments. I’m sure Newegg was not pleased when Sutton took advantage of the time and attorneys’ fees involved in drafting its brief on appeal. It appears that the court was reacting to two things. First, there was a written agreement between the parties and Sutton had agreed not to copy Newegg’s brief. Second, Sutton didn’t adopt Newegg’s arguments in a way that is specifically provided in the Federal Rules of Appellate Procedure. Courts can get testy when litigants don’t follow rules; especially rules that save the court time in analyzing the arguments of the parties.


    Special Edition of IP News for Business

    Beverly A. Berneman

    SPECIAL EDITION - IP News for Business has been honored by the ABA Journal as one of 100 best legal blogs. Here’s what the Journal had to say:

    IP News for Business:

    NEW: Trademark, copyright and patent laws can feel like murky waters for many businesses. Written by Golan Christie partner Beverly A. Berneman, this blog focuses on providing succinct examples of how businesses ran into intellectual property disputes and what the results were. One of our favorite elements is her pithy “Why You Should Know This” section at the bottom of most of her posts, which provides excellent context for how the specific IP outcomes could affect others.

    Thank you to all of subscribers and visitors.


    When Two is Enough

    Beverly A. Berneman

    One is nice. Two is better. You may not have to get to three. Christian Faith Fellowship Church in Zion, Illinois registered the name and design mark “ADDAZERO” for its fundraising campaign. Adidas, the international sportswear powerhouse, tried to register “ADIZERO” for clothing. The USPTO refused registration based on a likelihood of confusion with the Church’s trademark. Adidas thought it found a chink in the Church’s registration because the Church had only sold two hats to out-of-state residents. So Adidas brought a cancellation proceeding before the Trademark Trial and Appeal Board. The TTAB held that two sales were not enough and cancelled the trademark. On appeal, the Federal Circuit Court of Appeals reversed the TTAB. The Court held that trademark law only requires use in commerce that is an activity regulated by commerce. The two sales to out-of-state residents were enough.

    WHY YOU SHOULD KNOW THIS. In every used based trademark application, the applicant has to state that the mark was used in interstate commerce at the time of the application. If that statement is not true, the registration is at risk of being cancelled. This case says that two sales that crossed state lines were enough for interstate commerce. It remains to be seen if this case will apply in every context. So when applying for a trademark registration, if there’s any doubt about use, the best course is to file an intent to use application until use can be firmly established.


    Go Cubs Swag Go

    Beverly A. Berneman

    As the Cubs neared their historic World Series win, opportunists saw a way to cash in. Imagine if you will, it’s September 2016. Cubs are on their way to breaking a 108 year losing streak. The streets of Chicago are lined with euphoric fans. Tables full of Cubs merchandise are everywhere. Street vendors are encouraging fans (whether die hard or fair weather) to purchase logo branded merchandise to support the Cubs. But there’s a problem with this picture. Some of those vendors don’t have a license from the Cubs. So, their blue, red and white merchandise is counterfeit. The Cubs filed suit against 84 counterfeit vendors seeking an injunction. The suit was settled with a confidential settlement agreement and a permanent injunction. What isn’t confidential is that the vendors acknowledged that their products bear “substantially indistinguishable” or “confusingly similar” imitations of the Cubs’ marks. The vendors also admitted they have no legitimate right to use those marks.

    WHY YOU SHOULD KNOW THIS. The zeal to support your team must always be tempered with good sense and a respect for the Intellectual Property of others.


    Did I Say That Out Loud?

    Beverly A. Berneman

    If you don’t own the rights to your content, it could go places you don’t want it to go. Actor and musician, Jared Leto’s production company, Sisyphus, hired Naeem Munaf to shoot a video of Leto’s band for promotional purposes. The parties didn’t have a written agreement. In the video, Leto made some disparaging remarks about Taylor Swift. Realizing that he had a celebrity dis gold mine, Munaf sold the offending video to TMZ.com for $2,000. Two days after TMZ.com posted the video, Sisyphus had Munaf sign a non-disclosure agreement. Sisyphus’s team then registered the video with the U.S. Copyright Office and sued Munaf for copyright infringement. The court granted summary judgment for Munaf.

    WHY YOU SHOULD KNOW THIS. Unfortunately, Sisyphus’s attempts to claim ownership of the video failed at every turn. Sisyphus didn’t own the video when it was created. Munaf, as the creator (or author) of the video, was the owner. Sisyphus couldn’t argue that the video was a work for hire because Munaf wasn’t an employee of Sisyphus. Having Munaf sign a non-disclosure agreement after the sale to TMZ.com was too little, too late. Munaf didn’t own the copyright at the time that he signed the agreement. Finally, registering the copyright didn’t help because Sisyphus never owned video. All of this could have easily been avoided if Sisyphus and Munaf had signed a written copyright assignment agreement at the time Munaf was hired.


    Bootleg CDs Have a Lot of Kick

    Beverly A. Berneman

    Criminal copyright infringement can get you kicked out the U.S. Raul Zaragoza-Vaquero has been in the U.S. for less than 5 years. Raul sold bootleg CDs. Raul’s business model got him convicted of criminal copyright infringement. But his troubles didn’t end there. The Immigration and Nationality Act allows the deportation of someone who engages in crimes involving moral turpitude. So immigration authorities started proceedings to deport Raul. Raul appealed to the U.S. Dept. of Justice’s Board of Immigration Appeals to allow him to stay in the U.S. He lost. Although there was little precedent for it to rely on, the Board ruled that copyright infringement is a crime involving moral turpitude. The Board relied heavily on precedent in criminal trademark infringement cases and other theft type cases. The Board also looked to the legislative intent that copyright infringement enforcement was an important priority.

    WHY YOU SHOULD KNOW THIS. Copyright infringement has both a civil and a criminal aspect. In criminal copyright infringement, the offender knew that he or she was committing a crime such as selling bootleg CDs or DVDs. Civil copyright infringement is a strict liability cause of action which means that intent is not necessary. The penalties for civil infringement won’t send you to jail but the potential infringement damages can be staggeringly high. Of course, it’s best not to commit copyright infringement at all.


    The Perils of the Merely Descriptive Trademark

    Beverly A. Berneman

    If you use a phrase to describe your product, it probably isn’t a trademark. Simone Kelly-Brown registered the phrase “Own Your Power” in a special form (see the first picture). When Oprah Winfrey’s “O” Magazine used the same phrase on its cover (second picture), Kelly-Brown sued for trademark infringement. The case took a tortured path up and down from trial court to appellate court to trial court and back to appellate court. In the end, the Second Circuit Court of Appeals affirmed summary judgment for Oprah and her publisher. The Court held that Kelly-Brown’s use of the phrase was merely descriptive of her products and services. Oprah demonstrated that the phrase had been in use since at least 1981. Oprah, herself, used the phrase in a 1993 commencement address which predated Kelly-Brown’s use of the phrase. Kelly-Brown tried to argue that the mark had acquired secondary meaning because the consuming public had come to identify the mark with her goods and services. But, the trial court held that Kelly-Brown didn’t have enough proof to support her position.

    WHY YOU SHOULD KNOW THIS. Descriptive words do not a trademark make. But, when descriptive words acquire secondary meaning, they can be registered as a trademark. A descriptive mark acquires secondary meaning when consumers have come to identify a trademark with a certain product over time. This means that the primary significance of the descriptive mark is to connect the product or service with the owner of the mark. It’s easy to fall into the trap of adopting a descriptive mark because it, well, describes the goods and services. As Kelly-Brown learned after years of litigation, a descriptive mark can be difficult, if not impossible to protect.


    Only Clean Hands Need Apply

    Beverly A. Berneman

    Translating a word incorrectly can put a trademark registration at risk. Aachi Spices & Foods brought a proceeding before the TTAB to cancel Kalidos Raju’s trademark registration for “Aachi” for various food products. Aachi alleged that Raju’s registered trademark interfered with its prior rights in a mark using the same word. Raju defended the proceeding by claiming that Aachi Spices & Foods was guilty of “unclean hands”. “Unclean hands” is an equitable doctrine that prevents a party from relying on its registration if it made a false statement during the trademark application process. According to Raju, Aachi Spices & Foods translated the word “Aachi”, to mean ‘distinguished lady’. Raju said that the word really means ‘grandmother’. The TTAB found evidence that the word is translated in different ways including both of the proposed translations. Aachi Spices & Foods’ petition to cancel Raju’s registration was granted.

    WHY YOU SHOULD KNOW THIS. When applying to register a trademark, an applicant has to attest that all of the information given on the application is true and correct. If it isn’t, any future registration could be cancelled. When using a foreign word in trademark, the translation is important because an examining attorney will research prior uses of the English translation of the word to determine if there’s a likelihood of confusion with prior pending applications and registrations. In this case, both the petitioner and the respondent had different translations for a foreign word. The TTAB found that neither of the proposed translations would be understood by those speaking the language. That will not always be the case. So, for anyone seeking to register a trademark that includes a foreign word, it’s better to include all possible translations of a foreign word in a trademark application.


    Link Separation Anxiety

    Beverly A. Berneman

    A link to another website might get you in trouble. Many websites include links to other websites. It’s a useful way to build browser traffic to the website and to benefit the linked website. But what happens if clicking on the link sends your user to a website that’s infringing on someone’s copyright? In the U.S., most courts have held that linking isn’t contributory copyright infringement because there’s usually no way to control or stop the infringement on the linked website. Due to a recent case in Europe, the same may not be true in the E.U. The Court of Justice of the E.U. ruled in GS Media BV v. Sanoma, that linking to a website that contained infringing material was infringement. The E.U. court held that the defendant was liable because it knew or had reason to know that the link sent a user to a website with infringing material.

    WHY YOU SHOULD KNOW THIS. In the U.S., we have three types of copyright infringement: (1) direct; (2) contributory; and (3) induced. The law surrounding the different levels of infringement is well developed. In each type, the element of intent plays an important role. If the originator intended to infringe or help another to infringe, then the originator is liable for copyright infringement. The GS Media decision goes beyond intent and rests on “knew or should have known”. Of course, to know or should know something and then go ahead can rise to the level of intent. But, it’s not always evident if a linked website contains infringing material. The most troubling is the “should have known” prong. Exactly what does “should have known” entail? It’s a slippery standard to try to prove and defend. Hopefully, U.S. courts will not adopt this standard. (Photo Courtesy of www.onewaystock.com)


    Copyright Law Levels the Sims' PlumbBob

    Beverly A. Berneman

    Copyright Law may be the key to who owns the design of a video game promotional item. In the popular video game, the Sims, a green icon called a “PlumbBob” identifies the character in play. The game’s manufacturer, Electronic Arts, Inc. decided it would be a great idea to include a USB drive that looked like the PlumbBob as a promotional item to be sold with the games. EA hired Lithomania who hired Direct Tech to make up a prototype and eventually manufacture the item. Lithomania then sent the prototype to a Chinese company to manufacture the USB for less than what Direct Tech was going to charge. Lithomania didn’t tell Direct Tech. Instead, it strung Direct Tech along with a series of agreements including an agreement to assign the IP in the USB. Direct Tech didn’t realize it lost the sale when the PlumbBobs appeared in stores. Direct Tech sued Lithomania for breach of contract and they settled. Then Direct Tech sued EA for copyright infringement and trade secret misappropriation. The district court granted summary judgment to EA. The 9th Circuit Court of Appeals affirmed summary judgment on the trade secrets claim. But the Court reversed and remanded on the copyright claims. There were two issues of fact, namely: (1) whether the USB design was copyrightable because it was conceptually different from the utilitarian aspects of a USB; and (2) whether the USB design is a sufficiently original and non-trivial version of the original to be considered a derivative work.

    WHY YOU SHOULD KNOW THIS. The answers to the two questions remain to be seen. But let’s do a post-mortem on the actions of the parties. When EA retained Lithomania, their agreement should have been clear about ownership of the Intellectual Property rights to the promotional item. To further protect EA, it should have required Lithomania to get its approval on any agreements with subcontractors and agents. As to Lithomania, what can one say about its opportunism at the expense of everyone else? For Direct Tech, it’s more a matter of 20/20 hindsight. How was Direct Tech to know that Lithomania was not being candid with it? At least Direct Tech has an opportunity to recoup its lost profits using its copyright claims.