Defining Terms (Especially the "Agreement")

Sometimes you read a decision and don't know what the arguments really are until you read the dissent.  Abbott Point of Care, Inc. v. Epocal, Inc. is one of those cases. Out of the Federal Circuit, it's a question about whether a former employee's duty to assign inventions survived various changes in the relationship and various agreements between the inventor and his employer.

Dr. Imants Lauks, the inventor and founder of defendant Epocal, Inc., had been employed by Integrated Ionics, a predecessor to the plaintiff Abbott Point of Care, Inc.  There were ultimately three agreements in play. First, in 1984 Lauks executed an agreement that covered confidentiality, non-competition, non-solicitation, disclosure and assignment provisions. There didn't appear to be any dispute that, had Lauks invented something while this agreement was operative, Integrated Ionics would own it.

Integrated Ionics became i-STAT and in 1994 Lauks executed an employment agreement with i-STAT that covered employment duties, compensation, benefits, termination and severance payment. In 1999 Lauks resigned from i-STAT and instead entered into an eighteen-month consulting relationship that expired on March 1, 2001.  The consulting agreement defined Lauks consulting services and also said, in a section entitled "Continuation of Employee Confidentiality, Non-Solicitation and Non-Competition Covenants" that:

The existing agreement between Lauks and [i-STAT] regarding confidentiality, non-solicitation and non-competition (the 'Existing Confidentiality Agreement') shall remain in place as if Lauks remained employed by [i-STAT], except that the covenants regarding non-competition shall run 18 months after the execution of the Consulting Agreement.

Lauks filed the applications on the patents-in-suit on June 4 and 8, 2001, three months after his consulting relationship ended, and assigned the resulting patents to Epocal. Abbott acquired i-STAT and now claims that the 1984 agreement, including the assignment provision, was operative until March, 2001. It claims that Lauks conceived of the inventions before then and therefore Abbott owns the patents.

The appeals court held that the 1999 Consulting Agreement didn't continue the assignment provision of the 1984 agreement, but only the confidentiality, non-solicitation and non-competition provisions. The court considered the above language unambiguous.

The dissent saw it differently. The dissent informs us that the 1984 agreement was untitled, but that the 1992 employment agreement referred to the 1984 agreement in its entirety as "The Confidentiality and Non-Competition Agreement," and that Lauks and Epocal also referred to it (although it's not clear where) as the "certain letter agreement . . . concerning employee confidentiality and non-competition."  These instances of using a shorthand reference to the entire agreement makes it less clear what the use of the term "Existing Confidentiality Agreement" in the 1999 Consulting Agreement means - whether it was to the "confidentiality, non-solicitation and non-competition" provisions of the agreement only or the agreement as a whole.

There is more, though. The 1999 Consulting Agreement also recognized that

[t]he Consulting Agreement does not extend to work on new products, whether or not based on [i-STAT's] core technology and whether or not for point-of-care blood analysis applications.

These provisions would be inconsistent with a duty on Lauk's part to assign inventions on all his work. The dissent doesn't address this, but then it also only disagreed about granting the motion to dismiss rather than remanding for additional factfinding.

Lawyers are generally anal about defining terms, and this case demonstrates why it's good practice. Had the dissent carried the day and the contract been interpreted differently, Lauks might have lost his entire business because of ambiguity about whether he succeeded in retaining his invention for his new company.

Abbott  Point of Care, Inc. v. Epocal, Inc., No. 2011-1024 (Fed. Cir. Jan. 13, 2012).

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The Danger of Terms of Art

Sherman & Associates, Inc. v. Oxford Instruments, PLC discusses the fairly commonplace question of whether plaintiff Sherman & Associates, who was only a patent licensee, has standing to sue. The answer hinged on interpretation of the contract between it and the patent owner, ASM America, Inc. Sherman & Associates was originally the owner of the patent-in-suit, but it had transferred title to ASM several years earlier. In exchange, Sherman & Associates received a "non-assignable, nontransferable worldwide exclusive right to grant sublicenses under the Sherman Patents in fields of use other than the field of Microelectronic Applications" from ASM. The question was whether this right to sublicense also included the right to sue for infringement.

The first notable part of the case was the position of patent owner ASM - it was named by Sherman & Associates as a defendant in the Amended Complaint, with this statement: "ASM has an interest in the outcome of this litigation, and is a proper party to this action as a plaintiff, defendant, defendant patent owner, or involuntary plaintiff, whichever designation is deemed appropriate by this Court."  Sherman & Associates had named ASM in its Certificate of Interested Entities when it filed suit and two months later filed the Amended Complaint adding ASM, so there was presumably some communication about the issue.  And presumably any communication with ASM didn't turn out well because, not only did Sherman & Associates name ASM as a defendant, ASM was the one who filed the Motion to Dismiss under FRCP 12(b)(1), not the accused infringer Oxford Instruments.

But the eyebrow-raising part of the decision is the court's interpretation of this language, fairly standard in any licensing agreement:

Sherman agrees to cooperate and assist ASM in any litigation involving the Sherman Patents on reasonable terms and conditions to be agreed upon. Sherman also agrees to assist ASM in patent prosecution relating to the Sherman Patents at no cost to ASM. ASM will pay all prosecution costs and will reimburse Sherman for any out of pocket costs.

What did the court do with this?

[T]he contract says nothing about Sherman’s right to litigate. The only language in the contract about litigation anticipates that ASM will be litigating, and does not limit such litigation to the field of microelectronics. See Bunsow Decl. Ex. A ¶ 1(g) ("Sherman also agrees to assist ASM in patent prosecution relating to the Sherman Patents at no cost to ASM."). Sherman argues that the paragraph about litigation contains no reciprocal language because he is the inventor of the patent and would not need any assistance from ASM in prosecuting a patent. That is plausible, but it is no more plausible than ASM’s suggestion that the parties did not intend for Sherman to do any litigating.

What!? The court thinks that the language about "prosecuting" patents is further elaboration on the preceding sentence about litigating patents?

It's easy to understand how this happens. When I talk about "prosecuting" patents to anyone but a patent lawyer, I follow up with an explanation of what that means. Apparently no one helped the judge out with that part of it here. Nevertheless, the court otherwise had adequate reason to find that Sherman & Associate's didn't have the right to sue and dismissed the case.

Sherman & Associates, Inc. v. Oxford Instruments, PLC, No. C 11-8827 CRB (N.D. Cal. Jan. 10, 2012).


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Assignment or License?

I last wrote about the licensing rights of a joint copyright owner as discussed in Corbello v. DeVito. The same case also had two agreements that the court needed to construe before deciding who owned what rights in the copyright.

Plaintiff Corbello is the widow and heir of Rex Woodard, who wrote an authorized biography about Tommy DeVito, a member of the Four Seasons musical group. It was never published. Corbello alleges that DeVito provided the book to the producers of the Broadway musical Jersey Boys and the show is a derivative work of the book.  Corbello brought a number of claims against DeVito and various entities related to the production, including for copyright infringement and an equitable accounting.

Woodard had entered into a brief letter agreement with DeVito over the rights to the book:

December 1, 1988 Mr. Tommy DeVito [street address] Las Vegas, Nevada [zip code] Dear Tommy: I am making progress on the taped interviews we did. You suggested that I prepare a written memorandum of our arrangement for future reference. I will do so by this letter. I agreed to write your authorized biography based on the recorded interviews you gave me, plus any other relevant information which would benefit the book. You and I will be shown as co-authors, with you receiving first billing. I will do all of the actual writing, but you will have absolute and exclusive control over the final text of this book. We have further agreed that we will share equally in any profits arising from this book, whether they be in the form of royalties, advances, adaptations fees, or whatever. This agreement will be binding upon our heirs, both as to obligations and benefits, in the event one or both of us should die. If this letter accurately sets forth our agreement as you understand it, sign the enclosed photocopy where indicated and return it to me in the enclosed self-addressed, stamped envelope. Keep this original letter in your own file. Thank you for asking me to work with you on this project. I look forward to working with you over the next several months. Sincerely, [signed] Rex Woodard Rex Woodard RW/ml Enclosures APPROVED: [signed] Tommy DeVito TOMMY DEVITO

The first question was whether DeVito was a joint copyright owner of the book or Corbello, as Woodard's heir, owned the copyright in its entirety. The agreement between Woodard and DeVito doesn't say; it says that Woodard and DeVito would share equally in any profits but that doesn't necessarily mean that DeVito was a copyright owner. "If the Work were Woodard's alone under the law of copyright, the Letter Agreement would still constitute an assignment of 50% of Woodard's rights to receive profits from the Work, i.e., a partial assignment of royalties, but it would not appear to constitute a partial transfer of copyright." Nevertheless, Corbello had admitted that DeVito was closely involved in editing the book, so the court found that DeVito was a co-author since he contributed non-de minimis creative edits. Corbello therefore wasn't the sole owner of the work but only a joint owner, which meant that  DeVito had the rights of an owner to grant a license for the production of Jersey Boys.

But what kind of license in the book did DeVito give? DeVito had granted extensive rights to his co-band members Frankie Valli and Robert Gaudio to exploit undefined "Materials," thus:

In consideration of the foregoing payments, you grant to us the exclusive right to use and incorporate the Materials in one or more theatrical productions, and any and all ancillary and subsidiary exploitations thereof including, without limitation, cast albums, motion picture and televised versions, merchandise and/or other works.... You hereby consent to any such use and agree that the Works may be exploited throughout the world in all media now existing and later devised, and you further acknowledge that you shall not receive any compensation for the use of the Materials or in connection with any of the Works other than the compensation expressly set forth herein. The rights granted by you to us hereunder shall continue in perpetuity if the rights in the Play have merged with each other pursuant to the production contract between us and the initial commercial producer. .... The rights granted to us herein are irrevocable and not subject to rescission or injunction under any circumstances.

A transfer of copyright ownership doesn't have to say "transfer" or "assign," but simply must indicate an intent to effect an outright transfer of the copyright. The court found that the above language in the Valli-Gaudio agreement was expansive enough to demonstrate an intent to assign the copyright, with one not-so-minor problem - the agreement didn't describe what the "Materials" consisted of. Valli and Gaudio testified that at the time they entered into the agreement they didn't know the book manuscript existed and, indeed, had never seen it until their depositions in 2011. Hence,

the Valli/Gaudio License was not a transfer of copyright from DeVito to Valli and Gaudio, because although the instrument purported to give exclusive rights in the Materials irrevocably and perpetually, it did not sufficiently identify the Work to transfer DeVito's 50% ownership of copyright in the Work to Valli and Gaudio. At best, the instrument is ambiguous with respect to intent to transfer copyright, and the parol evidence indicates that there was no intent to transfer copyright, particularly as Valli and Gaudio appear not to have known specifically about the Work itself at the time they entered into the Valli/Gaudio License with DeVito.

The court therefore found that it was DeVito, not Valli and Gaudio, who owed Corbello a duty of accounting for her ratable share of the profits realized for the use of the book. That's not as easy as it might sound, though; DeVito had provided a number of "Materials" and so there remains a question of fact about what percentage of DeVito's royalties under the license is attributable to the book and what percentage is attributable to other works or assistance DeVito provided under the license.

There's even more to this decision if you're interested: some juicy details about DeVito's claim that he alone authored the book and some elucidation on supplemental registration - who can make it and how it's indexed with respect to the original registration.

Corbello v. DeVito, Civ. No. 2:08-cv-00867 (D. Nev. Oct. 27, 2011).


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Sybersound Records Takes Some Hits

Sybersound Records, Inc. v. UAV Corp. is a 2008 Ninth Circuit decision on joint copyright ownership that wasn't well-received by either Nimmer on Copyright or Patry on Copyright. In Sybersound, the court held that the transfer of an interest by one joint owner of a copyright could only be a non-exclusive license, not an assignment or exclusive license. In a post entitled "Death of Divisiblity," William Patry described the flawed reasoning in the Sybersound decision this way:

Where there are multiple authors, Congress intended that one co-owner could offer non-exclusive licenses in the whole, but could not offer an exclusive license/assignment/conveyance in the whole without all co-owners' permission . . . .  At the same time, Congress permitted one co-owner to convey his or her proportional share in the whole, regardless of whether that conveyance was called an assignment or a license. This follows from the plain language of the statute and from the lack of any process for resolving disputes among co-owners: what if one co-owner wants to sell his or her interest, but the other doesn't want him or her to? Are co-owners stuck together in a marriage that isn't working? Long after non-fault divorces became common, Congress provided for them through divisibility. All was fine for a long time, until a spate of bad decisions. Sybersound is the most recent.

More recently two district courts, one in the Ninth Circuit and one in the Seventh, whittled away at Sybersound. First up, out of the Eastern District of Wisconsin we have Brownmark Films, LLC v. Comedy Partners, the "What, What, In the Butt" ("WWITB") decision that is best known for a copyright fair use win on a motion to dismiss (original video here and South Park spoof here: best remark on the court's decision here). However, before the court reached fair use it had to decide whether the plaintiff had standing to bring the infringement claim. The copyright in the video was originally owned by three individuals, but only two assigned their interest to plaintiff Brownmark Films. Under Sybersound, as a nonexclusive licensee Brownmark Films wouldn't have standing.

But the Wisconsin court wanted no part of Sybersound. It criticized the Ninth Circuit's reasoning, concluding:

In sum, while the Sybersound Records decision is most definitely authoritative, it is far from persuasive. Instead, this court agrees that "[t]he determination of whether a grant is exclusive or non-exclusive depends on the grant." [Cites to Nimmer and Patry.] Here, accepting the allegations in the complaint as true, Messrs. Ciraldo and Swaint's grant of their interest in WWITB was a complete assignment of rights to Brownmark and, accordingly, Brownmark has standing to sue for infringement of the underlying copyright.

More recently, the District of Nevada had to deal with the same problem. Corbello v. DeVito is a meaty decision about the copyright ownership of an unpublished biography of defendant Tommy DeVito, one of the original Four Seasons. Plaintiff Donna Corbello is the widow and heir of Rex Woodward, the author of the biography (or co-author, more on that in another post) and alleges that the Broadway musical "Jersey Boys" is a derivative work of the book. Corbello sought a declaratory judgment that a purportedly exclusive license DeVito granted to the "Jersey Boys" production couldn't have been exclusive under Sybersound.

Since the District of Nevada is in the Ninth Circuit, the court had to work harder than in Brownmark Films to distinguish Sybersound - nevertheless, it managed to. It examined what the 9th Circuit meant by the term "exclusive," deciding that the exclusivity is only as to the grantor of the right, not all the co-owners:

In the context of intellectual property, the difference between "exclusive" and "nonexclusive" licenses concerns the continuing ability of the grantor to use or further license to others the licensed property during the period the license is in effect. An "exclusive" license is "[a] license that gives the licensee the sole right to perform the licensed act . . . and that prohibits the licensor from performing the licensed act and from granting the right to anyone else . . . ." Black's Law Dictionary 1003 (9th ed.2009). A "nonexclusive" license does not impose this limitation on the licensor. A joint owner of a work may consistent with Sybersound grant a license that is exclusive as against him, i.e., he may no longer exploit or further license the work. But such a licensee cannot prevent the other joint owner(s) from using or further licensing the work. In a sense, then, such a license is both exclusive and nonexclusive.

Therefore, DeVito could have granted an exclusive license as to his own rights, but not to the exclusion of the plaintiff's right to exploit the copyright in the work, a situation that the court coined as a "selectively exclusively license." The Corbello court rationalized the Sybersound court's decision as "guilty at most of imprecise syntax or some minor equivocation, as opposed to outright copyright-law heresy. . . . Surely the Ninth Circuit will clarify that it meant something like this if given the chance, and perhaps it will have the chance in the present case."

But as a joint owners, DeVito owes Corbello a duty of accounting for her share of his profits from the licensing of the book. Which perhaps is not as easy as it seems, since he had licensed a number of works to the Jersey Boys production and Corbello is only owed royalties for the portion attributable to the unpublished book.

Brownmark Films, LLC v. Comedy Partners, Civ. No. 10-CV-1013 (E.D. Wisc. July 6, 2011).
Corbello v. DeVito, Civ. No. 2:08-cv-00867 (D. Nev. Oct. 27, 2011).


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Walter Mercado Still Losing

Walter Mercado can't get a break - but then he's trying to fight two separate district court decisions that both went against him. Odds in the appeals court were slim and he didn't beat them.

The dispute is over an agreement between Mercado, an astrologer, and Bart Enterprises International Ltd., a company to which Mercado

• "irrevocably assign[ed] ... all right, title and interest, including all copyrights" to Preexisting Materials;
• "grant[ed] ... the exclusive right and license ... to develop, produce, distribute and copyright" New Materials;
• "irrevocably assign[ed] ... all right, title and interest in and to the [WALTER MERCADO] Mark, together with that part of the goodwill of Mercado's business connected with and symbolized by said Mark, for use in connection with the Pre-existing Materials and the New Materials"; and
• "grant[ed] ... the right and license ... to use Mercado's performance, name, signature, photographs, voice, picture, likeness and other indicia of his identity" subject to Mercado's approval.

Mercado was to provide psychic and astrological services for the creation of the new materials, but retained the right to conduct his radio, newspaper, magazine and personal consultation services. In exchange for all of this, Mercado was to get $25,000 per month, $5,000 per month for costumes, and some other monies.

What $5,000 a month for costumes gets you

The parties had a falling out, with Mercado refusing to provide the services and Bart Enterprises refusing to pay him. Two different federal courts held that the agreement assigned the WALTER MERCADO mark to Bart Enterprises and that the mark would revert to Mercado upon termination of the agreement, but the agreement had not been validly terminated (more details in a post here). Mercado was preliminarily enjoined from using the WALTER MERCADO mark. Mercado appealed.

The court reviewed the opposing positions on whether the mark had been assigned:

The district court adopted Bart's view that Mercado fully assigned the trademark to Bart because the Agreement plainly uses the term "assign." Section 2(b) of the Agreement states that "Mercado hereby irrevocably assigns to Bart . . . all right, title and interest in and to the Mark, together with that part of the goodwill of Mercado's business connected with and symbolized by said Mark." This unequivocal language is contrasted with Section 3(b), in which Mercado "grants to Bart the right and license . . . to use Mercado's . . . Name and Likeness." This contrast in language, the district court noted, suggests that the parties intended to grant Bart a full assignment of the trademark. Still, the district court acknowledged language suggesting otherwise: the text of Section 2(b) includes the subsidiary phrase "for use in connection with the Pre-existing Materials and the New Materials." The district court reasoned, however, that this language is merely purposive and does not restrict the scope of the assignment. The district court also noted that the Agreement stipulates that Bart has the right to register the trademark in its own name and the right to enforce the trademark in court. Such rights typically inure to assignees, not licensees. There was evidence that the parties took actions consistent with this reading. Not only did Bart file an application for the "Walter Mercado" trademark with the U.S. Patent and Trademark Office (PTO) in 1996, but Mercado filed at least three documents that ratified Bart's right to do so.[*] Mercado, however, urges adoption of the magistrate judge's reading that the Agreement grants Bart only a limited license to use the trademark. The magistrate judge concluded that because the Agreement consistently limits the use of the trademark to uses "in connection with" the Preexisting and New Materials, the grant is a limited license.

But on the deferential review of a preliminary injunction:

We do not say that the issue of the scope of the trademark transferred has been resolved, only that there was no abuse of discretion as to preliminary injunctive relief.

Further, even if Bart was only a licensee, not an assignee, it was entitled to a preliminary injunction, having demonstrated likelihood of confusion and irreparable harm.

Mercado-Salinas v. Bart Enter. Int'l, Ltd., No. 10-2359 (1st Cir. Dec. 20, 2011) (Scrib'd link here).

* One consent in this document.


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Just Another Skirmish or the War?

Registrant's goods

Cancellation action Paul Audio, Inc. v. Zhou is just one glimpse of what clearly is a much larger dispute. Baoning Zhou, an individual, is the owner of a registration for the mark C-MARK for audio equipment. Petitioner Paul Audio, Inc., owned by Li Gong, had also applied to register the C-MARK mark for the same goods after its earlier registration lapsed in 2006, but the Baoning Zhou registration was blocking the way of the new application. Paul Audio petitioned to cancel the Baoning Zhou application on the bases that it was the senior user of the C-MARK mark, that the Baoning Zhou application was void ab initio because Baoning Zhou was not the owner of the mark, and that the registration was obtained through fraud. Paul Audio managed to cancel the application, but nevertheless lost the war - or maybe just this battle.

It's not entirely clear what the relationship is or was between Paul Audio and Baoning Zhou, but there must have been one. Li Gong testified he created the C-Mark mark in 1989 and that it was later used by Shenzhen World Music, of which Li Gong had been General Manager and owner. Li Gong says that he started a U.S. company C-Mark Light and Sound, Inc. in 1993, then started petitioner Paul Audio, Inc. in 1996 and closed C-Mark Light and Sound, Inc. "because of internal management issues." Perhaps not coincidentally, it was also about 1996 that Li Gong's relationship with Shenzhen World Music ended. Thus C-Mark Light and Sound, Inc., was the first to use the C-MARK mark in the United States in 1993 and Paul Audio continued to use the mark when it was established in 1996. Li Gong claims continuous use of the C-MARK mark.

Respondent Baoning Zhou is the Chairman of the Board and owner of Shenzhen Bao Ye Heng Industrial Development Company Limited, which wholly owns a U.S. company called U.S.A. C-Mark Light and Audio Inc., also selling C-MARK goods in the U.S. Largely incidental to the main events in the cancellation, we also learn that another company owned by Baoning Zhou, Shenzhen Ao Chuang Company, had been the distributor for Li Gong's Shenzhen World Music, but that Shenzhen Ao Chuang Company ultimately ended up with the Chinese registration. So there is also a tantalizing story here about a distributor gaining ownership of a manufacturer's mark, but we don't learn any of the details in this decision.

The TTAB comments that "this petition for cancellation is one battle in a worldwide trademark dispute between the parties." In addition to the suggestion above that something happening in 1996, Baoning Zhou also appears to have won a battle in 2004. In that year Baoning Zhou and Li Gong, on behalf of Paul Audio d/b/a C-Mark Light and Sound, were exhibiting in booths next to each other at the 2004 NAMM (National Association of Music Merchants) trade show. The Paul Audio booth displayed a sign that said "C-Mark change to CSP in the world." Li Gong testified that the banner was up so Baoning Zhou could "take pictures to China, stating whatever. That's why we put the banner, for him. It was solely for the purpose to let them see it." He further testified that the name change to "CSP" was for China only and "in the United States, in the U.S. market, we still use C-Mark as the name of the company. We didn't change the company's name to CSP." Nevertheless, Li Gong couldn't produce any evidence of use of the C-Mark mark in the U.S. after that.

Which spelled the end of Paul Audio's claim of priority. The TTAB found that, lacking any reliable evidence of use after 2004, Paul Audio's petition to cancel on likelihood of confusion failed because Paul Audio had abandoned the mark.

Which would seem to then be clear sailing for the Baoning Zhou registration, but that wasn't the case either: the TTAB held that the Baoning Zhou application had indeed been void ab initio. In closely-held corporations there is often a blurry line between individual ownership and corporate ownership of assets, but this didn't turn out to be such a tough call. First, there was the ownership history of the Chinese registration for C-MARK, which went from Shenzhen World Music to Shenzhen Ao Chuang Company (mentioned above, of which Baoning Zhou was the General Manager), to Shenzhen Hongda Development Company, to Shenzhen Bao Ye Heng Industrial Development Company Limited, another of Baoning Zhou's company. There were also a number of pieces of documentary evidence stating that Shenzhen Bao Ye Heng Industrial Development Company Limited was the source of the products; that C-MARK was its registered trademark; and that Paul Audio was infringing the rights of Shenzhen Bao Ye Heng Industrial Development Company. Baoning Zhou also testified:

I am the shareholder to begin with. So the trademark was owned by me, is owned by me, so I have the full right of giving the usage right to the company. ... I actually own this trademark, and I, as the Chairman of the Board of this Company, and I am actually the shareholder of this company – so of course, by all reasons, that Shenzhen Bao Ye Heng Industrial Development Company Limited will be the company who will manufacture and sell this product.

The TTAB's conclusion:

As of the September 25, 2006 filing date of the application for Registration No. 3252760, Baoning Zhou himself was not using and had not used the mark sought to be registered. All use of the mark prior to and as of the filing date was by Shenzhen Bao Ye Heng Industrial Development Company Limited both in the United States and in China. Therefore, there was no use of the mark by Baoning Zhou upon which he can rely as a basis for establishing that he was the owner of the mark and thus that he was entitled to file the application for registration of the mark. .... To the extent that respondent may be arguing that his ownership of Shenzhen Bao Ye Heng Industrial Development Company Limited is so complete that Shenzhen Bao Ye Heng Industrial Development Company Limited is the alter ego of Baoning Zhou (i.e., the two are one-and-the same), there is insufficient evidence to support that argument. Moreover, the fact that respondent may be the majority shareholder of Shenzhen Bao Ye Heng Industrial Development Company Limited does not prove that respondent and the company constitute a single entity such that respondent may claim ownership of the mark through the company’s use of the mark. With respect to respondent’s claim that he actively participates in the control of the nature and quality of the goods is insufficient in and of itself to demonstrate that he is the owner of the mark, and moreover his statements regarding control is conclusory and unsupported by any facts or evidence.

As one could predict, the fraud claim failed for lack of evidence of an intent to deceive the PTO.

So Baoning Zhou is left without a registration, but the TTAB has also held that Paul Audio is not the senior user of the mark. Any guesses on what will happen to the Paul Audio application? Will Paul Audio appeal this decision? Will Paul Audio abandon its application or will Shenzhen Bao Ye Heng Industrial Development Company Limited have to oppose? It doesn't look like this one is close to over.

HT to John Welch for the case.

Paul Audio, Inc. v. Zhou, Cancellation No. 92049924 (TTAB Dec. 7, 2011).


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Giving An Idea to Your Employer

If an employee has a pre-existing idea that he or she brings to the employer, who owns it? At first blush it seems pretty easy, that the employee would own it. What, though, if the employer puts time, effort and money into developing the idea, then what?

This is the situation in Woodfords Family Services, Inc. v. Casey. Woodfords provides support and educational services to people with special needs. Woodfords hired Laura Casey as a Program Director for early childhood services. Well before Casey started working at Woodsfords she had conceived of an idea for a video product to assist children with autism in learning appropriate behavior. The product would superimpose the autistic child's face on the body of a child exhibiting appropriate behavior, so the autistic child would see him or herself modeling the behavior.

While Casey was employed at Woodfords she encouraged Woodfords to develop the product. Woodfords applied for and received two grants for the project from which part of Casey's salary was paid, and one of the grants specified that Casey had to work on the project. One 2-minute video of Casey's son brushing his teeth was filmed. The amount of time spent on the project by other employees was disputed. Casey also didn't have a non-compete agreement with Woodfords.

Casey resigned and her lawyer sent a letter to Woodfords stating that any work Casey created relating to video self-modeling was Casey's exclusive property and that she owned all copyright, patent, trade secret and other intellectual property rights to it. Woodfords therefore brought claims against her for, and moved for a preliminary injunction on, misappropriation of trade secret, misappropriation of idea, breach of confidential relationship or fiduciary duty, and unjust enrichment.*

The Restatement (Third) of Unfair Competition, § 42 cmt. e says this about ownership of idea:

In the absence of a contrary agreement, the law ordinarily assigns ownership of an invention or idea to the person who conceives it. However, valuable information that is the product of an employee's assigned duties is owned by the employer, even when the information results from the application of the employee's personal knowledge or skill: If, however, one is employed to do experimental work for inventive purposes, it is inferred ordinarily, although not so specifically agreed, that patentable ideas arrived at through the experimentation are to be owned by the employer. This is even more clear where one is employed to achieve a particular result which the invention accomplishes. On the other hand, if one is employed merely to do work in a particular line in which he is an expert, there is no inference that inventions which he makes while so working belong to the employer. Restatement, Second, Agency § 397, Comment a.

I expected the court to consider who initially owned the trade secret and, if Casey, whether ownership was transferred to Woodfords, but it didn't. Instead, the court went straight to whether there had been a misappropriation by Casey, with the only dispute over whether Woodfords had taken reasonable measures to guard the secrecy of the idea. The court considered the following factors in deciding whether the efforts were reasonable:

(1) the extent to which the information is known outside the plaintiff's business; (2) the extent to which employees and others involved in the plaintiff's business know the information; (3) the nature and extent of measures the plaintiff took to guard the secrecy of the information; (4) the existence or absence of an express agreement restricting disclosure; and (5) the circumstances under which the information was disclosed to any employee, to the extent that the circumstances give rise to a reasonable inference that further disclosure without the plaintiff's consent is prohibited.

This is where the pre-existence of Casey's idea made a difference, though. On the first factor, while no one else in the industry was creating this type of self-modeling, Casey had told a number of individuals about her idea, including her father, a volunteer, two former colleagues, and unnamed friends. Most critically, on the third factor, Casey was never told to maintain the secrecy of the project, although she did attend meetings where third parties were told the concept was confidential and some were asked to sign "work-for-hire" and nondisclosure agreements. The court weighed heavily that Woodfords never told Casey to contact individuals to whom she had previously disclosed the idea and tell them that the idea was confidential information of Woodfords, concluding that

Notwithstanding [Woodfords Executive Director] Farnsworth's admonition to members of the [internal] WFRD Committee and the non-disclosure agreement with [videographers] Current Motion, Woodfords' failure to notify [volunteer] Meehan to maintain confidentiality and its failure to specifically instruct Casey about the secrecy of her idea lead me to conclude on this record that Woodfords has not shown a likelihood of success on the proposition that it took reasonable steps under these circumstances to maintain secrecy of the idea and thus that it was a trade secret belonging to Woodfords.

So the trade secret claim was decided on the basis that there was no trade secret, rather than who owned it. The court did recognize the latter issue in dicta, though:

FN10. Moreover, in order to prevail on its claim for misappropriation of trade secrets, Woodfords must establish that it owns that which it is striving to keep secret. The only support for Woodfords' ownership is found in Nau's affidavit where he makes the ambiguous statement that “[a]ll of Ms. Casey's work on the conceptualization and development of the video self-modeling product was within the scope of her employment as Program Director.” Nau Aff. ¶ 31. This may have been so, once Casey started working for Woodfords. But given Casey's specific statements about conceiving and sharing the idea with colleagues and friends years before joining Woodfords, Woodfords must provide more to support its assertion that her work on it at Woodfords gave rise to Woodfords' ownership.

The misappropriation of idea claim didn't work because Maine hasn't recognized the tort. The breach of confidential relationship claim wasn't viable: "If Woodfords cannot establish that the idea is a trade secret or that Maine law recognizes appropriation of an idea, the confidential relationship cases will not allow it to bootstrap its way into a likelihood of success for the temporary restraining order and preliminary injunction." On the breach of the fiduciary duty of loyalty that an employee owes to an employer,  while an employee may not actually compete during the course of employment, there is no prohibition against preparing to compete. Casey indeed prepared to compete while she was still employed by Woodfords, but she didn't actually compete so this claim failed also. Finally, at this stage there was no unjust enrichment because there was no showing that Casey has yet to be enriched by the use of the idea. Thus the court did not enjoin Casey from developing her business using the video self-modeling idea.

Woodfords Family Services, Inc. v. Casey, No. 2:11-cv-445-DBH (D. Me. Dec. 14, 2011).

* There is also a copyright infringement claim but it was not part of the motion for preliminary injunction. However the copyright claim was the basis for federal jurisdiction, with the notable comment by the court that a registration isn't required before the court will have jurisdiction over a claim for determination of ownership of a copyright.


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