"I Didn't Mention It Was Just a License?"

Defendant Smith used the mark "Suncrest" for his hair replacement business "Best Hair Replacement Manufacturers, Inc." ("BHRM"). Wendy Wan owned First Fashion Hong Kong, a wholesale supplier of hair replacement products. Smith was a customer and a friend of Wan. Smith's business was going under, so he, Wan, and a third person, Friendy, started a new business, plaintiff First Fashion USA, Inc. Wan and Friendy contributed a substantial amount of inventory and capital. Smith didn't have any money to contribute, so he contributed the assets of his business. Smith says that he didn't discuss the ownership of the trademark with Wan and Friendy. Smith ran the new business, which used the "Suncrest" mark extensively.

Smith then did some unsavory things, like stealing from the business, and was eventually ousted. He then reactivated BHRM and resumed using "Suncrest." Confusion ensued. Wan and Friendy said that the trademark was transferred to the new business; Smith says he only gave an implied license to use the trademark.

The court disposed of the legal standard briefly: "The law presumes that when a business is conveyed, its trade name and good will are also conveyed" unless there is "express evidence to the contrary." Wan and Friendy contributed cash but Smith didn't, which meant his contribution was his business, including the trademark. That was Wan and Friendy's understanding, and Smith admitted he never talked to them about retaining rights in the trademark. Smith is thus preliminarily enjoined from using SUNCREST.

As an aside, who gives control of a business to a person who's getting out of his own because it's failing?

First Fashion USA, Inc. v. Best Hair Replacement Manufacturers, Inc., No. 09-60938-CIV, 2009 WL 2252249 (S.D. Fla. July 28, 2009).

© 2009 Pamela Chestek

"Lizzie Borden B&B wins trademark patent"

Yes, that's the unfortunate headline of the article in the The Herald News, "News of the Southcoast." The Fall River, Massachusetts "Lizzie Borden Bed and Breakfast/Museum" sued the Salem, Massachusetts "True Story of Lizzie Borden Gift Shop and Museum" and they settled (previously blogged here and here). The Fall River business now has a federal trademark "patent," um, registration, for promotional goods. The Salem business is now called "The 40 Whacks Museum."

Bonus feature, an article about an author who wrote a self-published book exonerating Lizzie, after Lizzie's sister Emma confessed to her in a dream.

© 2009 Pamela Chestek

News Flash: Patents Can Be Transferred by Operation of Law

The patent blogs are reporting on a new decision by the Federal Circuit, affirming that transfer of ownership of a patent can occur not only by assignment and through intestacy, but also by the operation of law when a holder of a security interest exercises its right to sell the collateral. Good thing, as the court pointed out:

The policy justifications for permitting transfers of patent ownership through operation of law without a writing also support our holding. First, if foreclosure on security interests secured by patent collateral could not transfer ownership to the secured creditor, a large number of patent titles presently subject to security interests may be invalidated. Any secured creditor who maintained an interest in patent collateral would be in danger of losing its rights in such collateral. Second, by restricting transfer of patent ownership only to assignments, the value of patents could significantly diminish because patent owners would be limited in their ability to use patents as collateral or pledged security. Lastly, it would be impractical to require secured parties to seek out written assignments following foreclosure from businesses that may have ceased to exist.

Patent Prospector here.

Patently-O here.

The 271 Patent Blog here.

Sky Technologies, LLC v. SAP AG, No. 2008-1606 (Fed. Cir. August 20, 2009).

© 2009 Pamela Chestek

Three Chocolate Companies Run Three Different Ways

If you're interested in trademark management in large enterprises, or management of large enterprises in general, there's an interesting decision in a multidistrict antitrust case against the chocolate candy industry. The opinion discusses whether the court has personal jurisdiction over some of the foreign family members of Cadbury, Mars and Nestlé. The case also provides great insight into how companies in the same business can be so different in their management style and structure.

For Mars, the issue was whether Mars Canada was subject to the jurisdiction of U.S. courts. Mars Canada owns the trademarks it uses in the Canadian market.

For Nestlé, it was whether the ultimate parent, Nestlé S.A. (of Switzerland) and Nestlé Canada were subject to U.S. jurisdiction. The Nestlé trademarks are owned by Swiss subsidiary Société des Produits Nestlé S.A. and the patents held by Swiss subsidiary Nestec, S.A., with royalties paid to the parent. Employees called regional intellectual property advisors (RIPAs) are liaisons between the IP companies and the operating companies.

For Cadbury Schweppes (now split into Cadbury plc and Cadbury Holdings), it was whether the parent (plc) and its single subsidiary (Holdings), both British companies, were subject to U.S. jurisdiction. Unfortunately there's no discussion of the trademark ownership, and the manufacturing isn't entirely clear from the decision either - the decision says that in the late 1980's Cadbury Schweppes withdrew from the U.S. market and Hershey became the U.S. trademark licensee for Cadbury-branded goods, but it's also clear from the decision that Cadbury has its own U.S. business too.

The opinion explains in detail how each of the parents manage their global businesses. It ranges from very little control (in the case of Mars) to a great deal of control (in the case of Cadbury). For all three companies, the court analyzed whether the foreign entity so controlled its U.S. entity that the two were alter egos. The court used the following factors to decide - note that trademarks plays a significant part:

(1) the parent owns all or a significant majority of the subsidiary's stock, (2) commonality of officers or directors exists between the two corporations, (3) the group possesses a unified marketing image, including common branding of products, (4) corporate insignias, trademarks, and logos are uniform across corporate boundaries, (5) group members share employees, (6) the parent has integrated its sales and distribution systems with those of its subsidiaries, (7) the corporations exchange or share managerial or supervisory personnel, (8) the subsidiary performs business functions that would ordinarily be handled by a parent corporation, (9) the parent uses the subsidiary as a marketing division or as an exclusive distributor, and (10) the parent exercises control or provides instruction to the subsidiary's officers and directors.

Evaluating all the factors, Mars Canada, Nestlé S.A., and Nestlé Canada weren't alter egos of their U.S. entities; Cadbury plc and Cadbury Holdings were, even though Cadbury USA was not named as a party. The case is a roadmap for how to exercise adequate control over the use of marks while still maintaining the separate corporate identities of the enterprise family members.

In re Chocolate Confectionary Antitrust Litigation, No. 1:08-MDL-1935, --- F.Supp.2d ----, 2009 WL 2447992 (M.D. Pa. Aug. 11, 2009).

© 2009 Pamela Chestek

Just Get Over It

Janky v. Lake County Convention and Visitors Bureau is not a precedent-changing decision.  But you know you're in for an entertaining read when a case starts:

This over-litigated case, involving a song by a doo-wop group, comes to us with 18 district court orders and memorandum opinions spread over a combined 239 pages.  The district court's 46-page docket contains a staggering 371 entries.  And the briefs of the parties on appeal are a bit unfocused to say the least.  But although it's a tough job, someone has to do it, so with shoulder to the wheel, we forge on.

Defendant Lake County Convention Center was commissioning a song to promote the county.  Plaintiff Janky and co-defendant Farag were both members of a doo-wop group called "Stormy Weather," and Farag suggested that the band write a song.  Janky then wrote a song and lyrics by herself and registered the copyright in it.  Farag suggested some changes, which Janky made.  She then registered the copyright in the revised work, listing Farag as a co-author who provided additional lyrics and characterizing it as a joint work.  She also filed with the American Society of Composers, Authors and Publishers (ASCAP), saying that Farag held a 10 percent ownership share.  Farag subsequently gave the Convention Center a license to use the work, which the Convention Center did for a number of years.  In 2003, Janky filed another copyright registration to correct the previous registration, this time listing herself as the sole author.  Janky then sued the Convention Center, Farag, and others alleging copyright infringement.

The district court held on summary judgment that Janky was the sole owner of the copyright and awarded her $100,000.  The Court of Appeals for the Seventh Circuit reversed, finding that instead it was a work of joint authorship and thus the Convention Center a licensee, not an infringer.  The lesson seems a pretty easy one - don't file a copyright application listing someone as a joint author and later claim you didn't intend that the work be one of joint authorship, especially in a circuit that is quick to substitute its own judgment for that of the trial court:

More important, however, is the evidence of intent supplied by Janky herself.  We observed in Erickson that crediting another person as a co-author is strong evidence of intent to create a joint work.  In this case, we have such an acknowledgement--Janky named Farag as coauthor and deemed the song a "joint work."  Janky's post hoc rationalization--that she only intended to express her gratitude--is simply at odds with the significant contributions made by Farag and Janky's identification of Farag as a co-author in the copyright registration form.  Just as litigants "cannot create sham issues of fact with affidavits that contradict their prior depositions," Janky's affidavit cutting the other way is entitled to little weight.  A reasonable jury could only conclude that Janky and Farag intended to create a joint work.

So instead of summary judgment for the plaintiff, summary judgment for the defendant.  Judge Ripple, in dissent, criticized the majority for its overreach in deciding that there was both intent to create a work of joint authorship on Farag's part and that Farag's portion was independently copyrightable (as required under 7th Circuit precedent).

But there's so much more going on in this case.  The appeals court remarked numerous times on the size of the record in its case, but that's not the half of it.  A few days before the appeals decision, a district court granted sanctions against plaintiffs' attorneys, Gregory J. Reed and Stephanie L. Hammonds, as well as plaintiff Cheryl Janky, in a subsequent suit between the same parties.  This lower court opinion tells a story of at least three lawsuits, two federal cases and one state case, all about this situation.  It described how the $100,000 award had already been eaten up by attorneys' fees before trial and described the multiplicity of motions filed by both sides.  It documented other cases where the same lawyers were sanctioned, and further prohibited them from filing any further complaints on behalf of Cheryl Janky.  This is a a blood feud, fed by both the lawyers and the litigants.

Janky v. Lake County Convention & Visitors Bureau, Nos. 07-2350, 07-2762, 08-1606, --- F.3d. ----, 2009 WL 2357929 (7th Cir. Aug. 3, 2009).

Janky v Tatistatos, No. 2:07-CV-339 PPS APR, 2009 WL 2382324 (N.D. Ind. July 31, 2009).

© 2009 Pamela Chestek

Standing No More

Medtronic Sofamor Danek USA, Inc. v. Globus Medical, Inc. is another effort by a patent-owning enterprise to try to have its cake and eat it too. The problems start when the company that owns the patents isn't the manufacturing arm, so the patents are licensed to a sister (child, parent, cousin, etc., etc.) company. It's sometimes done for tax purposes. The result is that the plaintiff may not actually have standing, and there may be limitations on the damages available.

It appears Medtronic put some effort into trying to conquer the beast with its licensing strategy. Co-plaintiff and Medtronic family member Warsaw Orthopedic, Inc. was the owner of the patents in suit. Warsaw granted patent licenses to family members Medtronic Puerto Rico Operations Co., Medtronic Sofamor Danek Deggendorf, GmbH, and Medtronic Sofamor Danek USA, Inc. The four were parties to the suit.

Defendant Globus challenged the four companies' standing. After describing the three categories of ownership (those that can sue in their own name alone, i.e., owners, those that can sue if the patent owner is joined, i.e., exclusive licensees, and those that can't sue, i.e., non-exclusive licensees), the court evaluated each of the companies' ownership interest in the patent. Warsaw was fine as the owner. The parties had also prepared for the threat to the licensees' standing, set up by the license agreement to argue they were "co-exclusive" licensees: "Licensor grants to Licensee the Co-exclusive right to use, develop, enjoy, and enforce the Intellectual Property Rights . . . ."

But the court wasn't fooled; the argument was a no go. Warsaw had retained the right in the various agreements to grant other licenses. That was enough to defeat the "co-exclusive" licensees' claim of exclusionary rights, even though in some cases Warsaw could only grant further licenses to other family members. The three Medtronic companies had no standing.

Why does it matter if the patent owner was a party? Damages. If the licensees' claim of exclusionary rights stuck, they would have been entitled to lost profits. Warsaw, as a non-manufacturing licensor, conceded it had no lost profits, so its damages were limited to a reasonable royalty.

There's also a lesson Medtronic will never forget - the court must always consider constitutional standing, whether the parties stipulate to it or not. Maybe it was a dirty play, but the parties stipulated that "Plaintiff Warsaw is the owner, by assignment, of [the patents in suit]. Plaintiffs Medtronic USA, Inc., Medtronic Puerto Rico Operations, Co., and Medtronic Deggendorf, GmbH are co-exclusive licensees of the [patents in suit] and, together with plaintiff Warsaw, share the exclusive right to bring suit for infringement of the patents." But that isn't good enough to divest the court of jurisdiction over the question. The plaintiffs moved to re-open the record to add evidence of Warsaw's lost profits in light of the late-breaking theory, but Medtronic had enough clues that the defendant hadn't waived the argument that the motion was denied.

Medtronic Sofamor Danek USA, Inc. v. Globus Medical, Inc., Civ. No. 06-4248, 2009 WL 2138486 (E.D. Pa. July 15, 2009).

© 2009 Pamela Chestek

Do Ethnic Slurs Mean a New Trial?

The National Law Journal is reporting (free subscription required) that four organizations - the Anti-Defamation League, the Public Affairs Alliance of Iranian Americans, the Iranian Americans Jewish Federation and the Iranian American Bar Association - filed an amicus brief in the Court of Appeals for the 9th Circuit, asking the court to grant a new trial in the Bratz case. The district court had denied a new trial after dismissing a juror for stating during deliberations that Iranians were "stubborn," "rude" and "thieves" who had "stolen others people's ideas" (blogged here). One of the defendants, Isaac Larian, who is MGA's chief executive, is Iranian-American.

Docket number 09-55673 or 09-55812 (not sure which, or both); brief not yet publicly available.

© 2009 Pamela Chestek

Leibovitz Postcard Anyone?

News stories are reporting that renowned photographer Annie Leibovitz has used - well, something - as collateral for a $24 million loan that is due in September. The New York Times reports it this way:

On July 29, Ms. Leibovitz was sued in State Supreme Court for nonpayment by a company that had lent her $24 million, and which demanded access to her homes so it could begin the process of selling them to satisfy her debt. Ms. Leibovitz had taken out the loan last year, pledging as collateral properties in Greenwich Village and in Rhinebeck, N.Y., her negatives and the rights to her photographs.

Morning Edition on National Public Radio only serves to confuse:

Last year, Leibovitz went to Art Capital Group — which Salkin describes as "basically a high-end pawn shop" — for a loan. "Anybody can go to them with their artworks — their Cezannes, Picassos — and get a loan against them, up to 40 percent of the appraised value," he says.

The statement suggests that one is getting a loan against possession of the tangible objects, the paintings. The Art Capital Group's web site also seems to only contemplate financing using the tangible objects, not the copyright in them. But the New York Times reference to using the "rights" as collateral suggests that Art Capital Group might have some kind of ownership interest in the copyrights themselves. Assignment, license? I can't imagine that Art Capital Group would flub that piece of the action, although an interesting exercise to contemplate. If it has the negatives but not the copyrights, does it have an implied license to make new prints to sell? Just direct prints or other types of reproductions, like postcards?

I imagine Ms. Leibovitz's lawyers are having a good crack at the contract.

© 2009 Pamela Chestek

Stitch in Time

Changes of ownership of intellectual property rights are sometimes done in a series of transactions all executed at generally the same time. For example, when acquiring assets, they might first be assigned to an acquisition company, the acquisition company merged into the purchaser, the seller dissolved, and the purchasing company's name changed to the name of the original seller. Good practice is to execute and record the documents in order.

And sometimes there are cases that remind us to keep up the good practices. Tracfone Wireless, Inc. owned a number of trademarks and copyrights. The intellectual property assets were assigned from Tracfone Wireless, Inc. (Florida) to Tracfone Wireless, Inc. (Delaware). On the same day, Tracfone Wireless, Inc. (Florida) became Tracfone Wireless, LLC. The defendants in the suit argued that the LLC was the true owner of the assets, not the plaintiff, Tracfone Wireless, Inc. (Delaware). Tracfone parried (through a declaration from a senior vice president) that the assignment was executed before the Certificate of Conversion. The court decided:

[T]he only evidence in the record is the declaration by Jill Garcia that clearly evinces the intention of the Florida corporation to assign its intellectual property rights to Plaintiff before it was converted to a new business entity. See Hinote v. Brigman, 33 So. 303, 305-06 (Fla.1902) ("if the party sought to be charged intended to close a contract prior to the formal signing of a written draft, or if he signified such an intention to the other party, he will be bound by the contract actually made, though the signing of the written draft be omitted. If, on the other hand, such party neither had nor signified such an intention to close the contract until it was fully expressed in a written instrument and attested by signatures, then he will not be bound until the signatures are affixed.") (emphasis added). As there is no evidence that there was an intent for the conversion to take place prior to the time it was executed, I find that the evidence in the record indicates the assignment was consummated and therefore took effect prior to the conversion. Accordingly, Plaintiff is the owner of the trademarks and copyright at issue in this action and subject matter jurisdiction is proper.

At least the court was not pleased with the defendant's ploy, but unfortunately for plaintiff not displeased enough. Plaintiff had moved for sanctions:

Plaintiff claims that Defendants' position as to subject matter jurisdiction was frivolous and unsupported by the law. Specifically, Plaintiff represents that it explained to counsel for Defendants the circumstances surrounding the assignment of the intellectual property rights to Plaintiff and requested Defendants to withdraw their Motion. The Defendants' position is without merit, and these circumstances present a close call as to whether imposition of sanctions would be appropriate. Defendants fail to recognize or address, either in their pleadings or at oral argument, that the crux of the question here is whether the assignment took place prior to the conversion becoming effective. The sole reliance on Fla. Stat. § 607.1114(2) is insufficient. However, because it is at least a colorable argument, I do not find it so frivolous or unsupported by law to warrant the imposition of sanctions. The Motion for Rule 11 Sanctions is accordingly denied.

Tracfone Wireless, Inc. v. Access Telecom, Inc., No. 09-20397-CIV-Gold/McAliley, 2009 WL 2207818 (S.D. Fla. July 24, 2009).

© 2009 Pamela Chestek

Seizing Cuban Trademarks

The IPKat reports on an effort in a Florida court to seize trademarks owned by the Cuban government in order to satisfy a judgment against it. The Miami Herald does a great job of explaining a complicated situation. I can't improve on it, other than to provide a search query if you're interested in seeing the marks at play. Cut and paste this query into the freeform search at the USPTO web site to see the marks:

("CUBANA DEL TABACO".on. or ("CUBANA EXPORTADORA".on. and rum.gs.) or ETECSA.on. ) and live.ld.

The family of the late Bobby Fuller might accomplish what the U.S. government has been trying to do for years, refuse the Cuban government trademark rights in the U.S.

© 2009 Pamela Chestek

MGA Now Has Moxie

Never resisting the urge to be defiant, MGA Entertainment announced that it has a new line of dolls called "Moxie Girlz."

mox⋅ie /ˈmɒksi
–noun Slang.
1. vigor; verve; pep.
2. courage and aggressiveness; nerve.
3. skill; know-how.

Provocative name for a provocative event. You be the judge whether they infringe the copyright in Bratz.

(Moxie Girlz)

(Bratz)

© 2009 Pamela Chestek

Mongols Can Wear Their Colors

An anonymous commenter to a previous blog post provided a link to today's opinion finding that the government seizure of the Mongols trademark in United States v. Cavazos was not proper under the RICO statute. You may recall it was widely reported back in October, 2008 that the government had seized the registered trademark of a biker club, the Mongols, and obtained an order allowing the ATF to seize all products, including clothing, bearing the Mongols trademark. It seemed a creative ploy even at the time, and props for trying.

Today's decision was in a civil case brought by a member of the Mongols Motorcycle Club, who filed a motion for a preliminary injunction alleging that he cannot wear his colors because the government will seize them - indeed, the ATF has seized items bearing the trademark from those not charged in the Cavazos action. After finding the club member had standing to challenge the seizure order in the RICO case, the court went on to conclude that the trademark seizure was improper. The Mongols trademark was originally owned by an unincorporated association, Mongol Nation, and was assigned to a corporation, Mongols Nation Motorcycle Club Inc. Under California law, property acquired by an unincorporated association is property of the association, not the members individually. Since a forfeiture under RICO is in personam, not in rem, and the unincorporated association was a third party to the RICO action, it was improper for the government to have seized the trademark.

Criminal and RICO law are not my forte. Any comments on how this opinion affects the Cavazos action greatly appreciated. I also found it interesting that it was the same judge on both cases, and would be interested to know whether that was by design or happenstance.

Every trademark practitioner should also read the section about how the seizure of a collective mark (or rather seizure of the clothing bearing the mark) implicates the First Amendment freedom of speech and association.

Rivera v. United States, No. 2:09-cv-2435-FMC-VBKx (C.D. Calif. Aug. 3, 2009).

© 2009 Pamela Chestek