Trademark, Copyright + Advertising

The European Union’s highest court will have another opportunity to consider the issue of the liability of online platforms for copyright infringing content uploaded and shared by users. Two referrals from national courts (one Austrian and one German) are pending before the Court of Justice, both concerning infringing videos posted on YouTube and both raising a similar set of questions. Under current EU law, the question of liability focuses on the application of the ‘take down’ rules under the Electronic Commerce Directive of 2000 (the equivalent of the Digital Millennium Copyright Act in the U.S.). The rule essentially shields the hosting of content by an online platform if it acts expeditiously to remove the content upon gaining knowledge or awareness of the infringement. However, as previously reported in this blog, the EU’s new directive on copyright in the Digital Single Market, which was adopted on 26th March 2019, is designed to shift the balance struck under the e-Commerce Directive between content creators and online platforms. Although the new directive will not abolish the existing ‘take down’ principle, these rules will be replaced, as far as content sharing platforms are concerned, with new rules that will give creators and rightholders more control over their content and impose more responsibility on the platform operators before they can enjoy protection against liability in relation to infringing content uploaded and shared by users on the platform. As German MEP Julia Reda suggested, the new directive means services would have to "buy licences for anything that users may possibly upload" and called it an "impossible feat". Google, which operates the YouTube platform has been a prominent advocate against the new directive. The new legislation is yet to be implemented by EU member states into their national laws (they have two years to do so). For the time being, the Austrian and German courts are raising a familiar set of questions that concerning the current ‘take down’ rules under EU law, but the answers the court offers could also reflect on some aspects of the new legislation. Firstly, they ask whether YouTube involve itself ‘too much’ in the infringing content so as to make it more than a “mere host”. The principle established by the EU court is that the immunity from liability enjoyed by a ‘hosting service’ is only available to a service insofar as it stores data through automatic and neutral processes, without knowledge or awareness of actual infringements (or that it acts expeditiously to remove the infringing content upon becoming aware of the infringement). The national courts ask whether YouTube exceed those parameters by providing a variety of added services to users on its platform that allegedly go beyond mere data storage, such as viewing recommendations and search facilities, as well as tips on how to use the platform and the placing of advertisements, in some cases linked to the content viewed by the users. It is also noted by the referring courts that YouTube takes a license to exploit any uploaded content and that its terms and conditions state that infringing content may be removed. Both courts also seek guidance on whether knowledge or awareness of infringements in the context of the immunity from liability provisions for hosting services concerns only specifically identified infringements or whether an element of constructive knowledge is also relevant. These are interesting questions, although they have already been considered by the EU court in previous cases, particularly in the Google France case, which concerned Google’s Adword services, and in the eBay International case, both from 2010. Both cases from 2010 concerned trade mark infringements rather than copyright. The eBay International case in particular touched on the question whether the operations of the online marketplace exceeded the limits of the legal immunity provided to a hosting service where it involved itself in the sale of infringing goods by promoting the goods through the use of search engine Adwords (to attract internet traffic to the platform), by providing search facilities and by placing advertisements using the relevant marks on its own platform. The court stated that a marketplace that provides assistance to the seller of infringing goods by optimising their presentation will not benefit from the protection from liability, but it left it to the national court to determine which activities of the marketplace actually amount to providing such assistance. The two referrals by the Austrian and German national courts raise a further set of questions concerning the power of the courts to issue injunctions against intermediaries whose services are used by their users to engage in acts that infringe copyright. Several EU directives require member states to ensure that their national courts have the power to issue such injunctions. The referring courts seek guidance, among other things, on whether the jurisdiction to issue injunctions is limited to cases where the intermediary has actual knowledge of the infringements. As with the issue above, the Court of Justice of the EU had already considered the issue of injunctions and in its decision in the eBay International case held that it was a matter for national law to set out the conditions, parameters and procedures by which injunctions should be granted against intermediaries. It made it clear that a national court must have the power under national law to order intermediaries to remove specifically identified infringing content, but also that they should be able to order measures to be taken to prevent infringements. The e-Commerce Directive itself makes it plain that the protection against liability does not prevent a court from issuing an injunction against the platform operator. However, the court pointed out in the eBay International decision that injunctions against a hosting platform cannot amount to imposing an obligation to monitor the data of each user, as the e-Commerce Directive expressly states that platforms should not be placed under such obligation. It added that courts must ensure that when issuing injunctions against platforms to take measures against infringements, it must be done without stifling competition in the market and without unduly jeopardising free speech. It is, the court said, a matter of striking a fair balance. The previous decisions of the EU court did not resolve the tension between the protections provided for under the e-Commerce Directive to hosting services and the provisions of EU law requiring courts to have the power to issue injunctions requiring platforms to take measures against infringements. The issue is further complicated by the fact that the new EU legislation requires content sharing platforms, as a pre-conditions to enjoying the protection from liability, to use ‘best efforts to ensure the unavailability [on the platform] of specific works’ that are notified to the platform by rightholders. This requirement reflects the same idea that courts should be able to order online platforms to take measures to prevent further infringements. What form these measures, or best efforts, should take, is the key question yet to be answered by legislatures and courts. It remains to be seen whether the two new cases might prompt the EU court to provide more detailed guidance on the issue of injunctions as well as on the degree to which a platform operator can involve itself in the dissemination of user-generated data on the platform without losing the immunity from liability. New guidance from the EU court on the current law will still be relevant for content sharing platforms when the new rules come into force, at least for areas outside of copyright (such as trade mark infringement). Such guidance may also be useful for legislatures in Member States who are looking at the implementation of the new copyright legislation.

Who doesn’t love a secret menu, where one discovers delicious off-menu favorites and savors them along with the pleasure of feeling in the know? We’ll let you in on a “secret menu” of sorts for trademarks. A little known area of trademark law involves protection of trademarks by statute or convention. These marks are in most cases well known (e.g., Red Cross, Olympic Rings, U.S. flag), and anyone could guess that they are off the menu without a license. But, what of characters and organizations that we all know and love in popular culture, such as 4-H Clubs, Smokey Bear, and the F.B.I.? We have all likely consumed trademarks or other insignia for such popular organizations and characters on all manner of products. But what about marks or characters that are imitation flavors? The statutes themselves do not provide the basis for refusal of trademark registration; however, if the U.S. Patent and Trademark Office (USPTO) is made aware of a federal statute or regulation that prohibits or restricts certain marks, insignia and/or characters, they are entered into the USPTO search records and assigned serial numbers beginning with “89.” These marks are also known as “non-registrations.” For a non-exhaustive menu du jour of recognized statutes, see Appendix C of the Trademark Manual of Examining Procedure (“TMEP”). (If you want to see the secret sauce, search for the marks and characters in this article: 4-H CLUBS, Ser. No. 89001621; Smokey Bear, Ser. No. 89001660; F.B.I., Ser. No. 89001683.) These non-registrations are considered during examination of new applications, and if a mark happens to be confusingly similar, the applicant will receive a refusal to registration on the basis that the matter is protected by statute or convention. State emblems, flags, and emblems for intergovernmental organizations will also be eighty-sixed, as these marks are protected under federal statute and/or national conventions. Such marks include the Red Cross Symbol (Ser. No. 89000081) and Red Crescent Symbol (Ser. No. 89000460). See Section 1205.01 et seq. for lots of details on the Red Cross, Red Crystal, and Red Crescent symbols, including helpful examples of situations where similarly stylized symbols should or should not be refused. Other such emblems may not be listed under the 89 series, but are explicitly protected by statute and are thus denied service under Section 2(b) of the Lanham Act. These would include the “Olympic Rings” and other insignia from the Olympic Games (36 U.S.C. § 220506). And as we previously reported, the U.S. flag. ICYMI, the United States Flag Code mandates that “[t]he flag should never be used for advertising purposes in any manner whatsoever.” 4 U.S.C. § 8(i). Stylized flags are registrable, however, as explained at TMEP § 1204. Native American tribal insignia are also featured on the menu as Series 89 non-registrations. See, e.g., Georgia Tribe of Eastern Cherokee, Ser. No. 89001082; Paiute Indian Tribe of Utah, Ser. No. 89001598; and Eastern Shawnee Tribe of Oklahoma, Ser. No. 89002202. 15 U.S.C. § 1052(a) prohibits registration of marks that falsely suggest a connection with a non-sponsoring person or institution, including Native American tribes. The insignia must be submitted by a tribal representative; however, the USPTO will not research whether the insignia is authentic. So for the takeout, um, takeaway: Series 89 non-registrations may not be considered front of the house, but knowing about them can help to avoid heartburn. And, as with most secret menus, they really aren’t that secret after all.

Love him or hate him, everyone agrees that NFL Quarterback Tom Brady is terrific, except the USPTO. Earlier this year, Mr. Brady’s company filed to register the trademark “Tom Terrific” for t-shirts and various other collectible items. Yesterday, the USPTO rejected those applications. Why did it throw shade at arguably one of the best slingers in the history of the NFL? Apparently because he is not the “original” Tom Terrific. That distinction belongs to another slinger of sorts. On August 4, the USPTO received a “letter of protest” from a third party claiming that “Tom Terrific” is actually the nickname for Tom Seaver, an MLB Hall of Fame Pitcher who tossed the New York Mets to a World Series victory in 1969. The letter of protest was apparently packed with evidence demonstrating the “Tom Terrific” moniker is currently enjoyed by Seaver. Section 2(a) of the Lanham Act—at least the portion that is still on the books after the Tam and Brunetti decisions from SCOTUS—prohibits any application that “consists of or comprises matter that may falsely suggest a connection with persons, institutions, beliefs, or national symbols.” Based on the evidence in the letter of protest, the USPTO concluded that Brady’s trademark would create a false connection with Seaver because Tom Terrific “points uniquely and unmistakably” to him. Seaver 1, Brady 0. While Tom Terrific 2.0 may be down, he is not out. It is not time for a Hail Mary as the USPTO’s decision is only an initial office action. Team Brady will have plenty of time to amass its own evidence to overcome the rejection. They have until February 22, 2020 to respond. That gives Tom enough time to shoot for one more Super Bowl victory on February 2, and then set his sights on bringing home a trademark victory at the USPTO.

Earlier this summer, in The Andy Warhol Foundation for the Visual Arts v. Goldsmith, the federal district court for the Southern District of New York held that Andy Warhol’s artwork series depicting the late singer Prince was protectable fair use of a photograph taken by Lynn Goldsmith. Goldsmith photographed Prince in her studio in late 1981. Three years later, Condé Nast obtained a license to use one of Goldsmith’s black and white photographs “for use as an artist’s reference in connection with an article to be published in Vanity Fair Magazine.” The invoice for the license did not specify which of Goldsmith’s photos from the studio shoot was licensed and Goldsmith was not aware at the time that her photograph had been licensed by her photography agency for use as an artist’s reference. Vanity Fair commissioned Andy Warhol to create an illustration for an article titled “Purple Fame.” Based on Goldsmith’s photograph, Warhol created a full color illustration of Prince that ultimately appeared in the article that was published in November 1984. The article contained the following copyright attribution credit for the portrait: “source photograph (c) 1984 by Lynn Goldsmith.” Warhol also created the “Prince Series”, comprised of 16 distinct pieces of artwork, including the one used in the November 1984 Vanity Fair “Purple Rain” article. The series was displayed multiple times in museums, galleries, books, magazines and other locations. Goldsmith contended that she was not aware of Warhol’s use of her photo until after Prince’s death in 2016. The day after Prince died, Vanity Fair published an online copy of its November 1984 “Purple Rain” article, and then issued a commemorative magazine titled “The Genius of Prince”. It obtained a license to use Warhol’s Prince Series works as the cover of the magazine, and the commemorative issue published in May 2016 displayed a copyright credit only to Warhol, not to Goldsmith. In response to Goldsmith’s accusation of. copyright infringement, the Warhol Foundation brought an action for declaratory judgment that none of the sixteen works in the Prince Series infringed Goldsmith’s copyrighted photograph. It argued that the works were not substantially similar and, in any event, the Prince Series was protected by the fair use doctrine. Goldsmith counterclaimed for infringement, and the parties filed cross-motions for summary judgment. In a decision dismissing Goldsmith’s copyright infringement claim, Judge John Koeltl of the Southern district analyzed the four actors identified by Congress as relevant to the adjudication of a fair use defense: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect on the potential market for or value of the copyrighted work. Under the first factor, the court explained that the most important consideration is the “transformative” nature of the work at issue. A “transformative” work adds something new to the original copyrighted work, such as expression, meaning, message, character or aesthetics, with creative and communicative results distinct from the original. Judge Koeltl noted that the Prince Series depicted the singer as a flat, two-dimensional figure, rather than the three-dimensional being in Goldsmith’s photograph. Furthermore, the Prince Series contains loud colors and undefined softened exteriors, in contrast to the original stark black and white photograph. Because of this different aesthetic and character, the court determined that the Prince Series was transformative. An amusing footnote in the fair use analysis noted that during oral argument on the summary judgment motions, Goldsmith’s counsel suggested that fair use is “almost like you know it when you see it” — an obvious allusion to Supreme Court Justice Potter Stewart’s test for obscenity. Judge Koeltl commented in response that this analogy would not benefit Goldsmith: “If that were the test, it is plain that the Prince Series works are ‘Warhols’ and the Goldsmith Prince Photograph is not a ‘Warhol.’” The first fair use factor accordingly weighed strongly in favor or the Warhol Foundation. Under the second factor, the court considered whether Goldsmith’s photograph was expressive or creative vs. factual or informational and whether the photograph was unpublished vs. published. Although Goldsmith’s studio photo on which the Prince Series was based was creative and had never been published, the court found that it had been licensed as an artist’s reference. Further, the court held that the second factor’s significance in the fair use analysis is diminished where the secondary work is transformative. As a result, the second factor favored neither party. As to the third factor, the court evaluated the substantiality of the portion used in relation to Goldsmith’s photograph as a whole. Goldsmith argued that Warhol’s Prince Series contained “the essence” of her photograph, while the Warhol Foundation countered that Warhol used only a portion of the photograph and that the Prince Series, in final form, “contain none of the protectable elements of Goldsmith’s photograph.” The court concluded that the Series, in removing nearly all the photograph’s protectable elements of the photograph, “transformed Goldsmith’s work ‘into something new and different and, as a result, this factor weighs heavily” in the Warhol Foundation’s favor. The fourth factor also favored the Warhol Foundation. In considering the effect on the value of the copyrighted work, the court observed that “It is plain that the markets for a Warhol’s and for a Goldsmith fine-art or other type of print are different” and that Goldsmith had not established that the Prince Series works were market substitutes for her photograph. In sum, undertaking a “holistic weighing” of the four fair use factors, the court concluded that the Prince Series was a protected fair use, and dismissed Goldsmith’s claim for copyright infringement. The decision provides fascinating insights into Warhol’s creative process and also demonstrates the powerful significance of a finding that a work is transformative in the four factor fair use analysis. Dorsey & Whitney summer associate Amy Jones contributed to this post.

When a judicial opinion refers to a “bitter feud”, a plaintiff “beset by acrimony”, and a “rock star” banker who “faced his peripeteia” (we looked it up for you –it’s Greek for “reversal of fortune”), you know there’s gotta be a good story behind a copyright dispute. That is indeed the case in TD Bank N.A. v. Hill, a recent Third Circuit decision that provides an in-depth analysis about whether the copyright in a business book manuscript co-authored by a former bank CEO is owned by his bank employer as a work for hire or by assignment – and why the distinction matters. The appellate court concludes that a letter agreement “deeming” the manuscript a work for hire, without more, could not make it so unless it meets the specific requirements of the work for hire provisions of the Copyright Act. The court further held that rights in the work were in fact assigned by that letter agreement, even though the word “assignment” was never mentioned. The man at the center of this copyright drama is Vernon W. Hill II, the founder of Commerce Bank, who led and grew the institution from 1973 until it was acquired by TD Bank in 2007 for $8.5 billion. In 2006, Hill decided to write a book about his business philosophy. Commerce Bank supported this endeavor by hiring a collaborator to help him write the manuscript and by entering into an agreement with the Portfolio Division of Penguin Books. In the publishing agreement with Portfolio, Commerce Bank was defined as the “Author”, and represented and warranted that it was the exclusive owner of all rights in the manuscript. Hill signed an accompanying letter agreement in which he agreed that “the Author [i.e., Commerce Bank] will fulfill all obligations of the Agreement.” Hill also guaranteed that the “Work is a work made for hire within the meaning of the United States Copyright Law and that the Author is the owner of Copyright in the Work and has full power and authority to enter into the Agreement.” Hill’s manuscript was finished in 2007, but then the relationship between Hill and Commerce Bank “soured” and TD Bank acquired Commerce Bank shortly after. The manuscript was never published, and by 2008, Commerce Bank terminated its publishing agreement with Portfolio. Several years later, Hill decided to co-author another book about the founding of a bank in the UK, which was published in November 2012. TD Bank learned about this new book published by Hill, “suddenly registered” its copyright in the 2007 unpublished manuscript and sued Hill for copyright infringement. Interestingly, TD Bank admitted during the litigation that “at most 16%” of the 2012 book infringed the 2007 unpublished manuscript and that it had no intention of ever publishing the 2007 manuscript. On a motion for summary judgment, the district court concluded that because the letter agreement “deem[ed] the work to be a work for hire,” it was a work for hire, vesting the copyright in the 2007 manuscript in Commerce Bank as Hill’s employer. Although the district court initially declined to issue an injunction, it did so a year later after Hill continued to promote the 2012 book and TD Bank presented evidence of irreparable harm. Hill then appealed. Work for Hire - Back to the Basics On appeal, the Third Circuit overturned the district court’s holding that the 2007 unpublished manuscript was a work for hire. Revisiting the basics of what constitutes a work for hire, which often get overlooked or conflated with an assignment or transfer, the appellate court laid out the work for hire provisions of the Copyright Act (summarized here). These say that a work can be considered a work for hire in only one of two ways. The first is where a work is created by an employee within the scope of employment. The second is where a work is specially ordered or commissioned, but only if it falls within nine specifically enumerated categories of works (including a contribution to a collective work or part of a movie). As the court put it, these are “two mutually exclusive means”, with “the first for employees, and the second for independent contractors.” Applying these two statutory provisions to the operative facts, the Third Circuit held that the 2007 manuscript did not meet the second definition because Hill was not an independent contractor and the manuscript did not fall within any of the nine enumerated categories of works. As for the first part of the definition, Hill was an employee of Commerce Bank when the manuscript was authored, but to be a work for hire, the manuscript would have had to have been created within the scope of his employment. The district court had correctly recited these principles but then went in a different direction, holding that TD Bank owned the rights to the 2007 manuscript based on the letter agreement, which deemed the manuscript to be a work for hire. The Third Circuit rejected this approach, holding that “a bare statement that a particular work is ‘for hire’ says nothing about the scope of any individual’s employment and cannot suffice on its own. Had Congress intended to permit parties to ‘deem’ works by employees as ‘for hire’, it would have so specified” in the statute. Wrong Label – Same Outcome The appellate court then explored whether TD Bank had acquired rights in the 2007 manuscript by assignment, rather than as a work for hire, emphasizing both the technical distinctions and practical consequences between the two. In particular, the court highlighted that a work for hire vests both authorship and ownership in an employer or principal, effectively removing any rights from the creator of the work, whether as employee or independent contractor. In contrast, where there is an assignment, the creator of the work, as author, still “retains certain non-waivable rights to cancel the transfer after 35-40 years” and, for some types of works, certain waivable moral rights too. The court highlighted that these fundamental differences explain why an employee’s work created outside the scope of employment cannot simply be “deem[ed] for hire.” The Third Circuit next concluded that “although it affixed the wrong label”, the lower court was correct in finding that TD Bank owned the 2007 unpublished manuscript because the letter agreement operated as an assignment, even though the word “assignment” was not expressly mentioned in the agreement. Specifically, the appellate court found that Hill’s commitments in the letter agreement, including “Hill’s assurance that the manuscript ‘is a work made for hire’” (even if it was insufficient to render it a work for hire), and acknowledgement that Commerce Bank was the owner of copyright, “denote[d] an intent to relinquish his interest in the copyright”, when considered as a whole, under both the Copyright Act and New York law. As the court explained, to constitute an assignment, an agreement “need not comply with any formalities or invoke particular language to constitute an assignment; any writing will suffice as long as ‘the assignor has, in some fashion, manifested an intention to make a present transfer of his rights to the assignee.’” Although the court’s assignment holding ultimately turned on the specific language used in the letter agreement, the decision highlights important basic distinctions and requirements between work for hire and assignment provisions that need to be kept in mind if businesses want to retain ownership and control of employee work product and creative output. Concluding its analysis of the ownership of the 2007 manuscript, the court stated that while the letter agreement constituted a valid assignment, the question remained whether it could also be considered a work for hire under the first part of the statutory definition because it was written by Hill within the scope of his duties as a bank employee. The Third Circuit outlined the legal test that should apply, but found that it had an insufficient factual record before it, leaving it open whether the parties wished to address the issue on remand (and thus prolong their bitter litigation). The Third Circuit reiterated the potential legal advantage to TD Bank of a work for hire finding, which would then remove Hill’s right to terminate the rights transferred by assignment. The Third Circuit’s analysis and holdings help to cement basic copyright ownership principles, particularly in the corporate context, where documents providing for the transfer of rights in creative output to a corporation often simply deem a work to be a work for hire, without specifying anything more, such as the category of work involved (in the case of an independent contractor), or the scope of the employment duties within which the work falls (in the case of an employee). The decision also highlights the importance of having a clearly expressed assignment provision in an agreement to transfer rights to an employer if it is likely a work will not be “deemed” a work for hire.

In 2016, SportFuel sued PepsiCo for using their registered trademark “SPORTFUEL” in a slogan used to advertise Gatorade products. SportFuel is a personalized nutrition consulting firm in Chicago. They also market sports drinks and supplements, like their “energizing phytonutrient powder mix” which contains the antioxidant effect of “25+ Servings of Fruits & Vegetables” in a single serving. They hold two registered trademarks for the term “SportFuel,” one for use in the nutritional counseling market and the other for use in the dietary supplement and sports drink market. Gatorade is, of course, known for its flavored sports drink traditionally poured by a group of celebratory athletes onto their unsuspecting coach. PepsiCo has expanded the Gatorade line of products beyond the iconic sports drink to include protein bars, energy boosters, and other athletic nutrition products. With the expanded line came the disputed slogan, “Gatorade The Sports Fuel Company.” SportFuel sued PepsiCo alleging trademark infringement. What may have seemed like a slam dunk case for SportFuel — their Goliath competitor using the name of their company in a slogan to advertise competing products — was disposed of before reaching a jury. The District Court found that Gatorade’s use of “sport fuel” is a “fair use.” In this context, the “fair use” doctrine allows one to use a mark if they are not using it as a trademark, if they use the mark to describe their product, and they use the mark in good faith. This case turned on whether the term “sports fuel” is descriptive of Gatorade’s sports drinks and other nutritional products. A term is descriptive if it refers to characteristics or categories of goods and requires no “imagination and perception” to determine the characteristics or categories to which it refers. Gatorade presented several examples of other companies using the terms “sport fuel” and “sports fuel” to refer to athletic nutrition products. A quick google search of the term “sports fuel” supports this: Gatorade and SportFuel both appear on the first page of results, but neither are in the top five results. The 7th Circuit agreed that there is “widespread industry use” of the term. Gatorade bolstered its argument with a statement from the USPTO. PepsiCo sought a trademark registration of the term “Gatorade The Sports Fuel Company” and the USPTO opined that “Sports Fuel is commonly used in reference to sports nutrition” and that consumers would readily understand that it refers to a company that provides sports nutrition products. Thus, the court found the evidence of widespread industry use and the opinion of the USPTO persuasive and determined that “sport fuel” is descriptive of a category of athletic nutrition products. SportFuel had a unique argument for why Gatorade’s use was not descriptive even though “sport fuel” is descriptive of a category of athletic nutrition products: Gatorade is not an athletic nutrition product. SportFuel's basic argument was that most people who drink Gatorade are "average Joes," not high-performing athletes. The court was not convinced and quipped “the fact that Gatorade sells more sports drinks to average Joes who limit their rigorous exercise to lawn mowing does not change the athletic characteristics of Gatorade products.” The court compared Gatorade to other products with athletic characteristics that are not necessarily used for athletic activities, such as yoga pants, to find that the use of the product “has no bearing [on] whether the term is descriptive.” Perhaps SportFuel should have argued Gatorade is not an athletic nutrition product based on its nutrition facts. Gatorade touts its ability to hydrate better than water and to restore electrolytes lost in sweat, but it also contains 34 grams of sugar and 0% real juice. An average Joe who consumes Gatorade for the taste rather than for the hydration and restoration qualities, is just consuming excess calories and sugar. Companies should learn from this case and avoid adopting descriptive terms, such as “sport fuel,” as their primary brand name. Trademark protection is the weakest for descriptive terms and there is nothing preventing a competitor from using that term in a descriptive manner. Oh, and by the way, average Joes should learn from this case and avoid sugary drinks. According to the American Heart Association, “the best thing you can drink is water!”

The decision and damages awarded to Marcus Gray, Emanuel Lambert, and Chike Ojukwu in the Katy Perry “Dark Horse” copyright infringement case last week have the attention of the music industry. We provided some commentary here on the potential impact of the decision on what has been the historical development of the musical art form, and provide here a deeper dig. Pivotal in this case is the repetition of a string of eight staccato notes or “ostinato” that share some similarity to a riff in the song “Joyful Noise” by Marcus Gray et al. Musicologists have also identified the use of a highly similar ostinato in several other well-known works – Bach’s “Adagio in F Minor,” “Jolly Old Saint Nicholas,” “Go Down, Moses,” and Akira Ifukube’s “Theme to Godzilla” (1954 movie), for starters. What did Marcus Gray need to show in order to succeed on the copyright infringement claim? That Katy Perry and her music writing team had a reasonable opportunity to access and hear the “Joyful Noise” song before writing “Dark Horse,” and the “Joyful Noise” and “Dark Horse” songs are "substantially similar." Perry and her songwriting team testified that none of them had ever heard the song “Joyful Noise” prior to writing the “Dark Horse” song, and that they had not heard of the plaintiffs either. In this case, in the eyes of the jury, working against Katy Perry and her songwriting team are that “Joyful Noise” had 4 million views on YouTube and 2 million views on Facebook. In 2008, the song was nominated for a “Best Rap/Hip Hop Recorded Song of the Year” GMA Dove Award. And Perry is the child of two Pentecostal pastors and herself pursued a career in gospel music as a teenager. Why were these factors enough in the eyes of the jury? It seems that the factors in this case call into question the viability of any inference of access. Given the ubiquitous nature of music in social media, music streaming apps and websites, music award nominations and shows, and satellite radio, is seems rather easy to establish a reasonable probability of access. If a person can find or be exposed to almost any music by searching and/or subscribing to various sources of music, even the obscure and rare, how do we define widespread availability or reasonably accessible? Would it not be more just for a plaintiff to prove access in an objective manner – rather than through circumstantial inference? In terms of the similarity of the songs, both sides of the case called musicologists to dissect and compare any commonalities. The plaintiffs’ musicologist was clearly most persuasive with the jury, but was the jury sophisticated enough to appreciate all of the differences between the songs? The songs share a repetitious and common ostinato. But what else do they share? By all appearances – nothing. “Joyful Noise” is a Christian rap song released in 2008 and its lyrics focus on Jesus Christ and the Christian faith. Perry’s “Dark Horse” is a pop music song released in 2013 and its lyrics focus on what appears to be an unstable and passionate relationship between two individuals, with a somewhat threatening undertone. The jury held that Perry and her songwriting team did not independently create “Dark Horse.” Rather, it was inspired by or taken from the song “Joyful Noise.” But what if “Dark Horse” was actually inspired by Bach’s “Adagio in F Minor” or the old gospel song “Go Down, Moses?” How do you isolate the influence of centuries of music down to one riff of eighth notes featured in a song, call it copyright infringement, and award damages of $2.78M? The plaintiff does not seem to have adequately proven up its case. Perry’s counsel has made public statements pointing to a likely appeal of the decision. We will continue to follow the case and provide updates as they develop.

The world-renowned Danish toy maker Lego has scored an important (albeit partial) win in its nearly 8-year-old copyright litigation against fellow toy maker Best-Lock Construction Toys. On July 25, 2019, Judge Haight of the U.S. District Court for the District of Connecticut issued an opinion on the parties’ competing motions for summary judgment in Lego A/S et al. v. Best-Lock Construction Toys, Inc. et al., No. 11-cv-01586-CSH. The order granted Lego’s motion for partial summary judgment on its copyright infringement claim, Best-Lock’s counterclaims, and all but one of Best-Lock’s affirmative defenses; and denied Best-Lock’s cross motion for summary judgment. The one ‘stumbling block” for Lego was the Court’s refusal to grant summary judgment on Best-Lock’s affirmative defense of equitable estoppel, meaning that claim will need to be tried before Lego can declare complete victory. The case involved a dispute about the similarity – or lack thereof – between Lego’s “minifigure” figurines – “small, three-dimensional toys depicting people” – and Best-Lock’s minifigures, which are designed to be attached to other minifigures, including those produced by Lego. Although Best-Lock has been selling its minifigures in the United States since 1998, and although the parties had been involved in extensive litigation outside the U.S., Lego apparently never voiced any objection to Best-Lock’s U.S. sales or threatened litigation until it commenced this lawsuit in 2011. Unfortunately for Lego, that fact proved key in denying it a full victory at this stage. Lego filed this action back in October of 2011, alleging that Best-Lock infringed two of Lego’s registered copyrights covering its minifigures (the “Lego Copyrights”). In response, Best-Lock asserted various affirmative defenses and counterclaims, claiming, among other things, that the Lego Copyrights are invalid and unenforceable; Best-Lock is entitled to a declaratory judgment of non-infringement; and Lego’s claims are barred by the doctrine of equitable estoppel. Judge Haight first addressed Lego’s motion for copyright infringement, which claimed that Lego owns valid copyrights that cover the sculpture of its minifigures (i.e., the Lego Copyrights); Best-Lock has copied the protectable elements of the minifigures; and such copying is illegal because there is a substantial similarity between Best-Lock’s figures and the protectable elements of Lego’s minifigures. The Court applied the Supreme Court’s Feist test, which provides that a copyright infringement plaintiff must show ownership of a valid copyright; and copying of the constituent elements of the work that are original.” The Court first held that the Lego Copyrights are valid and enforceable (and Best-Lock’s counterclaims and affirmative defenses of invalidity are without merit) because, among other things: (1) the certificates of registration give rise to a presumption that the Lego Copyrights are valid; (2) Lego’s patents on the same figurines do not rebut this presumption; (3) the fact that certain design elements in question are functional does not render the Lego Copyrights invalid; and (4) Best-Lock failed to present evidence of factual inaccuracies in Lego’s copyright applications. Having established that the Lego Copyrights are valid, Judge Haight moved on to the more difficult issue of whether Best-Lock actually copied Lego’s protectable work and whether such copying was illegal “because substantial similarity existed between [Best-Lock’s] work and the protectable elements of [Lego’s] work.” Noting that direct evidence of copying is rare, the Court considered whether there was indirect evidence that Best-Lock had copied Lego’s minifigures. Indirect evidence of copying can be established by access to the copyrighted work and probative similarity that leads to the inference of actual copying. Judge Haight easily concluded that Best-Lock had access to Lego’s copyrighted work. Not only are Lego’s minifigures “among the most universally recognized toys in the world,” Best-Lock’s CEO had direct and personal access to Lego’s minifigures. Indeed, in a newspaper interview he likely now regrets, Best-Lock’s CEO claimed that Lego had copied bricks invented by a British psychologist in the 1940’s and admitted that he “did the [Best-Lock] figures because I want to piss [Lego] off.” Ouch! On the issue of probative similarity, the Court held that the products at issue “are not just ‘probatively similar,’ but indistinguishable in most respects.” Accordingly, the Court found that no reasonable trier of fact could determine that Best-Lock did not actually copy Lego. Moving on to the issue of whether Best-Lock’s copying was improper, the Court noted that, to establish illegal copying, “the court must find a substantial similarity between the protectable elements of the two works.” In a related principle, an infringement plaintiff “must show that the defendant appropriated the plaintiff’s particular means of expressing an idea, not merely that he expressed the same idea.” Substantial similarity may be determined by the “ordinary observer test” (i.e., whether the average lay observer would recognize the alleged copy as having been appropriated from the copyrighted work) or the “more discerning observer test” (which excludes the unprotectable elements from consideration and compares only the protectable elements for substantial similarity). While recognizing that the question of substantial similarity is usually one of fact, Judge Haight stated that it was entirely appropriate for a district court to resolved substantial similarity if the similarities “are so striking that no reasonable juror could find that the alleged infringer did not copy the plaintiff’s protected works.” A key issue in determining the substantial similarity question was whether certain elements of the Lego minifigures were purely utilitarian (i.e., functional and not protectable). Best-Lock argued that the shape of the Lego minifigures’ torso was functional because this feature “enables movement” of the minifigures’ arms. The Court rejected this argument, holding that it was the minifigure joints – not the shape of the torso – that enable movement, and that “[m]erely having some incidental effect on the nature of that movement, without more, does not make an element ‘functional.’” Similarly, the Court dismissed Best-Lock’s argument that the Lego minifigures’ square feet and square legs are functional, as feet and legs do not need to be square to enable a figure to stand. The Court further concluded that the elements of the Lego minifigures at issue are sufficiently original to be entitled to protection. Finally, the Court held that a comparison of the respective minifigures makes clear that Best-Lock’s minifigures “are not just similar to Lego’s minifigures―they are identical.” Thus, because Best-Lock unlawfully copied Lego’s minifigures and Lego had valid copyrights covering those minifigures, the Court concluded that Best-Lock infringed Lego’s copyrights. That was, however, not the end of the story. Best-Lock had asserted an affirmative defense of equitable estoppel, arguing that Lego’s long-standing tolerance of Best-Lock’s U.S. sales barred Lego from now asserting a claim for copyright infringement. As the Court explained, the elements of an equitable estoppel defense are: (1) knowledge by the plaintiff of the defendant’s infringing acts; (2) the plaintiff’s intention that the defendant rely on its acts or omissions or the defendant’s right to believe that it was intended to rely on the plaintiff’s conduct; (3) the defendant’s ignorance of the true facts; and (4) the defendant’s detrimental reliance on the plaintiff’s conduct. Lego conceded that the first element of the test was satisfied. With respect to the second element, the Court held that Lego’s history of litigation and threatened litigation outside the U.S., coupled with its failure to even threaten litigation in the U.S. until it brought this suit in 2011, “raises a genuine issue of material fact as to whether Best-Lock was ‘misled into reasonably and justifiably believing’ that ‘Lego would not pursue its claims.” The Court also concluded that the evidence presented by Best-Lock raises a triable issue of fact as to whether Best-Lock was aware that Lego owned copyrights in the Lego minifigures. Finally, the Court held that it was reasonable to infer that Best-Lock’s investment and growth in the U.S. “was an affirmative business decision at least partially driven by Lego’s actions and inaction” (i.e., Best-Lock detrimentally relied on Lego’s conduct). In light of the foregoing, the Court held that Lego was not entitled to summary judgment on Best-Lock’s equitable estoppel claim, and that the availability of that defense would be resolved at a plenary bench trial. Lego has to be pleased with the overall result, which came after nearly eight years of hard-fought litigation. However, the fact that Lego did not achieve full victory at this stage should serve as a cautionary tale for other IP holders. The lesson is: if you think someone is infringing your IP rights and you don’t take any action to stop that infringement, you run the risk that any claims you later assert against the infringer may be barred by equitable estoppel. Put simply, make sure you police your IP carefully!

New York continued its active legislative session last week, this time by expanding its data breach notification law. The SHIELD Act (Stop Hacks and Improve Electronic Data Security), signed by Governor Andrew Cuomo on July 25, 2019, notably expands the definition of a data breach and the scope of what constitutes personal information. But the law could have gone farther; the state did not enact a private right of action, as has California, and which several other states are considering. New York’s action does, however, contain several other very significant provisions in the context of data breaches involving New York residents. Here are the major elements of the SHIELD Act: Expanded Definition of What Constitutes a Data Breach: New York expanded its definition of a data breach (a “breach of the security of the system”) to include instances when an attacker merely views (“accesses”) personal information, even if the attacker does not download, steal, or otherwise acquire that information, commonly labeled as ‘exfiltration.’ Under the expanded definition, any unauthorized “access” requires the company to provide notice of the data breach. Expanded Definition of Personal Information: New York also expanded its definition of personal information (“private information,” in the Act’s terms), to include two new categories: (1) biometric information, such as a fingerprint or “voice print”; and (2) an email address or user name, in combination with the corresponding password or a security question and answer. The law also requires a company to provide notice when an attacker accesses information protected under HIPAA, just as if that information were “private information” under New York’s definition. Global Reach: The law applies to every company holding the personal information of a New York consumer, regardless of where the company is based. As with GDPR and soon to be California’s Consumer Privacy Act, the enforceability of this extraterritorial reach remains open to question. Increased Damages: The new law increases the maximum penalty for failure to provide notice from $150,000 to $250,000, and authorizes a statutory penalty for the greater of $5,000 or $20 per instance of failed notification. The law also authorizes courts to award actual damages to consumers. Enforcement: The law will be enforced by the Attorney General’s Office, and takes effect in 90 days, i.e., late October. Ramp Up to Improved Cybersecurity Programs: The law also requires companies to improve their cybersecurity programs by March 2020. The law specifies a number “administrative, technical and physical safeguards” that each company must implement by that date, and requires each company to appoint an employee to manage the cybersecurity program. The law makes an exception for a “small business,” defined as a company with either: (1) fewer than fifty employees; (2) less than $3 million in gross annual revenue for the last three years; or (3) less than $5 million in year-end total assets. Small business are still required to maintain “reasonable” safeguards. Increased Requirements for Consumer Credit Reporting Agencies: That same day, Governor Cuomo also signed a bill that addresses consumer credit reporting agencies, a direct response to the Equifax breach of 2017. The new law requires consumer credit reporting agencies to provide identity theft prevention and mitigation services to consumers who are affected by a security breach at a credit reporting agency. The agency must provide those protections to an affected consumer for five years, and cannot charge the consumer fees during security freezes on credit reports. What’s Next In the absence of any overarching federal breach notification or consumer privacy law, states are expected to continue to adopt initiatives that require companies to protect consumers’ personal information. Whether it be an expanded definition of personal information, greater statutory damages, or allowing private rights of action, individual states can be expected to keep pace with, or in some instances outpace, developments in other states. The challenges of this emerging ‘patchwork quilt’ of regulations may be significant, but compliance always starts with robust information governance policies and procedures.

This week, a California jury found that Katy Perry, Capitol Records and a few other players were liable for copyright infringement to the tune of approximately $2,800,000. The offending song is Katy Perry’s runaway smash hit “Dark Horse.” The Plaintiff’s work is a 2008 Christian rap entitled “Joyful Noise” by Flame. A thoughtful comparison and analysis of the songs can be found here. As one can tell, they do bear some similarity in that they both employ a similar “hook” musical phrase involving notes that are played at the same interval. Under existing law, the jury probably got it right. The problem is, the law on music copyright is all wrong. Under our current music copyright regime, one composer can be liable for infringement and damages when that composer copied a short musical phrase. The problem with this formulation is that it completely ignores centuries of how the musical art form flourished and developed in western civilization. From Bach to Beethoven to Billy Joel, they all copied pre-existing musical works to create great works of their own. Classical music is replete with examples of the masters copying from other masters. Handel, Bach, Brahms, Mozart, Rachmaninoff and countless others borrowed musical phrases and ideas from each other without fear of infringement claims. There’s actually something quite “American” about musical copying. Don’t believe me? Check out a prior article I wrote a number of years ago entitled Musical Musings. As detailed therein, colonial ballad-operas used pre-existing musical works set to new lyrics. Some African American spirituals were adopted from Irish-Scotch melodies. Even some of our most beloved patriotic songs are not “original” to America. For example, our national anthem is set to the tune of a British drinking song. “My Country Tis of Thee” is England’s very own “God Save The Queen.” What about the 4th of July staple “America?”Sorry to burst your patriotic bubble, but it too was written on the other side of the Atlantic.“America” is actually set to the tune “God Save The King,” a rather ironic development in musical history! My point is simply this:for the last several decades, our music copyright law has bucked centuries of musical borrowings in our western culture.The Katy Perry Dark Horse verdict is the most recent example of this enduring problem.Unless and until we change to a system where compulsory licenses are used to license short musical phrases and ideas, I’m afraid more horses will be trammeled in the future.

You may have heard: infringing a viral photo of the current President of the United States will only cost you $750. Setting aside whether that valuation was at all related to the subject matter of the photo, let’s talk about how we got there. A Brief Recap of Otto v. Hearst In June of 2017, Jonathan Otto used his iPhone to take an amateur photograph of Trump crashing a wedding and posted it to his Instagram and other social media accounts. Then, a variety of gossip and news organizations (TMZ, Esquire, and others) reposted Otto’s photo and the newsworthy(?) moment “went viral.” Otto quickly registered a copyright in the photo and sued a number of news outlets for infringement. As discussed in our previous post, notwithstanding the statutory fair use exception for “news reporting,” the U.S. District Court for the Southern District of New York entered a summary judgment order in December 2018 in favor of Otto, finding infringement and no fair use. As the Court explained, Hearst’s use of the photo was commercial; the photo was factual in nature, not creative; and the Hearst publication potentially harmed Otto’s reasonable financial exploitation opportunities in the market for licensing the photo. According to the Court, if there were a finding of fair use under these circumstances, then [A]mateur photographers would be discouraged from creating works and there would be no incentive for publishers to create their own content to illustrate articles: why pay to create or license photographs if all personal images posted on social media are free grist for use by media companies, as Hearst argues here? The Court thus promoted a broad view of artists’ rights in the context of news reporting (even for amateur iPhone photos) by limiting the scope of permissible fair use. Damages Order Nevertheless, on July 24, in deciding damages, the Court ordered Hearst to pay a meager $750 — the absolute statutory minimum absent innocent infringement. In contrast, Otto was seeking $30,000 for the infringement, which is the absolute statutory maximum (absent proof of willful infringement, in which case the statutory damages award can go as high as $150,000). One might expect that with a viral photo such as this, a Court could look to a reasonable licensing fee and/or lost market value and might have awarded a sum higher than $750 (but also perhaps much lower than $30,000). In briefing before the damages trial, Otto argued that Hearst, a corporate giant and constant photo user, “should have known that a license was required[.]” Otto also argued that a large fine was necessary to deter such behavior from other media giants to “secure intellectual property rights from widespread invasion by large corporations.” The docket entry of the Court’s July 24 damages Order refers to “reasons discussed on the record” during a July 19 telephone conference. A transcript of that conference is not yet available, so it is not entirely clear at this point why the Court ultimately decided on the very low $750 statutory damage award. Up next in this copyright saga involving an amateur Instagram photographer versus a giant news agency: a briefing schedule has been set on attorneys’ fees. It will be interesting to see whether the “prevailing party,” Otto, will be awarded fees and, if so, how much. The TMCA will keep you posted!

After receiving a wave of backlash against the decision to name her new shapewear line “Kimono” – as in the name for the traditional Japanese garment – Kim Kardashian has recently relented from adopting the term as a part of her brand. In 2018, she had tried to register the trademark KIMONO, but that application was rejected because of prior registrations containing the term. Though Kardashian claims innocent intentions in coming up with the name – saying the term was a play on her name – her actions spawned more concern that this was another instance of cultural appropriation in fashion and entertainment. Cultural appropriation is, in short, the use of elements of cultural expression (e.g., traditional wear, artifacts and designs) of another’s culture – usually minority groups - without consent or compensation. The World Intellectual Property Organization (WIPO) defines “traditional cultural expressions” as including “music, dance, art, designs, names, signs and symbols, performances, ceremonies, architectural forms, handicrafts and narratives, or many other artistic or cultural expressions.” In the trademark world, westernized and European-centric designers have historically been accused of stealing traditional designs, music, dances and hair styles for their own use and profit, while the minority groups from whom they took receive little more than an acknowledgement. Further, while the majority-centric designer or entertainer may proffer that it was “inspired by” the minority or indigenous culture, such inspiration is sometimes considered offensive to the group serving as the source of the inspiration. More importantly, these minority groups generally never see a dime of the millions that may be made from the popularization of their cultures. Notable exceptions include the Maasai people of Kenya and Tanzania, who were able to reclaim some origination rights and landed a licensing arrangement after Calvin Klein adopted a collection entitled “Maasai” without their consent and the Navajo Nation, which entered into an agreement with Urban Outfitters to work collaboratively on marketing and selling authentic Navajo goods. If such inspiration was really genuine, why wouldn’t the inspired designer or entertainer be required to obtain consent, give credit or compensation to the source of that inspiration? If a person or company, for example, adopted some elements of Kim Kardashian’s name, likeness, or some other indicia of her personal identity, under her state statutory or common law rights of publicity, Kim K would have a basis to prohibit commercial use of her likeness. However, similar protections do not exist for the adoption of cultural elements for commercial exploitation of a culture. Another harm occurs when the adopters of culturally-inspired trademarks aggressively enforce their trademark rights and effectively create exclusionary ownership of logos and phrases in legitimate markets of competition. U.S. trademark law does not appear particularly well-suited to addressing cultural appropriation. This is the challenge with cultural appropriation. The lesson for brand owners and entertainers may be that selecting a name derived from another culture involves more than just ascertaining whether it is available and registrable in the USPTO. Consideration should be given to cultural sensitivities and the likely reaction in the marketplace to whether the name will be deemed offensive or inappropriate – and ultimately bad for business.

We recently posted about the U.S. Supreme Court’s June 24th holding in Iancu v. Brunetti, which upheld a ruling that the Lanham Act’s bar on the registration of scandalous or immoral marks is unconstitutional because it violates the right to free speech. On July 3rd, the USPTO issued written guidance via Examination Guide 2-19 outlining how it will handle applications for marks previously subject to the scandalousness bar following the Brunetti decision. For pending applications for which the USPTO had issued an advisory refusal under the scandalousness provision, and which the USPTO had suspended until the Brunetti litigation was resolved, the USPTO will lift the suspensions and continue the examination of these applications for any other requirements or refusal. For applications that previously went abandoned after being refused registration under the provision, and which are beyond the deadline for filing a petition to revive, a new application can be filed. Going forward, the USPTO will no longer refuse registration or cancel a registration based on “immoral” or “scandalous” matter, and the portions of the Trademark Manual of Examining Procedure that relate specifically to such matter (§1203) will no longer apply. As to timing, the terms of the Guidance will go into effect at least 25 days after the decision, or on July 19, 2019, at the earliest, after the Brunetti case returns to the agency. A number of applications for marks that would otherwise have been subject to the immoral or scandalous standard have already been filed. It remains to be seen whether legislative action will be taken to create a more narrowly-crafted provision that will only bar marks that are obscene, vulgar or profane instead. *APHUKENBRAKE is a mark of Some Spider, Inc. that was previously barred as scandalous.

“FUCT.” You can pronounce it as four letters, one after the other. Or you can pronounce it like Justice Kagan as the “past participle form of a well-known word of profanity.” Either way, the word can be registered as a trademark under yet another civil rights victory at the Supreme Court: Iancu v. Brunetti. Erik Brunetti, an artist and entrepreneur, owns the clothing brand “FUCT.” FUCT is an acronym for Friends U Can’t Trust. In 2011, the PTO denied the mark’s registration, relying on Section 2(a) of the Lanham Act and found the mark to be “an extremely offensive and vulgar word that means completely broken or destroyed.” Section 2(a) states that a trademark for goods that may be distinguished from the goods of others shall not be refused unless it “consists of or comprises immoral, deceptive, or scandalous matter.” The Trademark Trial and Appeal Board affirmed the denial. It also found the mark to be “highly offensive,” “vulgar,” and has “negative sexual connotations.” The Court of Appeals for the Federal Circuit reversed the Board’s judgment. The court found that the prohibition of immoral or scandalous marks is an unconstitutional restriction of free speech and violates the First Amendment. On June 24, 2019, the United States Supreme Court affirmed the judgment in a 6-3 decision. Justice Kagan delivered the opinion of the Court; she was joined by Justices Thomas, Ginsburg, Alito, Gorsuch, and Kavanaugh. Following the same line of reasoning the Court took in Matal v. Tam (in which the Court affirmed the registrability of the mark “The Slants”), it held that Section 2(a) of the Lanham Act violated the First Amendment because it discriminated on the basis of viewpoint. Viewpoint discrimination occurs when the government denies access to a speaker solely to suppress a viewpoint of an otherwise includable subject. In Tam, the Court declared unconstitutional the Lanham Act’s ban on registering marks that disparage any person, living or dead. The Court reasoned that the disparagement bar allowed mark registrations that are positive, but not derogatory. Therefore, the ban constitutes viewpoint discrimination because the statute reflects the Government’s disapproval of a subset of messages that it finds offensive. Similarly, in Brunetti, Section 2(a) distinguishes between two opposing sets of ideas – ideas that are aligned with conventional moral standards and induce societal approval against those that are hostile to conventional moral standards and provoke offense and condemnation. And by favoring the former but not the latter, the statute again commits viewpoint discrimination. The Court dismissed the Government’s argument that this ruling would restrict the PTO’s ability to refuse marks that are “vulgar” (lewd, sexually explicit, or profane). The Court reasoned that the statute, as written, is not narrowly tailored to “vulgar” marks, and the “immoral or scandalous” bar sweeps too broadly. Moreover, the judicial branch is not in the business of “fashioning” new statutes. The ACLU commented: “[t]his ruling is a victory for the First Amendment . . . . Government bureaucrats should not be deciding what speech is or is not deserving of trademark protection.” In his concurring opinion, Justice Alito noted that Congress has the power to adopt a more narrowly tailored statute that bans vulgar trademarks. Until then, the race to first register profanity and equivalents is on. The PTO should brace for potentially uncomfortable incoming trademark applications. In fact, in just the last couple of weeks since the Court’s decision, there have been a number of USPTO trademark applications submitted such “Shitbox Nation,” “Champ Shit Only,” and “Florida as Fuck,” and many others. It remains to be seen if these applications mature into registrations. With Section 2(a) out of the picture, though, we may witness an onslaught of applications and registrations with colorful language and imagery. We will keep you apprised of any significant developments here at TheTMCA.com.

Earlier this year the United States Patent and Trademark Office proposed a rule requiring foreign-domiciled trademark applicants, registrants, and parties to Trademark Trial and Appeal Board Proceedings to be represented by licensed U.S. attorneys. Following public comments, the PTO issued the final rule on July 2, which will become effective on August 3, 2019. The comments revealed that stakeholders such as the International Trademark Association, the American Bar Association, and the American Intellectual Property Law Association, as well as corporations were supportive of the proposed rule, and generally pleased to see the PTO’s action to help maintain the integrity of the register and prevent fraudulent filings. While many commenters showed support for the rule, they also expressed concern that these measures are not enough, and that additional mechanisms should be required. The rule requires foreign-domiciled trademark applicants, registrants, and parties to Trademark Trial and Appeal Board proceedings to be represented by licensed U.S. attorneys. According to the PTO, a “foreign-domiciled” trademark applicant, registrant, or party is 1) an individual with a permanent legal residence outside of the U.S. or its territories; and / or 2) an entity with its principal place of business outside of the U.S. or its territories. U.S.-licensed attorneys representing applicants, registrants, or parties to USPTO proceedings already must provide their name and contact information and identify the jurisdiction of their bar licensure. Because of the new rule, U.S.-licensed attorneys will now also need to provide their bar identification number (if available) and their year of admission to the jurisdiction. The applicability of the new rule to Section 66a filings under the Madrid Protocol is more nuanced. For the very small percentage of Madrid Protocol filings that comply with all formalities and statutory requirements upon filing and are in a condition for publication, the U.S. counsel requirement will not apply. As the PTO explained, there is currently no provision for designating a U.S. or any other local attorney in an application submitted to the International Bureau of the World Intellectual Property Organization, and so until the Madrid system is updated to allow for the designation of a U.S. attorney upon filing, the requirement would be waived. (The USPTO reported that only 2.9% of all Madrid applications in 2017 met this criteria). However, for Madrid applications that do not comply with all requirements upon filing, the requirement of a U.S.-licensed attorney will be made in all provisional refusals. The rule also carves out an exception for countries that have reached an official understanding with the PTO to allow substantially reciprocal privileges to U.S. practitioners representing U.S. entities in their trademark office. At this time, only the United States and Canada have such a relationship. The impact of this rule will be to continue to let Canadian trademark attorneys and trademark agents represent clients, but to prohibit Canadian patent agents from representing clients in new filings. The PTO sought comments on whether the PTO should 1) defer examination until the applicant appoints U.S. counsel, or 2) conduct a complete examination of the application and include the representation requirement among the issues in an office action that gives applicants six months to correct the deficiencies. Most commenters strongly encouraged the PTO to defer examination on any application until U.S. counsel is appointed, so the PTO would not be held up by potentially fraudulent applications filed by foreign applicants. Despite stakeholders’ recommendation, the PTO decided against deferral, explaining that its current electronic systems cannot accommodate this method, but that it would explore ways to update its system to do so. Interestingly, however, the PTO adopted a course stronger than deferment for TEAS Plus applications. The PTO made the U.S. attorney and bar information required fields and applications will be refused a filing date unless these fields are completed. The new rule is just one new measure from the PTO to curb fraudulent filings with the USPTO. Now that the rule will take effect on August 3, 2019, it will be interesting to see whether the requirement of a licensed U.S.-attorney will lessen the number of fraudulent filings with PTO. Watch The TMCA for updates regarding this new rule and related issues.

And the new top level domain names just keep on coming. As our readers may know, ICANN, the organization that operates the internet domain name system, authorized the launch of the New gTLD Program – the largest expansion of the generic top-level domain name (“gTLD”) system on the Internet in history. Prior to the launch of this program only 22 gTLDs had been approved and added to the Internet (e.g. .com, .net, .org). Now, you can obtain specialized domain names, such as .bank, .weather, or even .rugby. Now .music has been approved for launch for the purpose of serving the global music community. An entity named DotMusic Limited beat out Google, Amazon, and other interested groups for the right to operate the .music registry. DotMusic states that it will verify registrants to ensure that only the rightful owner of a name can obtain a corresponding domain name. DotMusic further promises safeguards to protect against both trademark and copyright infringement, including investigation practices, penalties, and takedown procedures. To register a .music domain name, registrants must (1) belong to a music community membership organization (“MCMO”) and (2) meet clear membership criteria demonstrating “requisite awareness and recognition of their community.” MCMOs, according to DotMusic, constitute “a majority of all global music entities involved in the legal production, distribution and promotion of music,” and we assume therefore include performing rights organizations, such as ASCAP and BMI, as well as music publishers and record companies. As far as we can tell, the membership criteria has yet to be defined, but we assume most musicians belonging to an accredited MCMO will qualify. If you are interested in a .music domain name and not already a member of an MCMO, now is the time to consider joining one. .music domain names can only be registered if they are: the entire or portion of the applicant’s name; an acronym representing the applicant; a name that recognizes or generally describes the applicant; or a name related to the applicant’s mission or activities. Once launched in 2020, .music domain names will be available to verified members in the following order: (1) sunrise, (2) MCMO members, and (3) general availability. .music will use a Globally Protected Marks List (link here). Registration in the sunrise period will be open to brands and trademarks in the Trademark Clearinghouse (“TMCH”). A TMCH registration entitles trademark owners to pre-register domain names corresponding to their registered marks, typically for a premium price. We will keep our readers updated as more details emerge on the membership requirements and registration process. In the meantime, interested musicians might consider seeking registration of their trademarks in the TMCH to ensure early access to their .music domain name of choice.

The English courts have traditionally been a popular forum for defamation claims, not least because English law allows even non-residents who have minimal reputation in the UK to sue for defamation in the English courts and be awarded substantial damages. English law is seen as favouring the protection of reputation over the protection of freedom of expression, certainly when compared with the approach of the law in the United States, which places a much higher weight on free speech concerns. Consequently, the UK media is frequently ‘in the docks” having to defend itself against defamation claims usually brought by celebrities, politicians and others in the public eye. Recent developments, however, appear to have raised the bar for claimants. In a decision on 12 June, 2019, the UK Supreme Court gave its first authoritative interpretation to the latest development in the legislation in this area, the Defamation Act 2013. The act introduced a new threshold requirement to defamation claims that the claimant has suffered “serious harm” to his or her reputation. In its ruling, the Supreme Court noted that the act brought about “a new threshold of serious harm which did not previously exist”. In order to succeed in a defamation claim in the UK, a claimant now needs to establish: (i) the “publication” of a statement, (ii) that the statement was about the claimant, (iii) that the statement was defamatory to the claimant, and (iv) that the defamatory statement met the threshold of “serious harm”, that is, that publication of the statement has caused, or is likely to cause, serious harm to the reputation of the claimant. An additional limb to the “serious harm” test applies where the claimant is a body that trades for profit. Defamation laws in the UK allow not only living individuals but also legal entities to bring claims for the harm caused to their reputation. When such an entity trades for profit, the legislation provides that “serious harm” will only be caused, or be likely to be caused, if the body suffers serious financial loss. The case before the Supreme Court in which the serious harm requirement was interpreted, was brought against two London newspapers, the Evening Standard and the Independent. The case related to a series of articles published by the newspapers in 2014 about the claimant’s divorce. The Supreme Court concluded that the defamatory articles had caused serious harm to the claimant’s reputation. The Court said that what amounts to “serious harm” is a question of fact which can only be established by considering the impact that a defamatory statement is shown to have. This, the Court explained, depends on a combination of the “inherent tendency” of the words to cause harm and the actual impact or likely impact of the words on the persons the words were communicated to. The Court took the view that account should be taken not only of the damage that claimant’s reputation may suffer in respect of people who already knew him but also the impact on those who may get to know him at some point in the future. Although the Supreme Court found in the claimant’s favour, the case is seen as a positive step for the media, as the decision confirms that the threshold requirement is a significant hurdle for claimants and a real change to the law.

Counterfeiting is a large problem for consumer product companies.  However, U.S. counterfeiting laws are difficult to enforce against many companies because they operate outside the United States, or the manufacturer of the products is unknown.  Historically, many U.S. companies have not had effective enforcement mechanisms against counterfeiters.  This is of particular relevance in light of the heightened trade tensions between the U.S. and China, where counterfeiting was specifically cited by the U.S. government as a major issue between the countries.  The White House recently issued a memorandum aimed at combating the sale of counterfeit and pirated goods on online marketplaces like eBay, Amazon, and China’s e-commerce giant, Alibaba. The memorandum states, “An estimate from the Organisation for Economic Co-operation and Development (OECD) indicates the value of trade in counterfeit and pirated goods to be approximately half a trillion dollars per annum, with roughly 20 percent of this trade infringing upon intellectual property belonging to United States persons.”  The memorandum also cites a 2018 Government Accountability Office report, which found that 40% of goods purchased by investigators from third-party vendors on various e-commerce platforms were counterfeit.  The Department of Homeland Security must submit a report that analyzes the extent to which online marketplaces and other third-party intermediaries are used in the importation and sale of counterfeit and pirated goods within 210 days of the date of the memorandum.  The report will also devise a plan to enhance efforts to combat trafficking in counterfeit and pirated goods, including identifying potential regulatory or legislative changes. There has been a rise in brand owners looking to enforce their intellectual property rights, especially against Chinese-affiliated entities.  Companies involved in the supply chain within the jurisdiction of the United States are not immune from scrutiny, especially when the manufacturer or the seller cannot be located, is not subject to jurisdiction in the United States, or is otherwise deemed to be not worth pursuing.  These supply chain companies include those in the United States that are involved in the products reaching U.S. consumers, such as e-commerce platforms and delivery companies. On top of increasing pressures from brand owners, the White House memorandum demonstrates the government’s commitment to combating the trafficking of counterfeit goods.  Companies involved in the supply chain must be sure to have consistent and legitimate practices that avoid liability for intellectual property rights violations, including contributory trademark infringement.  Many of the largest e-commerce companies have taken affirmative steps to combat counterfeiting.  For example, eBay’s Verified Rights Owner (VeRO) program allows IP owners to report possible counterfeit or other infringing goods, and then eBay promptly reviews the listing.  Earlier this year, in addition to its already-existing Brand Registry, Amazon announced Project Zero, aimed to eliminate all counterfeit products by enabling Amazon’s machine learning expertise and automated protections to detect and remove counterfeit listings.  Similarly, Alibaba has a task force that utilizes big data to detect potentially infringing activity and supports local law enforcement agencies to stop online counterfeit sales.  It is industry-standard for any e-commerce or logistics company to disclaim liability for counterfeiting, but as e-commerce companies become increasingly more aware of the identities, business practices, and sales histories of third parties who use their services—including counterfeiters or those who buy from counterfeiters—they must be ever more vigilant to avoid contributory liability.

Bodum USA, Inc. manufacturers the Chambord French press, a nonelectric coffeemaker (Full disclosure: the author once owned a Bodum French press. It produced objectively delicious coffee).  A French press is a cylindrical carafe and a plunger with a filter screen attached to one end. The user pours coffee grounds and boiling water into the carafe. The coffee steeps to taste. The user then plunges the filter screen through the slurry, trapping the grounds at the bottom. Bodum began distributing the Chambord in 1983. The Chambord design is based on the towers of the Chambord Chateau, a castle in France’s Loire Valley. The coffeemaker carafe is glass surrounded by metal bands, metal pillars that end in four curved feet, and a C-shaped handle. The plunger begins with a spherical knob and extends through a domed top to reach the filter screen. The knob and dome are reminiscent of the château’s towers. Bodum claims trade dress protection in the overall appearance of the Chambord and the specific elements of the metal bands, support feet, C-shaped handle attachment, domed lid, and rounded knob atop the plunger. Over the years it has enforced its rights through cease-and-desist letters and lawsuits. In 2014, 467 years after the château’s completion, A Top New Casting, Inc. began selling a competing French press called the SterlingPro. The SterlingPro has a similar appearance to the Bodum press, including metal bands, pillars that end in curved feet, C-shaped handle, spherical knob, and domed top. Bodum sued A Top, alleging infringement of Bodum’s unregistered trade dress under the Lanham Act, among other claims. The case went to trial in federal court in Illinois, and Bodum won over $4 million and a permanent injunction against the sale of the SterlingPro. A Top appealed, and in a June 12, 2019 decision, the U.S. Court of Appeals for the Seventh Circuit affirmed. The court’s decision includes photos of the competing presses. As the court explained, the Lanham Act protects a product’s trade dress, including a design so distinctive that it identifies the product’s source. The Act does not protect features essential to the use or purpose of a product, those that affect the product’s cost or quality, or features that are a “competitive necessity.” Such features are functional and thus not eligible for trade dress protection. Trade dress protection can be perpetual (so long as the trade dress remains in commercial use), and its inapplicability to functional features prevents the trade dress owner from avoiding the time limits on patent protection. Courts focus on several questions to determine if a trade dress is impermissibly functional, including the utilitarian properties of the product’s design, whether any utility patents describe the functionality of the design elements, whether advertising touts the design as functional, whether the trade dress facilitates manufacturing cost efficiencies and the ability to create alternative designs that achieve the same purpose. At trial, Bodum’s expert testified that only the plunger and cylindrical shape of the carafe were necessary to make French press coffee. The other features confer no particular utility; rather, they form a distinctive design and look. Bodum presented evidence that French presses are often designed without these distinctive features, including handles, plungers, and knobs with different shapes; missing feet; and different external structures surrounding the carafe. The evidence at trial included other French presses Bodum and A Top sell with different appearances. Despite this showing, A Top argued that Bodum had not established that the design features were not essential to use of the French press and that they did not affect the product’s cost or quality. The court disagreed and explained that A Top was confusing the everyday meaning of “function” with “functional” as a term of art in trade dress law. Bodum was not required to show that the Chambord’s handle, lid, feet, and other features had no utilitarian purpose. Bodum merely had to convince the jury that competitors would not face a significant competitive disadvantage if they were unable to manufacture a French press with the Chambord’s particular design. Thus, it was “the overall appearance of A Top’s SterlingPro, which has the same shaped handle, the same domed lid, the same shaped feet, the same rounded knob, and the same shaped metal frame as the Chambord” that ran afoul of Bodum’s trade dress protection. At least before the Seventh Circuit, A Top did not dispute that it had copied the Chambord’s design. Instead, A Top argued it had “had a right to copy” the Chambord “right down to the last bolt” because Bodum’s product did not have a protectable trade dress. The multimillion dollar verdict is a strong reminder of the consequences for copying when a court finds design elements are not “functional” under trade dress law.

Just as companies are reaching the straightway in their efforts to get ready to comply with the California Consumer Privacy Act ("CCPA") by January 1, Nevada has burst ahead with a privacy law that will take effect before the CCPA.  On May 29, 2019, Nevada Governor Steve Sisolak signed SB 220 into law, amending Nevada’s existing law that requires an operator of an Internet website or online service to provide a privacy notice to consumers detailing certain of the operator’s privacy practices; SB 220 goes into effect on October 1, 2019.1  SB 220 allows consumers to opt-out of operators of Internet websites and online services selling personally identifiable information to other entities for monetary consideration and will require both legal and operational changes for businesses.  Operators, as defined by the law, must create a “designated request address” that allows consumers to submit requests prohibiting sale of information collected about the consumer, and operators must respond to the requests within 60 days. SB 220 is a substantial amendment to Nevada’s existing privacy law, and presents a new challenge to industry in general.  On its face, the law is narrower in scope than the CCPA, and includes narrower definitions of “consumer” and “sale,” along with carving out exceptions for financial institutions covered by the Gramm-Leach-Bliley Act (“GLBA”) and covered entities under the Health Insurance Portability and Accountability Act (“HIPPA”).  Nonetheless, companies focusing on CCPA compliance must now shift resources to becoming compliant with SB 220. SB 220 Requirements SB 220 has four main requirements, but several key definitions and exclusions govern the law’s application: An “operator”2 must establish a “designated request address”3 through which a consumer may submit a “verified request”4 directing the operator not to make any sale5 of “covered information”6 collected about the consumer. The consumer can submit a verified request through the designated request address, at any time, directing an operator to not make any sale of covered information the operator has collected about the consumer. An operator that receives a verified request is prohibited from making any sale of any covered information the operator has collected or will collect about the consumer. An operator must respond to a consumer’s verified request within 60 days.  The operator may extend the response period no more than 30 days if (a) the operator determines that such an extension is reasonably necessary; and (b) an operator that extends the response period notifies the consumer of such an extension. The Nevada Attorney General has enforcement power over SB 220’s provisions.  If the Attorney General believes that an operator directly or indirectly violated SB 220, the Attorney General may seek a temporary or permanent injunction or seek to impose a civil penalty not to exceed $5,000 for each violation.  Unlike the CCPA, SB 220 does not establish a private right of action against an operator. Although some consumers may welcome greater opportunities to stop certain sharing of their personal information, businesses developing compliance programs will face a new hurdle from SB 220, with its differing definitions, exceptions, and requirements.  Even companies that do not sell personally identifiable information for monetary consideration will need to create the request mechanism and respond to consumer requests and may be left feeling like Nevada has missed the break. 1 See Nev. Rev. Stat. §603A.340.  Under the provision, an operator must make available a notice that: Identifies the categories of covered information that the operator collects through its Internet website or online service about consumers who use or visit the Internet website or online service and the categories of third parties with whom the operator may share such covered information; Provides a description of the process, if any such process exists, for an individual consumer who uses or visits the Internet website or online service to review and request changes to any of his or her covered information that is collected through the Internet website or online service; Describes the process by which the operator notifies consumers who use or visit the Internet website or online service of material changes to the notice required to be made available by this subsection; Discloses whether a third party may collect covered information about an individual consumer’s online activities over time and across different Internet websites or online services when the consumer uses the Internet website or online service of the operator; and States the effective date of the notice. 2 SB 220 defines an “operator” as a person who: Owns or operates an Internet website or online service for commercial purposes; Collects and maintains covered information from consumers who reside in [Nevada] and use or visit the Internet website or online service; and Purposefully directs its activities toward Nevada, consummates some transaction with Nevada or a resident thereof, purposefully avails itself of the privilege of conducting activities in Nevada, or otherwise engages in any activity that constitutes sufficient nexus with the State to satisfy the requirements of the United States Constitution. However, the following are not considered operators as defined by the law: Some Third Parties: A third party that operates, hosts or manages an Internet website or online service on behalf of its owner or processes information on behalf of the owner of an Internet website or online service; Financial Institutions as defined under the GLBA: A financial institution or an affiliate of a financial institution that is subject to the provisions of the GLBA, 15 U.S.C. §§ 6801 et seq., and the regulations adopted pursuant thereto; Covered Entities under HIPPA: An entity that is subject to the provisions of the HIPPA, Public Law 104-191, as amended, and the regulations adopted pursuant thereto; or Motor Vehicle Manufacturers or Repair People: A manufacturer of a motor vehicle or a person who repairs or services a motor vehicle who collects, generates, records, or stores covered information that is: Retrieved from a motor vehicle in connection with a technology or service related to the motor vehicle; or Provided by a consumer in connection with a subscription or registration for a technology or service related to the motor vehicle. 3 A “designated request address” is an “electronic mail address, toll-free telephone number or Internet website established by an operator through which a consumer may submit to an operator a verified request.” 4 A “verified request” is a request that is (1) submitted by a consumer to an operator; and (2) for which an operator can reasonably verify the authenticity of the request and the identity of the consumer using commercially reasonable means. 5 “Sale” is defined as “the exchange of covered information for monetary consideration by the operator to a person for the person to license or sell the covered information to additional persons.” The term “Sale” does not include: “(a) the disclosure of covered information by an operator to a person who processes the covered information on behalf of the operator; (b) the disclosure of covered information by an operator to a person with whom the consumer has a direct relationship for the purposes of providing a product or service requested by the consumer; (c) the disclosure of covered information by an operator to a person for purposes which are consistent with the reasonable expectations of a consumer considering the context in which the consumer provided the covered information to the operator; (d) the disclosure of covered information to a person who is an affiliate, as defined in Nev. Rev. Stat. §686A.620, of the operator; OR (e) the disclosure or transfer of covered information to a person as an asset that is part of a merger, acquisition, bankruptcy or other transaction in which the person assumes control of all or part of the assets of the operator.” 6 The definition of “covered information” is narrower than comparable state laws, like the CCPA, and means “any one or more of the following items of personally identifiable information about a consumer collected by an operator through an Internet website or online service and maintained by the operator in an accessible form: (1) a first and last name; (2) a home or other physical address which includes the name of a street and the name of a city or town; (3) an electronic mail address; (4) a telephone number; (5) a social security number; (6) an identifier that allows a specific person to be contacted either physically or online; (7) any other information concerning a person collected from the person through the Internet website or online service of the operator and maintained by the operator in combination with an identifier in a form that makes the information personally identifiable.”  Nev. Rev. Stat. §603A.320.

On June 3, 2019, the Supreme Court agreed to decide whether Congress validly abrogated State sovereign immunity for copyright infringement claims by passing the Copyright Remedy Clarification Act of 1990 (“CRCA”), 17 U.S.C. § 511. The facts of the case before the Court began in 1717 in the Caribbean Sea. There, infamous pirate Edward Teach (a.k.a. Blackbeard) captured the French merchant vessel that would become his flagship, Queen Anne’s Revenge. A year later, Blackbeard ran aground near Beaufort, North Carolina, and abandoned the ship. Nearly 300 years later, in 1996, the private salvage firm, Intersal, Inc. rediscovered Queen Anne’s Revenge, which was now the property of North Carolina. Intersal began a fifteen-year salvage effort, under an agreement with North Carolina. Intersal retained videographer Fredrick Allen to document the salvage efforts. Allen took video footage and still photos, which he then registered with the U.S. Copyright Office. Allen, Intersal, and North Carolina first quarreled over the copyrighted material in 2013, when North Carolina posted several of Allen’s photos on a state website. The parties ultimately entered into a settlement agreement that clarified each party’s right to use the material. Allen brought the instant suit in December 2015, alleging copyright infringement, state law unfair competition, and state law civil conspiracy claims. Finally, Allen challenged the validity of N.C. Gen. Stat. § 121-25(b), which states: “All photographs, video recordings, or other documentary materials of a derelict vessel or shipwreck or its contents, relics, artifacts, or historic materials in the custody of any agency of North Carolina government or its subdivisions shall be a public record.” Allen argued that North Carolina passed the statute in 2015 in bad faith with the intention to invalidate his claim of copyright rights. In response, North Carolina raised various immunity defenses. Allen countered by arguing that Congress abrogated sovereign immunity for copyright claims in the CRCA. The only issue before the Supreme Court involves the issue of the CRCA’s validity. As a general rule, sovereign immunity means that states cannot be sued in federal court. The CRCA purports to provide a broad exception to state sovereign immunity. Essentially, the CRCA opens states to all of the same claims and remedies that copyright owners can bring against private parties. Allen lost on this issue in the Fourth Circuit. Writing for the Circuit Court, Judge Niemeyer based his decision on Fla. Prepaid Postsecondary Educ. Expense Bd. v. Coll. Sav. Bank. Florida Prepaid was a patent case, in which the Supreme Court struck down a similar law that abrogated sovereign immunity for patent infringement. Without a statutory exception, copyright owners must fit their infringement claims within narrow exceptions that severely limit the available remedies. One such exception, established by the Supreme Court in Ex Parte Young, allows private citizens to sue to enjoin state officials to obtain prospective relief from ongoing violations of federal law. Based on this exception, Allen argued that North Carolina’s posting of his copyrighted material online was an ongoing violation. However, North Carolina had since taken down the material, which sank any colorable argument Allen could float about North Carolina’s ongoing infringement. The real world problem posed by the facts in Allen’s case, is that without a broad exception to sovereign immunity like the CRCA, copyright owners have very little protection against state governments or agencies infringing their works. Imagine your photos appear without your consent on the Minnesota Department of Natural Resources website. You can contact the Department and ask it to remove your copyrighted material, but the Department has relatively little monetary incentive to comply with your request. Against a private citizen, you could recover actual or statutory damages under the Copyright Act, even if the private citizen subsequently stopped infringing. The Ex Parte Young exemption only allows equitable relief. Even if you bring suit, the Department could remove the photo, ending both the ongoing infringement and case itself. The Department, at most, could be forced to remove the photo, but only after you’ve brought suit and won. And by then, the damage has been done. Without the CRCA, copyright owners have little leverage against state infringers. While the CRCA may seem obscure to most lawyers (copyright lawyers included), the Supreme Court’s decision could tip the balance towards States, leaving copyright owners disproportionately vulnerable to State infringers.

If you missed the 2019 Annual Meeting of the International Trademark Association in Boston, or if you were there but were spending time with colleagues and friends, the Dorsey trademark team is here to provide a brief overview of some interesting seminars we attended and tidbits scooped up during the Meeting: Fictional Characters:  Dorsey’s very own Jeff Cadwell (Minneapolis office) kicked things off for a packed room on Saturday by moderating a session called “Character Wars.”  The panel focused on the intersections of trademark and copyright law relating to the protection of fictional characters.  Jeff was joined by panelists Michael Lovitz, Chantal Koller, and Christopher Smith, who spoke about US law, European and Swiss law, and Chinese law, respectively.  The panel explored options for registration of rights, what sort of unregistered protection may exist, enforcement tools, and merchandising considerations. Trademark Investigations:  With participants from the United States, China, Europe, and Mexico, this panel addressed the ethical contours of trademark investigations in various countries around the world.  These types of investigations can be a crucial component for both enforcement and prosecution efforts and require special ethical considerations that vary depending on the jurisdiction. For example, in the United States, evidence gathered illegally or unethically by an investigator can render the evidence inadmissible in a contested proceeding.  Additionally, evidence gathered by an attorney might also be inadmissible due to ethical conflicts with an attorney acting as a fact witness.  In China, evidence needs to be notarized to be admissible; notarization in China can be extremely expensive.  Accordingly, in situations where a party is considering petitioning to cancel a registration for non-use in China, it can sometimes be less expensive to simply file the proceeding and see what happens rather than conduct a formal investigation to gather admissible evidence.  Unlike in the United States, in Europe, attorneys are generally not prohibited from presenting evidence they have collected.  In Mexico, a court will accept an investigation report, but will independently confirm the facts presented therein. With so many considerations at play, it behooves brand owners and trademark attorneys to consult with local counsel prior to conducting an investigation outside of their home jurisdiction. Blockchain:  Chances are that you’ve heard the buzzword “blockhain” sometime in the past two years.  Whether it be in the context of Bitcoin’s meteoric rise (and subsequent fall) or in the many other tech products based on the concept.  This session discussed the potential solutions blockchain may offer to IP attorneys and consumer brands.  “Blockchain” is a distributed ledged technology that houses a record of transactions on computers linked across a peer-to-peer network. In the context of the IP world, blockchain has numerous potential applications, including: Supply chain shipment tracking for anti-counterfeiting efforts (i.e., the ability track and verify the shipment of original products) Brand messaging (i.e., ability to verify where and from whom a message originated) Copyright royalty administration (i.e., more accurate accounting of number of plays of a given copyrighted song for mechanical royalties) Verification and housing of trademark registers (i.e., instant access to a verifiable ledger of trademark registrations) With all of the potential uses of blockchain, major intellectual property organizations are paying attention.  For example, the World Intellectual Property Organization (WIPO) has created a task force to investigate possible uses of blockchain for creating a distributed IP registry.  In fact, WIPO held a workshop in April 2019 focused on potential uses of blockchain. While the future of cryptocurrencies may be uncertain, it is clear that the underlying blockchain technology will continue to reverberate in the tech world and, it appears, in the legal community. Artificial Intelligence (“AI”):  AI was also a hot topic at INTA, with many speculating as to how to solve common trademark law problems with AI as the technology evolves and develops.  We learned that AI already exists to help identify key and missing terms in certain contracts, but we are only on the cusp of what AI can accomplish for more particular trademark tasks, such as searching and clearance or for determining likelihood of confusion based on consumer impressions.  As it turns out, trademark law remains heavily dependent upon human perceptions.  AI can also be cost prohibitive for most firms and businesses, and reliance upon AI for providing legal opinions can impose its own set of risks.  Nevertheless, AI has arrived and those who can utilize it to their benefit now will be ahead of the competition. Updates from the USPTO and TTAB:  USPTO leadership held a transparent session on new updates—all aimed to make the Office more efficient and streamline processes.  All practitioners will eventually need a USPTO.gov account, so log into your MyUSPTO account and make sure to keep it updated.  We also learned that opposition and cancellation proceedings before the TTAB have increased over 10%, and that more practitioners are taking advantage of accelerated case resolution.  Meanwhile, the chances of a successful TTAB appeal remain slim:  Likelihood of affirmance of a Section 2(d) likelihood of confusion refusal was about 91% for calendar year 2018, and likelihood of affirmance of a Section 2(e)(1) mere descriptiveness refusal was about 90% for 2018—both figures slightly higher than for 2017. Hot Trademark Cases:  Trademark law remains as exciting as ever.  Perhaps the hottest trademark case of the year was the most unmentionable (In re Brunetti). On the heels of “The Slants” case, the Supreme Court's upcoming decision about the fate of the FUCT trademark promises to give us all plenty to talk about concerning indecent or scandalous marks.  The other hot trademark law decision, Mission Product Holdings, Inc. v. Tempnology, LLC, issued the week of INTA. At last, we can be sure that trademark licensees rejected by bankruptcy debtors may continue to use licensed trademarks. We hope to see you in Singapore in 2020!

Earlier this month, a federal magistrate judge in the Eastern District of New York, Judge Lois Bloom, issued a report and recommendation ("R&R") that the ultimate sanction of default judgment be entered against certain defendants that had engaged in wide-scale discovery misconduct, that Judge Bloom found ultimately amounted to fraud on the Court. While federal courts strongly prefer to resolve cases on the merits rather than issuing case-ending discovery sanctions, Judge Bloom found the defendants’ pervasive and egregious discovery conduct to constitute an extreme case that warranted such action. The underlying lawsuit was brought by Abbott Laboratories, Abbott Diabetes Care Inc., and Abbott Diabetes Care Sales Corp. (collectively “Abbott”) against hundreds of distributors and pharmacies for, among other claims, trademark and trade dress infringement, unfair competition, and trademark dilution. The lawsuit seeks to stop the sale of Abbott’s FreeStyle blood glucose test strips in the United States that are intended to be used in other countries, and which are illegal to sell in the United States. Abbott contends that the defendants in the case are conspiring to import diverted FreeStyle test strips whose labeling has not been cleared by regulators for sale in the United States, and are passing these unapproved strips off to unsuspecting U.S. consumers in order to receive undeserved reimbursement payments from insurance companies. In November 2015, Abbott won a preliminary injunction barring the sale of the strips, which the Second Circuit upheld a year later. The defendants that are the subject of Judge Bloom’s recommended sanctions are distributor H&H Wholesale Services, Inc., its principal, Howard Goldman, and its marketing manager and Mr. Goldman’s wife, Lori Goldman (collectively the “H&H Defendants”). In her R&R, Judge Bloom found that the H&H Defendants had engaged in continuous bad faith discovery misconduct, which began with the H&H Defendants formulating search terms to run against their documents that were designed to fail (namely failing to include well-known shorthand used by the H&H Defendants in relation to relevant transactions) in deliberate disregard of Judge Bloom’s discovery orders compelling certain specific discovery from the parties. Judge Bloom also found that the H&H Defendants deliberately withheld responsive documents, including all communications with its largest supplier of the Freestyle test strips, and any documents referencing H&H’s owner or his wife (the Goldmans). The withholding of these responsive documents was only discovered when the Court entered a seizure order in a separate counterfeiting action, authorizing Abbott to seize, among other things, H&H’s e-mail server. Abbott, who had previously raised concerns with the H&H Defendants’ initial production before receiving the e-mail server, voiced new concerns that the H&H Defendants had failed to produce documents responsive to the Court’s discovery orders. The Court then ordered the H&H Defendants to re-run the document search outlined in its previous orders, which resulted in the H&H Defendants producing significantly more responsive documents. Judge Bloom also found that the number of responsive documents produced later did not comport with the H&H Defendants’ earlier representations to the Court regarding the number of responsive documents, and the accompanying burden of producing those documents. Based on these earlier representations, the Court narrowed the scope of the H&H Defendants’ required production. The H&H Defendants submitted numerous explanations throughout the course of the proceeding attempting to explain the diverging document count numbers. The Court found that the varying explanations were inconsistent. In fact, the H&H Defendants had five different law firms represent them throughout the course of the proceeding, and Judge Bloom found that the explanation given by the H&H Defendants’ current counsel for the withheld documents – which largely attempted to lay the blame at the feet of H&H’s original counsel – was inconsistent with the positions taken by the other law firms previously representing the H&H Defendants. To add significant fuel onto the proverbial fire, Judge Bloom waded through the deposition testimony of several key representatives of the H&H Defendants concerning issues surrounding the withheld documents. The Magistrate found portions of the testimony to be inconsistent and evasive, at best, and other testimony to have been perjured. As one might expect from the severe sanction recommended by Judge Bloom, this was not the first time that the H&H Defendants had been reprimanded for discovery misconduct during the litigation. In 2017, the H&H Defendants were found to have violated a protective order based on having Mr. Goldman surreptitiously listen to remote 30(b)(6) depositions, for which H&H’s former counsel took responsibility and agreed to pay reasonable expenses incurred by the other parties relating to the violation. Also, based on the same above-discussed document withholding issues, Judge Bloom previously ruled in 2018 that the crime-fraud exception to the attorney-client privilege prevented the H&H Defendants from claiming privilege with respect to communications with counsel about its earlier production. Based on the full record in the case, Judge Bloom found that there was clear and convincing evidence that the H&H Defendants had perpetrated a fraud on the Court. Clearly concerning to Judge Bloom was the fact that “had [Abbott] never seized H&H’s server . . . H&H would have gotten away with their fraud upon this Court. H&H only complied with the Court’s orders and their discovery obligations when their backs were against the wall.” The Court went on to analyze certain factors that must be considered when determining what sanction should be imposed. The Court reasoned that several factors weighed in favor of imposing a case-ending sanction, including the bad faith that can be inferred from the H&H Defendants’ deliberate and strategic non-compliance with discovery, selective withholding of documents, and perjured and deceptive deposition testimony. The discovery misconduct was calculated and pervasive and started early on, and continued even after the H&H Defendants were “caught red handed.” Judge Bloom also found that Abbott’s progress in the litigation was significantly impeded by the H&H Defendants’ discovery fraud. Further, Judge Bloom determined that this discovery misconduct must be appropriately punished to deter such abuse of the Court’s process by other litigants. Thus, the Court found that the H&H Defendants committed fraud upon the Court, and that the harshest sanction of a default judgment against the H&H Defendants was warranted. As Judge Bloom warned in her R&R, the H&H Defendants’ conduct presents “a cautionary tale about how not to conduct discovery in federal court.” For starters, while it should be obvious, misrepresentations to the court, or perjured testimony, should never be countenanced. It appears, however, that these later misrepresentations were an attempt to cover up earlier discovery misconduct regarding insufficient document searches and withholding documents relating to, among others, key decision-makers at the company. To avoid these early pitfalls, litigants should ensure that they are transparent in discussions with opposing counsel from very early on in the litigation about the appropriate scope of discovery, search terms, custodians, and foreseeable discovery issues. Taking a proactive approach to discovery at the outset of a litigation, as opposed to when the litigant’s back is up “against the wall,” is not only a recommended practice, but is required under the federal rules. For example, litigants should spend appropriate time and diligence in providing initial disclosures as well as in formulating a discovery plan with opposing counsel. Otherwise, litigants, such as the H&H Defendants, often find themselves continually crawling out of a discovery hole of their own making. This too often results in incurring unnecessary expense to respond to discovery motions and to produce discovery that the litigant initially attempted to evade. As seen in the case of the H&H Defendants, discovery misconduct can also lead to discovery sanctions; these can range from monetary sanctions, to adverse inferences or evidence preclusion at trial, to the most drastic result of a case-ending sanction. The H&H Defendants have until later this month to lodge objections to Judge Bloom’s R&R. The TMCA will be monitoring this case and will keep you posted with any key developments.

On May 20, 2019, the U.S. Supreme Court settled the question of whether licensees under trademark agreements rejected by bankruptcy debtors may continue to use licensed marks. In a highly anticipated decision in Mission Product Holdings, Inc. v. Tempnology, LLC, the Supreme Court ruled that yes indeed, they can – subject to non-bankruptcy law. “Rejection” of contracts is a power the Bankruptcy Code provides debtors to manage their estates. It is essentially a sanctioned breach of contract that frees the estate from performing burdensome obligations. Over the past nine years, federal courts have been divided with respect to whether trademark licensees have continuing rights to use licensed trademarks following a debtor’s rejection of related license agreements. Some courts, including the First Circuit Court of Appeals, deemed rejection an effective rescission of a trademark license agreement. Others, including the Seventh Circuit Court of Appeals, deemed rejection to have no impact on a trademark licensee’s rights, leaving it free to either carry on under the license agreement or assert a claim for damages. Yesterday, the high court held in Mission that the effect of rejection of any contract in bankruptcy is a breach, and not a rescission. Specifically, as to trademark licensees, the Court held that the breach effected by rejection “does not revoke the license or stop the licensee from doing what it allows.” The decision is a victory for trademark licensees.  However, it is sure to spur changes in how trademark licenses are drafted and how licensors prepare for bankruptcy proceedings. To read more about the decision, its implications, and the history of the issues, please read the e-update posted here. To read more about the Mission case, including the oral arguments before the Supreme Court, please read this prior post and the posts linked there.

On Thursday, March 16, 2019, the California Senate Appropriations Committee held in Committee SB 561, which would have greatly expanded the private right of action (i.e., the ability to bring private class actions) available under the California Consumer Privacy Act (“CCPA”). SB 561 was introduced in February by California Attorney General (“AG”) Xavier Becerra and Senator Hannah-Beth Jackson. Notably, the bill sought to amend the existing private right of action to cover all violations of the CCPA, as opposed to merely data breaches. Additionally, the bill would have discontinued the 30-day cure period, whereby businesses were immunized from penalization by the AG to the extent they were able to cure an alleged violation within 30-days’ notice thereof, and would have eliminated businesses’ and third parties’ entitlement to seek interpretive guidance regarding compliance from the AG (and instead would authorize the AG to publish general guidance). Heard on April 29, 2019 by the California Senate Appropriations Committee, SB 561 was placed in the Committee’s Suspense File, which holds bills that will significantly impact the state’s budget. With a May 17 deadline to report bills to the Senate Floor, the Committee voted Thursday on the bills in the Suspense File, including SB 561. The good news for businesses covered by the CCPA was that the bill was held in Committee, meaning that it will not move forward this year. The private right of action, and the potential for class actions, will therefore remain confined to the data breach context when private enforcement goes live on January 1, 2020. The Dorsey Privacy Team is actively following legislative and regulatory developments in regard to the CCPA. Please check the blog for continued updates on developments as they arise.

In the coming months, the U.S. Supreme Court is expected to issue a decision in Mission Product Holdings, Inc. v. Tempnology, LLC that may (yes, we said “may”) resolve a circuit split as to whether trademark licensees can continue using trademarks after a licensor in bankruptcy rejects the license agreement under bankruptcy law. The TMCA has been following this case from the first decision by the U.S. Bankruptcy Court for the District of New Hampshire in 2015, through the decision by the Bankruptcy Appellate Panel for the First Circuit in 2016, the First Circuit’s decision in early 2018, and the Supreme Court’s grant of certiorari in late 2018. Along the way, we have explained that the Bankruptcy Code gives debtors the power to “reject” executory contracts (which relieves a debtor from its contractual obligations), and that federal courts have been divided for years regarding the effect of rejection of trademark license agreements. The blame for the circuit split can be placed largely on Congress. That is because the Bankruptcy Code—which Congress drafted—contains specific provisions for the post-rejection treatment of license agreements for “intellectual property,” but those do not cover trademarks, although they cover patents, copyrights, trade secrets, and mask works, among other things. When Congress implemented those protections, it noted the deliberate omission of trademarks from the statute because the issue warranted “more extensive study,” which we wrote about at length in our prior posts. The Supreme Court heard oral arguments in Mission on February 20, 2019. At oral argument the Justices focused primarily on the effect of a brand owner/licensor’s breach of a trademark license agreement in bankruptcy, as a debtor, as opposed to the effects of breach outside of bankruptcy. In addition, the arguments also touched on general contract law, the “negative inference” of Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985) (see our previous posts for more on this case), and relevant provisions of the Bankruptcy Code, specifically sections 365(g) and 365(n), which concern, respectively the effect of a debtors’ rejection of a contract generally and rejection of an intellectual property license for intellectual property other than trademarks. So you don’t have to listen to the entire oral argument, we have selected the most interesting questions and issues, which, in our opinion, provide some tea leaves for those of us following the case: Off the bat, Justice Alito asked Mission whether a debtor-licensor’s cessation of quality control activities would imperil a trademark. Before Mission could answer, Justice Sotomayor asked Mission whether rejection of a trademark license revokes approval by the licensor that is a condition to the license. Mission responded that quality control obligations are imposed by trademark law, and not solely by contract, and rejection entitles a debtor-licensor to free itself only from contractual obligations. Mission added that, outside of bankruptcy, a licensor’s breach of a license agreement (breach being the effect of rejection on the agreement mandated by the Bankruptcy Code) does not take away a licensee’s right to use a trademark. Chief Justice Roberts asked Tempnology whether a licensee can continue using a trademark after rejection, so long as the licensee carries out quality control as the debtor-licensor did. Tempnology responded that ceasing quality control abandons a trademark, causing it to lose value and its status as a trademark (which didn’t exactly answer Justice Roberts’ question). Justice Breyer asked whether a person can use an abandoned mark, and Tempnology conceded one can. Several Justices pressed Tempnology for authority that a trademark licensor could unilaterally terminate a license agreement outside of bankruptcy by ceasing quality control. Tempnology relied on the general notions of trademark law, including a trademark’s signification of its owner and an owner’s duty to exercise control over the trademark, which did not appear to relieve the Justices concerns. Justice Sotomayor asked Tempnology, at two separate points, how the Court could limit its ruling to trademark agreements, e. rather than “any number of other contracts.” Tempnology stated it was only asking the Court to adhere to precedent that the effect of rejection is that the contract is no longer enforceable, but she did not seem to be persuaded by that argument. Questions by Justices Gorsuch and Sotomayor as to whether the trademark issues are moot signaled a possibility that the Court may not reach a decision on the effect of rejection. The Justices’ questions intimated that Mission may not have suffered damages, because Tempnology refused to supply Mission with goods that could bear the licensed mark prior to the rejection. Following the rejection, Mission did not use the trademark, but argued it was damaged because it was wrongly prevented by the bankruptcy court’s decision from using the trademark following rejection, including on goods it could have ordered from suppliers other than Tempnology. Tempnology asserted the issues are moot because Tempnology took no action against Mission that prevented Mission from using the trademark. Given that the Court granted cert for this case, we would be surprised if the Court declined to resolve this Circuit split and instead ruled on mootness grounds. Throughout the argument, the Justices and the litigants searched for property law scenarios analogous to the rejection of a trademark license agreement by a debtor—an apartment lease, a McDonald’s franchise, a photocopier lease, and an igloo lease. As to the igloo, Justice Breyer likened a licensor’s quality control obligations to a promise to air condition an igloo, stating, “. . . you break your promise to air condition, no more igloo.” (The amicus curiae arguing in support of Mission who received this analogy disagreed, responding that a licensee can continue using a trademark because abandonment is the only consequence of ceasing quality control and that takes some time.) These discussions—and the general struggle to find a suitable analogy—highlighted the unique nature of trademark rights as property and the Bankruptcy Code’s treatment of various contract rights respecting property. The oral argument provided a glimpse of the Court’s unenviable task of filling in the blanks of the Bankruptcy Code that Congress left to the Courts. While the Court is clearly concerned with reaching a result that makes sense under notions of trademark, property, contract and bankruptcy law, we are eager to see how it resolves their conflicts. Once the Court reaches a decision, you should expect to hear from us again.

The United States Patent and Trademark Office will now allow federal trademark registration for marks used on some hemp-based products, including those containing hemp-derived CBD, except for foods, beverages, dietary supplements, or pet treats. On May 2, 2019, the USPTO issued Examination Guide 1-19 for the examination of federal trademark applications covering cannabis and cannabis-derived goods and services. The guide comes in the wake of the December 20, 2018 Farm Bill, which among other things, explicitly removed hemp (a type of cannabis) and its byproducts from the definition of “Marihuana” in the Controlled Substances Act and broadened the pilot program to allow for more widespread non-academic cultivation of hemp. The Farm Bill created tension with the USPTO’s longstanding practice of outright denying or, in the case of CBD products, sometimes postponing the examination of, any application with a whiff of cannabis on the ground the goods or services cannot be used lawfully in commerce (which is a requirement for federal registration). The brand new Examination Guide acknowledges that marks used on hemp products (including CBD) produced lawfully under a state pilot program, which controls the means by which hemp may be grown and processed within a given state, are not illegal under the Controlled Substances Act and so should also be registrable. But the Guide identifies another potential ground for refusing hemp-based CBD products as unlawful based on guidance from the FDA. The Farm Bill explicitly preserved the FDA’s authority to regulate certain types of products containing cannabis and cannabis-related compounds. The FDA has indicated that it believes the sale of foods, beverages, dietary supplements, or pet treats containing CBD (regardless of how derived) to be illegal under the Federal Food, Drug and Cosmetic Act (click here). Thus, based on the FDA’s statements, the USPTO has indicated that it will not allow registration of foods, beverages, dietary supplements, or pet treats containing hemp-derived CBD on the ground they cannot be lawfully used in commerce, unless or until the FDA’s position changes. Importantly, the USPTO has indicated that its guide applies only to applications filed after the passage of the Farm Bill on December 20, 2018. For applications filed on or before December 20, applicants can amend their filing date to December 20, 2018, based on the USPTO’s view that applicants could not have legally sold or had a good faith intent to legally sell any CBD or cannabis-derived product prior to the passage of the Farm Bill. This change in USPTO policy opens up new potential registration opportunities for cannabis brands. For example, smokable products are conspicuously absent from the USPTO’s list of prohibited CBD goods. Thus, companies selling smokable hemp-derived CBD products may have a good case for federal registration. Additionally, for cannabis brands selling products derived from both hemp and marijuana, it potentially presents an opportunity to obtain federal registration for the federally-legal components of their businesses. Although the FDA currently maintains it is illegal to sell foods, beverages, dietary supplements, or pet treats containing CBD, it is taking steps that could indicate a change to its approach. The FDA is holding a public hearing on May 31 for stakeholders in the cannabis industry and is forming a high-level working group to explore pathways for legally selling and marketing food and dietary supplements containing cannabis, including hemp-derived CBD. If and when the FDA changes its approach for these products, this could open the door for widespread federal registration of hemp-based CBD products.