Trademark, Copyright + Advertising

A recent decision in an opposition proceeding before the TTAB demonstrates that the leisure industry is sometimes anything but laid back. Rights holders who may be wasting away in paradise can be roused to action when their valuable trademarks are being threatened. Rachel Bevis, a resident of Colorado looking to capitalize on her state's legalization of recreational marijuana, applied to register the mark "Marijuanaville" in 2014 based on intent to use the mark in connection with apparel and drive-through retail stores. The application was opposed by Margaritaville Enterprises, LLC, the successor in interest to Jimmy Buffett, and owner of two registrations for the mark MARGARITAVILLE covering apparel and retail services. Mr. Buffett's chain of MARGARITAVILLE restaurants was named after his popular and ubiquitous song of the same name, and Margaritaville Enterprises opposed the registration on the ground of likelihood of confusion. The TTAB sustained the opposition. In support of its claim of likely confusion, Margaritaville Enterprises submitted a declaration from Mr. Buffett, explaining the meaning of “Margaritaville”: I regularly refer to “Margaritaville” as a state of mind inspired by margaritas. The images I most commonly associate with “Margaritaville” are beaches, tropics, leisure activities, islands and escapism. Based on the success of my song “Margaritaville” and loyalty of my fan base, in 1985 I opened a retail store named “Margaritaville” in Key West, Florida. In addition to selling MARGARITAVILLE branded souvenirs, including clothing in Key West, Florida, this retail store mailed newsletters, named The Coconut Telegraph, to my fans to purchase MARGARITAVILLE-branded souvenirs, including clothing by mail and phone. Applying the DuPont likelihood of confusion factors, the Board found that the MARGARITAVILLE mark was famous for apparel and retail clothing services due to its financial success, strong online presence, and unsolicited press coverage of the mark. The goods and services were also deemed identical in part. On the issue of the similarity of the marks, the Board did not find the expert testimony of a lexicographer submitted by Margaritaville Enterprises to be particularly compelling, but did rely on some evidentiary materials attached to the expert’s declaration in support of its analysis. In addition, the Board found that even though the respective prefixes MARGARITA- and MARIJUANA- are different, both words represent a similar state of mind “induced by either a cocktail or marijuana”. The Board therefore concluded that “the overall connotation and commercial impression of the marks is highly similar – a chemically induced mental paradise. The public is likely to perceive the Applicant’s mark as an extension of Opposer’s lifestyle brand.” Notably, Ms. Bevis represented herself pro se before the TTAB, failed to submit any evidence during the proceeding, and admitted a number of the allegations of the Notice of Opposition in her answer. Further, the TTAB was not persuaded by Ms. Bevis's arguments that she intended to limit her sales to regions of the country that support the marijuana industry, or that she intended to direct the goods related to her mark to consumers connected with the cannabis industry, because no such limitations or restrictions were incorporated into the application’s identification of goods and services. This case should serve as a cautionary tale on several levels. First, the general argument that a mark based on recreational marijuana is distinguishable from other goods and services because of its inherently narrower audience and applicable geography is unlikely to succeed. Second, while the applicant’s failure to submit supporting evidence clearly did not assist her defense of the proceedings, asserted differences of target market and channels of trade absent corresponding restrictions in the application itself will not be deemed persuasive in a registration proceeding. As a result of the TTAB’s decision, there is now one less fictional "-ville" where people can drown away their sorrows.

The Court of Appeals for the Third Circuit, with a ringing endorsement of Prof. McCarthy’s trademark law treatise, issued a precedential opinion last week on the issue of whether a trademark is owned by the manufacturer or its exclusive distributor when there is no written agreement governing the issue. Covertech Fabricating, Inc. v. TVM Building Products, Inc. (3d Cir. Apr. 18, 2017). The court held that where ownership is not otherwise established by contract, as between a manufacturer and its exclusive distributor, there is a rebuttable presumption in favor of the manufacturer. The court also specifically adopted McCarthy’s six factor test for determining whether the distributor can successfully rebut the presumption. The case involved a long but troubled relationship between Covertech Fabricating, a Canadian manufacturer of protective packaging and reflective insulation, and TVM Building Products, which was designated by verbal agreement as the exclusive marketer and distributor of Covertech’s insulation products in the U.S. There were disagreements over the years between the two companies as a result of payment problems as well as Covertech’s discovery that TVM had been purchasing comparable products from other manufacturers and passing off some of the merchandise as Covertech’s. In 2011, Covertech terminated its relationship with TVM, but TVM continued to sell reflective insulation products using Covertech’s brand names. In 2010, Covertech obtained a registration for its ULTRA trademark in Canada. The following year, although Covertech had informed TVM of its Canadian registration, TVM applied to register two ULTRA composite marks in the United States Patent and Trademark Office. Covertech filed suit in federal court to establish its ownership of the ULTRA mark, asserted claims against TVM for infringement and fraud on the USPTO and requested cancellation of the two U.S. registrations for the ULTRA composite marks. The District Court awarded ownership to Covertech, found TVM liable for infringement and fraud and awarded Covertech $4 million in damages. The 3d Circuit began its opinion in a philosophical vein, noting that “Too often the silence of contracting parties must be filled by the voice of the courts.” Turning to the ownership issue, the appellate court held that the “first use test”  applied by the District Court may be appropriate in a priority dispute between competing common law trademark users, but the first use test is “an imperfect fit, however, when it comes to the often exclusive and noncompetitive manufacturer-distributor relationship where ownership rights would inure to the benefit of the distributor in a multitude of cases based simply on the fact that the distributor, albeit at the manufacturer’s direction, made the initial sale of goods bearing the mark to the public.” Because manufacturers and distributors typically engage in concerted action, it would not be appropriate in situations where there is no written agreement to assume that the distributor is the owner of the mark just because it makes the first sale. Instead, a “different test accounting for the realities of the manufacturer-distributor relationship must control” The different standard enunciated by the Third Circuit in Covertech is the one propounded by Professor McCarthy’s treatise: Where initial ownership between a manufacturer and its exclusive distributor is at issue and no contract exists, the manufacturer is the presumptive trademark owner unless the distributor rebuts that presumption using a multi-factor balancing test that examines the following aspects of the distribution agreement in effect between the parties: Which party invented or created the mark Which party first affixed the mark to the goods sold Which party’s name appeared on the packaging and promotional materials for the products Which party exercised control of the nature and quality of the goods Which party did customers look to as standing behind the goods Which party paid for advertising and promotion of the products As the court explained, the presumption and rebuttal factors of the McCarthy test “place a thumb on the ownership scale in favor of the manufacturer, but invite courts to consider various indicia of ownership designed to elicit the rights and responsibilities of the parties” and determine the rightful trademark owner. In this case, because there had been supplemental and full briefing on the issue, rather than remanding the case to the District Court to determine ownership under the McCarthy standard, the 3d Circuit proceeded to apply the McCarthy test itself, and held that the weight of the factors fell “indisputably in Covertech’s favor.” In addition, the appellate court affirmed the findings of infringement and fraud, but vacated and remanded the case on the issue of the monetary award, holding that the lower court had erred in assessing actual damages. The lesson here is that it is always better to clarify the ownership of a trademark as between a manufacturer and a distributor in a written agreement, particularly an exclusive distributor. Absent a written agreement, an exclusive distributor will have to overcome a presumption in the manufacturer's favor and demonstrate that it is primarily responsible for the quality of the goods and is the company that consumers look to as the source of the products.

A recent ruling of the Advertising Standards Authority (ASA) in the U.K. highlights the global crackdown on sponsored posts that do not make clear that they are advertising. A complaint was filed with the ASA about an Instagram post made by a popular make-up blogger Sheikhbeauty, which consisted of a mini video that promoted the brand Flat Tummy Tea.  The text of the post read: "@flattummytea 20% off guys!!!! If you've been following me you'll know i used this and I genuinely feel less bloated and a flatter tummy ... oh yessss".  The post was challenged on the basis that it did not clearly identify that it was an ad. On April 5th, the ASA issued a ruling against Flat Tummy Tea, the maker of an herbal detox tea.   Flat Tummy Tea disclosed to the ASA that it had entered into a financial arrangement with Sheikhbeauty, whereby the blogger was sent the brand’s products, which she was required to photograph and post on her social media account.  The arrangement required Sheikhbeauty to post in accordance with all applicable laws and guidelines. Upon notification of the complaint, Flat Tummy Tea acted immediately to require Sheikhbeauty to edit her post to include “#ad” in front of her caption:  Sheikhbeaty’s description of her personal experiences with the product was also changed from “less bloated and a flatter tummy” to a more generally stated “genuinely feel[ing] much better,” although this description was not the focus of the ASA’s ruling. The ASA’s ruling found the post to be a marketing communication based on Flat Tummy Tea’s control over the content of the post, the visibility of the product in the posts, display of the brand handle and other factors.  The ASA held that the prior lack of disclosure was a breach of the ASA’s CAP code, its rule book for non-broadcast advertisement, sales promotions and direct marketing communications. The ASA directed that the ad must not appear again in its original form and noted the responsibility of Flat Tummy Tea and Sheikhbeauty to ensure that all future ads they produce to be obviously identifiable as marketing communications by including, for example, an identifier such as “#ad”. The ruling signals the advertising industry’s current clamp down on influencers to identify their promotional posts as ads.  The fact that the ruling was targeted at the brand owner also reflects the responsibility of brands to monitor their influencers’ activities even where their written agreements place the obligation on the influencer to comply with all disclosure requirements. The ASA’s ruling comes just as the Federal Trade Commission has issued a further publication indicating its close monitoring of the activities of influencers in the U.S. and giving advice on making effective disclosures on Instagram.

Instagram is now home to more than 600 million users, including many popular brands, celebrities, online influencers, famous dogs, regular people and regular dogs (full disclosure this regular dog is mine).  As its popularity has grown, especially with advertisers, regulators are taking a closer look to ensure that brands and their hired hands are complying with traditional truth-in-advertising principles online.  Around this same time last year, we posted about the Federal Trade Commission’s settlement with Lord & Taylor over charges that the retailer allegedly deceived consumers through a native advertising campaign run on Instagram and an online fashion magazine in March of 2015.  That was the FTC’s first foray into native advertising in social media…and they are back at it again. On Wednesday, the FTC announced that the staff had recently sent more than 90 letters to celebrities, athletes, other influencers as well as the brand owners for whom they post on Instagram. Since the Lord & Taylor case, the FTC has stressed that primary responsibility for compliance falls on advertisers, and this may explain why no influencers were named as defendants in prior cases. But as we suggested on the blog last year, influencers may not be spared in the future. While the FTC is not willing to share any of the letters it sent to specific influencers or brands, it did post sample letters, one for celebrities, athletes and other influencers and another for marketers. Both letters stress that influencers and brands alike should look to the FTC’s Endorsement Guides and its companion publication The FTC’s Endorsement Guides: What People Are Asking before posting on Instagram: The FTC’s Endorsement Guides state that if there is a “material connection” between an endorser and the marketer of a product – in other words, a connection that might affect the weight or credibility that consumers give the endorsement – that connection should be clearly and conspicuously disclosed, unless the connection is already clear from the context of the communication containing the endorsement. Material connections could consist of a business or family relationship, monetary payment, or the provision of free products to the endorser. The keys point from this set of warning letters are nothing new and we’ve blogged about them here and here, but they are worth repeating because the FTC is certainly looking: Disclosures of material connections must be clear – Don’t use #sp, #partner or simply thank the brand (#thankyou[Brand]). While the FTC admits there is no one-size-fits-all solution, it suggests that #ad, #sponsored, Paid Ad or promotion should work in most situations. Disclosures must be conspicuous – As the FTC noted in its settlement with Warner Bros over influencer posts on YouTube, disclosures must be “above the fold.” On Instagram, that means in the first few lines of the post, and not at the end of a long comment or buried in the middle of a string of 15 hashtags.  

Does a demand letter from a music rights holder that alleges “millions of instances of infringement” create a case in controversy with the recipient?  You may be inclined to answer with an emphatic “of course!”    But think again, or so says a recent ruling by the U.S. District Court for the Southern District of New York in Windstream Services LLC v. BMG Rights Management LLC et al.  If you are rushing off to the federal courthouse to get that declaratory judgment action on file, you should read on first to make sure your DJ complaint hits all the right notes. This case represents a familiar theme and variation: music copyright holder vs. ISP.  (We previously blogged about a similar dispute where an ISP was hit with a $25 million jury verdict).  In this number, BMG owns scores of musical compositions and Windstream provides internet access to scores of subscribers.  On April 1, 2016, BMG sent a demand letter to Windstream alleging “ongoing infringement” by Windstream’s subscribers.  While the demand letter did not cite to specific copyrights or specific acts of infringement, BMG did allege it has “identified millions of instances of infringement involving thousands of BMG copyrighted works using the Windstream network.”  Windstream did not take this letter as a mere April Fool’s Day prank.  Far from it.  Windstream filed a declaratory judgment action.  The music stopped for Windstream when the Court ruled this week there was no “case of actual controversy” between the parties.  The Court also made it clear there would be no encore in the form of an amended DJ complaint because the clerk was ordered to “close the case.” Why did the Court find this DJ action so hopelessly out of tune?  The key is in the factual allegations and the scope of the relief requested by the Plaintiff.  As the Court observed, the complaint did not reference “any specific copyright held by BMG” nor did it reference “any specific act of direct infringement by any Windstream subscriber.”  Instead, Windstream sought a “blanket approval of its business model” by asking for a judicial declaration that it was a “mere conduit for the transmission of Internet services.”   Due to the lack of specifics on any copyright or act of infringement, the Court concluded the complaint was simply seeking an “advisory opinion that apprises Windstream as to whether or how it should respond to Defendants’ notices and whether Windstream qualifies for DMCA’s safe harbor provisions.” If you are representing a DJ copyright plaintiff, make sure your complaint contains allegations regarding the specific work of authorship at issue and the specific act of infringement of which your client is accused.  Also, you should carefully consider what relief you are seeking.  Are you asking for judicial approval of your client’s business model in general, or for specific relief with respect to a specific act of alleged infringement?  It better be the latter if you want your client to sing your praises.  Otherwise, you may be facing some unpleasant music.

A proposal for new e-Privacy legislation by the European Union may have a significant impact on businesses that wish to rely on use-generated data such as meta-data collected from users of mobile devices. Mobile applications and other software often collect users’ meta-data from phones and other mobile devices (as well as from desktop computers) to analyse the data and make it available to other customers. The proposed legislation, published by the European Commission earlier this year (see here), will update existing rules on issues such as direct marketing through email, the use of cookies to provide personalised services (including placement of targeted advertisements) and the collection and use of meta-data. The proposed updated rules will apply to any company that collects data from users in the EU or that provides electronic communications services to end users located in the EU. It will not matter whether the business actually operates in the EU. If it has users in the EU, it will have to comply. Whilst the proposed legislation may still undergo extensive review by European law makers, it is expected that its impact will be felt across the digital industry. The requirement to obtain an ‘opt-in’ from users will capture wider categories of data collection. There will also be specific requirements regarding anonymisation, disclosure and even obligations to consult with regulators before embarking on data collection. Collection of meta-data, even in non-identifiable form, will require consents and will be subject to legal scrutiny. The rules against unsolicited targeted or direct marketing through digital channels will also be tightened with new technologies being captured including “over-the-top” services, such as internet voice calls, instant messaging and web-based e-mail services as well as social media. The EU’s approach is that, subject to certain exceptions, direct or targeted marketing through digital channels (including telephone) requires the prior opt-in by the user. These rules are still ignored by some companies and the EU Commission intends to ratchet up the enforcement tools and to give regulators the power to impose prohibitively high penalties. At the same time, the legislation promises to open up new business models to companies in the telecoms and digital space by allowing even personally identifiable data to be harvested and used, as long as the necessary consents and safeguards are being maintained to avoid abuse of people’s privacy and to ensure that users can require compensation for the use of their data.

Apparently, quite a bit according to the Supreme Court.  The Supreme Court has dipped its toe into the waters of intellectual property law again and has decided to overturn 150 years or more of common law precedent in its decision in SCA Hygiene last week.  SCA Hygiene held a patent on an adult diaper design and sent notice to defendants in 2003 claiming infringement.  Defendants responded that prior art rendered the patent invalid.  Defendants did not hear from SCA Hygiene again for seven years, at which point they received a complaint for patent infringement.  Defendants raised a defense of laches (among others), arguing that the action should be time barred.  The District Court and the Federal Circuit both granted dismissal on the ground of laches. The Supreme Court reversed.  According to the decision, because the patent statute provides for a statute of limitations, the common law defense of laches has no purchase “within” that six year limitation period.  The actual effect is that there is likely no longer a place for laches as a defense in a patent action, even if grounded on a period outside the six year statutory window for damages, as there was a seven year break in action here. This decision was little surprise to observers who watched the Supreme Court come to the same conclusion in a copyright case two years ago.  In Patrella v. Metro-Goldwyn-Mayer, the court held that laches cannot preclude a claim for damages within the 3-year limitations period provided in the Copyright Act.  In Patrella, an heir to the author of the screenplay for the movie Raging Bull reinstated the copyright rights as provided under the statute, but waited 18 years after first notifying the defendant of the claim to bring suit.  At the time of plaintiff’s original notice, the defendant believed that the plaintiff did not hold the necessary right to bring suit.  The defendant asserted a laches as defense due to the long delay in bringing suit. The Court in SCA Hygiene found little difference between the rationale for its prior denial of a laches defense in copyright cases and its present preclusion of laches in patent cases.  The Court concluded that the provisions for statutes of limitations in the Patent and Copyright Acts supersede and supplant any application of the doctrine of laches. Justice Breyer dissented in both instances. So what are we talking about here?  A statute of limitations is a law that limits the time in which a party can institute an action for a claim, either in tort or contract.  The time limit is usually a number of years from the date on which the action accrued (or on which the harm or breach was discovered).  For example, if you are in a car accident, the cause of action accrued when the accident occurred.  Most states provide that you must file suit to recover damages within 2 or 3 years of the date of the accident.  Otherwise, you are deemed to have forfeited your rights to bring an action to recover damages.  The purpose of a statute of limitations is to provide certainty and closure to parties.  The law prevents lawsuits from being raised long after the claim accrued when memories are fuzzy, evidence is gone, and parties have long presumed that the potential grievance was waived and forgotten. Laches is a common law imposition of a limitation on an action implemented by the courts when a determination is made that a party waited far too long to bring an action such that allowing the action to proceed would be unfair or unjust to the defendant.  Unfairness considerations in a laches analysis are similar to the reasons for limitations statutes, for example, upsetting longstanding expectations and evidentiary prejudice.  The decisions in SCA Hygiene and Patrella dive deep into esoteric discussions about differences between the role of laches in historical cases in “equity” vs. in “law.”  Both the majority and the dissent believe that history supports their decision. What is the takeaway?  If you are a patent or copyright owner, your path to seeking redress has been smoothed, even if you wait what may otherwise be considered an inordinate amount of time to bring an action.  If you are a potential defendant that receives notice from a right holder, do not sit back and wait for a plaintiff to take action.  Seek advice of counsel, including an opinion as to whether your actions infringe the asserted rights.  If you have a strong position that you do not infringe or have other legal defenses, assert them either through negotiation to reach a final settlement of the issue or by filing a declaratory judgment action to resolve the claim.  If it is a patent claim, consider using the administrative options of requesting reexamination or other form of post grant review.  Don’t just ignore the situation and hope it goes away, because going forward it is highly likely that a long forgotten claim will rise again without a defense of laches to stop it.

In February, Waymo LLC, formerly Google’s self-driving car development company, sued Uber Technologies, Inc. and others in federal court in San Francisco for, among other things, violations of  the Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836 et seq., and patent infringement, and for a preliminary injunction against defendants’ use of the allegedly misappropriated information.  The complaint alleges that three former Waymo employees downloaded over 14,000 files equating to 9.7 GB of data related to Waymo’s highly confidential “LiDAR” technology that is central to implementing its self-driving technology.  Shortly after downloading this data, Waymo alleges that the three Waymo employees defected to defendants Ottomotto LLC and Otto Trucking LLC, which Uber subsequently acquired several months later for $680 million. Waymo alleges that it inadvertently uncovered the alleged misappropriation and infringement when it received an e-mail from one of its LiDAR component vendors, titled “OTTO FILES,” containing a machine drawing of what purported to be an Otto circuit board – but which bore a striking resemblance to Waymo’s circuit boards.  Waymo investigated the departure of the three former employees and their downloading activities, and confirmed that one employee in particular had downloaded each version of each subsequent generation of Waymo’s LiDAR circuit boards.  The complaint alleges that this employee also sought to erase any evidence of his downloading activities in the weeks prior to his departure from Waymo, and that he met with Uber executives prior to his departure. Until its acquisition of the Otto entities, Waymo alleges that Uber did not possess the technology or know-how to engineer its own LiDAR system, and that it was using a system made by a third-party vendor.  “LiDAR” stands for “Light Detection And Ranging” and uses lasers to measure distances between one or more sensors and external objects in order to measure the light that reflects off of objects to identify potential obstacles in the road.  Waymo (under the auspices of Google) began developing its self-driving technology in 2009 and has developed its own LiDAR system tailored from its 2.5 million miles of autonomous driving on public roads and over a billion miles of simulated driving in its labs. The Misappropriation of Trade Secret Claims Waymo alleges claims under both the Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836 et seq., and the California Uniform Trade Secrets Act, Cal. Civ. Code § 3426 et seq.  The Defend Trade Secrets Act of 2016 was enacted in May 2016 and federalizes trade secret protection, while preserving state law trade secret protections.  The Act provides a uniform definition of trade secrets, misappropriation, and provides for nationwide service of process and nationwide execution of judgments.  There is a three-year statute of limitation for claims alleged under the Act. Under the Act, the term “trade secret” is defined broadly to mean “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.”  (18 U.S.C. § 1839(3)). The term “misappropriation” has the same definition as it does in the Uniform Trade Secrets Act (and the California trade secrets law) and means:  “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or disclosure or use of a trade secret of another without express or implied consent by a person who—(i) used improper means to acquire knowledge of the trade secret; (ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was— (I) derived from or through a person who had used improper means to acquire the trade secret; (II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or (iii) before a material change of the position of the person, knew or had reason to know that— (I) the trade secret was a trade secret; and (II) knowledge of the trade secret had been acquired by accident or mistake” (18 U.S.C. § 1839(5)). Moreover, the term “improper means” is defined to include:  “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and does not include reverse engineering, independent derivation, or any other lawful means of acquisition.” Under both the Federal and California trade secrets laws, Waymo must prove that it took reasonable steps to protect its trade secrets.  Indeed, Waymo alleges that the information obtained by its former employees was encrypted, required passwords, and was accessible only on a “need-to-know” basis.  Waymo further alleges that it required confidentiality agreements with all of its outside vendors and ensured that no single vendor had access to all of its trade secrets, in order to further protect them. Waymo must also identify its trade secrets with reasonable particularity under California law (California Judicial Council of California Civil Jury Instructions (“CACI”) No. 4401).  Waymo has alleged that the misappropriated trade secrets differ from its asserted infringed patents, in that the patents relate to a prior generation of LiDAR designs, which have been subsequently updated to incorporate as-of-yet unpatented designs related to, among other things, measurements for laser beam spacing, elevation, and orientations. If Waymo prevails on its trade secrets claim, it will be able to recover the amount of its actual loss or the amount that defendants were found to have been unjustly enriched in their misappropriation, or both.  (CACI 4409).  Waymo also seeks exemplary damages under Cal. Civ. Code § 3426.3(c) because it alleges that given the circumstances under which defendants obtained their technology, they knew or should have known that the information misappropriated consisted of trade secrets, and their actions were therefore willful, malicious, and fraudulent. Expedited Discovery and Request to Stay Action Pending Arbitration Judge William Alsup, the presiding District Court judge, has since granted the parties the ability to take expedited discovery, including depositions, including with respect to all files allegedly copied by the former Waymo (now Uber/Otto employees) containing the alleged trade secrets.  Waymo’s reply to defendants’ opposition to the motion for preliminary injunction is due on April 21.  The Court will conduct a hearing on the motions on May 4 (Dkt. No. 61). However, on March 29, defendants moved to stay the federal court action and the preliminary injunction motion with respect to the trade secret and unfair competition claims and require Waymo to arbitrate these claims pursuant to the arbitration agreement executed between Waymo and Anthony Levandowski, the first employee to leave Waymo and help form the entities that later became Ottomotto LLC and Otto Trucking LLC (Dkt. No. 125).  Defendants argue that the arbitration provisions require Waymo to arbitrate all disputes “with anyone” that arise out of Levandowski’s employment – including entities not party to the arbitration provisions, such as defendants. Defendants point to the fact that Waymo filed two arbitration demands with JAMs in October 2016 against Mr. Lewandowski in order to bolster their argument.  They argue that Waymo should be equitably estopped from seeking to arbitrate claims with Mr. Levandowski while simultaneously bringing interdependent claims against defendants in federal court.  Defendants argue they will separately initiate arbitration proceedings to seek a declaratory judgment that Waymo’s claims are meritless. However the Court decides defendants’ motion, one thing is certain: with a trillion-dollar industry at stake, the parties will be fastening their seatbelts for what will surely be a rough ride.

California class actions are frequently in the news, often prompted by stories or controversies that have cable news abuzz or involve new cutting-edge technology. On March 16, 2017, a class action lawsuit was filed in San Francisco against Ivanka Trump Marks, LLC.  Modern Appealing Clothing v. Ivanka Trump Marks, LLC, Cal. Sup. Ct, County of San Francisco, Case No. CGC-17-557575. The lawsuit provides an opportunity to review the basics of California’s Unfair Competition Law (“UCL”) (Cal. Bus. & Prof. Code § 17200), which enjoins business practices that are “unlawful, unfair or fraudulent” and explore the statute’s outer limits. The Claim Against Ivanka Trump Marks, LLC The gravamen of the claim is that Ms. Trump’s company is using the power and prestige of her father’s position to sell her products and promote her brands, thereby unfairly competing with other women’s clothing and accessories companies. The putative class is comprised of “[a]ll women’s clothing and accessories businesses in California at any time from November 9, 2016, through the date of trial.” Modern Appealing Clothing (“MAC”), owned by the storied Ospital family, which has been in the business in San Francisco for 40 years, is the representative Plaintiff. On behalf of the class, MAC alleges: “Defendant Ivanka Trump and its employees and agents have, since the election, promoted defendant Ivanka Trump’s brand by exploiting the power and prestige of the White House for personal gain, including, but not limited to, piggy-backing promotion of defendant Ivanka Trump Products on appearances at executive branch and other governmental events. ¶ President Donald J. Trump and his individual and White House employees and agents have, since the election, promoted [sic] defendant Ivanka Trump brand by exploiting the power and prestige of the White House.  For example, President Donald J. Trump has condemned Nordstrom and other retailers for dropping defendant Ivanka Trump’s line. As another example, Counselor to the President Kellyanne Conway endorsed defendant Ivanka Trump’s products on February 9, 2017, in an interview on Fox News from the White House briefing room with the White House insignia visible behind her.  As another example, White House Press and Communications Director Sean Spicer has used his positions at the White House to support defendant Ivanka Trump.” Plaintiffs seek disgorgement of ill-gotten gains as restitution as well as an injunction prohibiting future violations. It is doubtful that this lawsuit will survive a motion to dismiss, but it presents a good case study to consider the UCL and a few of its parameters. Is this a Real Lawsuit or “Fake” UCL Claim? The question is whether the highly-publicized statements and tweets by President Trump, Mr. Spicer and Ms. Conway rise to the level of “unlawful, unfair or fraudulent” promotional activities in violation of Section 17200. There are specific requirements for each of these three prongs, as well as limitations on the remedies that can be sought and the type of injury that must be alleged. Unlawful: Any business practice that violates another law is “unlawful” under Section 17200.  It is not necessary that the law provide a private right of action.  This is what separates California from other jurisdictions which do not allow litigants to cite a violation of a law as a basis for a civil claim unless there is a private right of action. The best example of this is Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1148 (2003), in which a government contractor claimed that its competitor obtained a lucrative defense contract from a foreign government by engaging in bribery in violation for the Foreign Corrupt Practices Act (“FCPA”).  There is no private right of action under the FCPA.  But a violation of the FCPA is sufficient to state a claim.  (The UCL claim failed for other reasons, discussed below.) Here, the Plaintiff’s counsel never bothers to allege what law was violated.  An argument has been made that Ms. Conway’s statement violated 5 C.F.R. 2635.702 which provides: “An employee shall not use his public office for his own private gain, for the endorsement of any product, service or enterprise, or for the private gain of friends, relatives, or persons with whom the employee is affiliated in a nongovernmental capacity, including nonprofit organizations of which the employee is an officer or member, and persons with whom the employee has or seeks employment or business relations.” Assuming that this is the law that undergirds the “unlawful” theory, and that, as many have opined, Ms. Conway violated this regulation by her comments, there is a fatal flaw in the theory.  While the corporate entity may have benefited from the publicity, there are no allegations that Ms. Conway was an agent of the company or that the company directed her to make those comments.  Other than broad and vague allegations of a conspiracy with un-named co-conspirators, the Complaint fails to tie the statements of President Trump, Mr. Spicer or Ms. Conway to the company.  The President talks about and tweets about companies that he likes (and dislikes) all the time, but those companies cannot be said to have violated any regulation by words arguably constituting an endorsement. And there is another problem. Although Korea Supply supports the concept of basing an “unlawful” claim on a federal statute or regulation, the key holding in that case was to limit the types of “restitutionary” recovery that can be obtained by a UCL plaintiff.  “Under the UCL, an individual may recover profits unfairly obtained to the extent that these profits represent monies given to the defendant or benefits in which the plaintiff has an ownership interest.” Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1148 (2003).  Based on this holding, even if they could tie the endorsements to the company, MAC will not be able to obtain the “restitution” remedy it seeks because the profits from the unlawful promotion are not monies that MAC or other competitors gave to Ivanka Trump Mark, LLC.  At most, the claim would be limited to injunctive relief as its sole remedy. Unfair: The next question is whether Ivanka Trump’s company engaged in an “unfair” business practice. “Cases have employed three different criterion to determine whether a business practice is ‘unfair’ under the UCL. One states [a]n ‘unfair’ business practice occurs when that practice ‘offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers. A second rule provides the public policy which is a predicate to the action must be tethered to specific constitutional, statutory or regulatory provisions. A third holds [a]n act or practice is unfair if the consumer injury is substantial, is not outweighed by any countervailing benefits to consumers or to competition, and is not an injury the consumers themselves could reasonably have avoided.” Moran v. Prime Healthcare Mgmt., Inc., 3 Cal. App. 5th 1131, 1150 (2016) (internal quotations and citations omitted). The best case for satisfying the unfair business practice requirement is for MAC to allege that the practice violates public policy, tethered to a regulatory provision.  Again, the difficulty is showing that Ivanka Trump Mark, LLC, through its management, employees or agents, engaged in an allegedly “unfair” business practice as opposed to merely benefiting from ill-advised comments of others. Fraudulent: The last prong of a UCL claim appears to be weakest of the three.  The “UCL’s fraud prong generally ‘require[s] … a showing that members of the public are likely to be deceived.’ [Lueras v. BAC Home Loans Servicing, LP, 221 Cal. App. 4th 49, 81 (2013).] To establish a private party’s standing to maintain a UCL cause of action under the fraud prong, In re Tobacco II Cases, 46 Cal. 4th 298, held the phrase “as a result of” appearing in Business and Professions Code section 17204 “imposes an actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL’s fraud prong.” [In re Tobacco II Cases, 46 Cal. 4th [298, 326 (2009).] Moran, 3 Cal. App. 5th at 1149-50. MAC and the class it seeks to represent – women’s clothing and accessories companies – are not deceived or misled by any act or omission of Ivanka Trump or her company.  They may contend that sales were diverted and they may be annoyed, irritated or harmed by the alleged endorsements, but that is not the same as being deceived. This new Complaint, while it may be creative, is a reminder that, “[a]lthough the unfair competition law’s scope is sweeping, it is not unlimited.” Cel-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 182 (1999).  Stay tuned for further developments on this case to see if the prediction that the lawsuit will not make it past the pleading stage is correct.

As the sun set on 2016, the 9th Circuit Court of Appeals in Sunearth, Inc. v. Sun Earth Solar Power, Co.  embraced a new standard for awarding attorneys' fees in Lanham Act cases.  Adopting the U.S. Supreme Court's rationale in Octane Fitness, the 9th Circuit held that an exceptional case no longer required “malicious, fraudulent, deliberate or willful” conduct.  Instead, the Court held that an exceptional case would now be gauged by a less stringent “totality of the circumstances” test.  This test focuses on two considerations: (i) “the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case)”; and (ii) whether the vanquished party litigated the case in an “unreasonable manner.” This new standard was brought to bear in a recent trademark dispute between DropBox and Thru, Inc.  It all started when Thru petitioned the USPTO to cancel the trademark registration for "DropBox," which resulted in DropBox filing a declaratory judgment action in the U.S. District Court for the Northern District of California.  Thru filed counterclaims for infringement and also moved to dismiss DropBox's DJ action, which the Court denied.  Discovery proceeded, and the Court ultimately granted summary judgment to DropBox on all of Thru's counterclaims.  Seeking to box Thru in even further, DropBox sought recovery of its attorneys' fees and costs. Perhaps Thru believed its petition to cancel at the USPTO and subsequent counterclaims in federal court were just clever episodes of thinking outside the box, but the Court thought otherwise.  In fact, the Court found that Thru's conduct--both before and during the federal litigation--showed "bad faith," supporting an award of attorneys' fees and costs to DropBox in excess of $2,000,000. How did Thru get boxed in like this?  Here's what troubled the Court: Thru's counterclaims were barred by laches. The evidence developed during discovery showed that Thru knew of the allegedly infringing use of the DropBox mark as far back as 2009--earlier than Thru initially represented to the Court-- and there was no valid justification for waiting several years until 2014 before pursuing the infringement claims. The evidence showed Thru intentionally delayed asserting its claims. The Court also found that Thru's delay in asserting the infringement claims was motivated by bad faith.  Internal emails showed that Thru wanted to "slow walk" its infringement claims and would wait until DropBox's initial public offering.  Once the IPO was announced, Thru would "be prepared to file suit that day and make as much noise as we can about it."  The Court did not look favorably upon such tactics. Thru's motion to dismiss was brought in bad faith. At the outset of the litigation, Thru moved to dismiss DropBox's claims for declaratory relief by asserting there was no "case in controversy."  The Court denied the motion to dismiss, and ultimately found that Thru's assertions "we're not credible" because "[b]oth emails and deposition testimony show that Thru had been contemplating litigation for years, opting to wait until DropBox was closer to its IPO." Based on the above, the Court closed the lid on Thru's claims and awarded DropBox a sizable fee award. What are the take-aways from this decision?  Three things:  First, the new Octane Fitness standard for awarding fees in Lanham Act cases is alive and well in the 9th Circuit.  Second, an exceptional case can be found based on a party's litigation conduct as well as its pre-litigation activities.  Third, counsel should be careful to not just check the box in bringing infringement claims, but should also carefully consider whether pre-filing evidence exists that may undermine the party's litigation stance.  Failure to consider these types of things may get counsel and client boxed into a corner.  

In a decision announced today, the Supreme Court held that Varsity Brands is entitled to assert copyright protection in two-dimensional designs featured on its cheerleading uniforms.  These designs consist of various lines, chevrons, and colorful shapes.  Varsity Brands had sued Star Athletica for copyright infringement, alleging that Star’s uniform designs were substantially similar to Varsity Brands’ designs. The Copyright Act makes “pictorial, graphic, or sculptural features” of the “design of a useful article” (i.e., an article having an intrinsic utilitarian function) eligible for copyright protection only if those features can be separated from and can exist independently of the useful article.  The key issue in the case is whether Varsity Brands’ design elements are separable from the cheerleading uniforms on which they are featured. The District Court had ruled against Varsity Brands on the ground that a cheerleading uniform is inseparable from its colored designs, and therefore the designs on the uniforms were not entitled to copyright protection.  The Sixth Circuit reversed on appeal, concluding that the designs of Varsity Brands’ uniforms were separable from the functionality of the uniforms themselves.  The Sixth Circuit also found it significant that Varsity Brands’ designers created their designs without reference to the functionality of the uniform, but instead simply strived to create combinations of colors and shapes that were striking.  The decision to place a design on a uniform was only made after a design concept was completed.  The Sixth Circuit identified nine different approaches courts and scholars had been taking to determine whether a design feature is separable from a useful article. The Supreme Court today crystallized the appropriate test for protection by holding that “the design of a useful article is eligible for copyright protection only if the feature (1) can be perceived as a two- or three-dimensional work of art separate from the useful article, and (2) would qualify as a protectable pictorial, graphic, or sculptural work—either on its own or fixed in some other tangible medium of expression—if it were imagined separately from the useful article into which it is incorporated.”  The Supreme Court rejected the oft-cited distinction between conceptual separability and physical separability, and instead said the language of the Copyright Act supports conceptual separability, even if the design at issue can only be “imagined apart from the useful article.” The approach taken by the Supreme Court is consistent with both its past decision in Mazer v. Stein (which was decided under the 1909 Copyright Act and involved a statuette depicting a dancer intended for use as a lamp base) and with the language of the current Copyright Act, specifically Sections 101 and 113(a).  The Court made clear that the Copyright Act extends protection to pictorial, graphic, and sculptural works “regardless of whether they were created as freestanding art or as features of useful articles.” The key takeaway is confirmation that designs featured on useful articles are protectable under copyright law if they can be perceived independently as a 2-D or 3-D work of art and if they would otherwise qualify for copyright protection.  Accordingly, copyright owners can prohibit reproduction of such designs not only on similar useful articles but in any other medium of expression.  The protection afforded under copyright does not extend, however, to preventing anyone from manufacturing the useful article without any of the design features present.

Fed Ex Office and Print Services recently scored a victory in Great Minds v. FedEx Office and Print Services, Inc., securing dismissal of a copyright infringement action based on the copying of educational materials for school districts.  The case provides a useful reminder about the extent to which licensees with broad grants can utilize third parties to help them exercise their licensed rights, and clarifies the scope of permissible activities attendant to a widely-used Creative Commons license. The plaintiff is a nonprofit organization called Great Minds that produces educational materials that are licensed to school districts in the United States through a Creative Commons license (BY-NC-SA 4.0).  That license permits the school districts “to provide material to the public by any means or process . . . such as reproduction . . . .”  At least two school districts paid FedEx to make copies of a Great Minds mathematics curriculum called Eureka Math. Upon learning about this copying—and after complaining to FedEx to no avail—Great Minds sued for copyright infringement, claiming that FedEx exceeded the scope of the license because the copying of Eureka Math was for its commercial benefit.  Great Minds did not name the school districts as defendants, nor did it claim that, by enlisting FedEx, the school districts had engaged in any commercial use of Eureka Math in violation of the Creative Commons license. The district court disagreed and granted FedEx’s motion to dismiss, finding that FedEx was merely assisting the school districts in exercising their rights under the Creative Commons license.  In doing so, the district court relied upon certain foundational principles relating to the construction and application of copyright licenses, including: claims for copyright infringement fail when the challenged use of the work is authorized by license; the language of the license is the primary factor in determining the scope of licensed rights; copyright licenses are to be construed in accordance with principles of contract law; and unless prohibited by the terms of the license or other circumstantial factors, copyright licensees may enlist others to help them perform licensed activities. Applying these principles, the district court held that Great Minds failed to state a claim for copyright infringement because the unambiguous terms of the Creative Commons license did not limit the school districts’ ability to delegate the printing of the Eureka Math materials to FedEx.  Without such a limitation, it was entirely permissible for the school districts to hire FedEx to assist them in exercising the licensed rights.  In reaching this conclusion, the district court relied upon two cases from the early 20th century standing for the basic proposition that a licensee “may employ, procure, or contract with as many persons as he chooses to supply him with that which he may lawfully use, provided such conduct does not change his relation to the licensor.” See Marconi Wireless Telegraph Co. of Am. v. Simon, 227 F. 906, 910 (S.D.N.Y. 1915) (citing Foster Hose Supporter Co. v. Taylor Co., 191 Fed. 1003, 1004 (2d Cir. 1913)).  It did not matter that FedEx profited from the copying because the school districts—not FedEx—were exercising the licensed right to reproduce Eureka Math.  And because the school districts were not using Eureka Math for commercial purposes, they did not exceed the scope of the license. Although Great Minds affirms the rights of licensees to enlist third parties to assist them in exercising the licensed rights, and offers a modicum of protection to those third parties for claims of infringement, caution is still warranted outside the context of the Creative Commons license.  First, the decision was based primarily on the fact that  that the Creative Commons license did not prohibit delegation of the right to reproduce the Eureka Math materials, and that by employing FedEx, the school districts were not themselves exceeding the license by engaging in a commercial use.  Further, there are other circumstances under which delegation still may be improper, even in the absence of an express contractual prohibition.  For example, the delegation cannot constitute a de facto assignment of the license (which would require permission from the licensor), nor can it undermine a licensor if the sole use by the licensee was significant to the particular license.   See Raymond T. Nimmer and Jeff C. Dodd, Modern Licensing Law, § 6.21 (Dec. 2016 Update). In the end, it all comes down to the scope of the license.  To that end, Creative Commons was pleased with the result, stating on their website that “[t]his is the very result [Creative Commons] advocated for in its motion for leave to file an amicus brief, and we’re delighted with the outcome, the ruling, and the court’s analysis.”

  In December 2015, the TMCA blogged about a decision in In re Tempnology, LLC, in which the Bankruptcy Court for the District of New Hampshire held that a debtor’s rejection of a licensing agreement in bankruptcy terminated the licensee’s rights to continue using the “Coolcore” brand for chemical-free cooling fabrics. Back then, we noted that the decision was pending on appeal before the Bankruptcy Appellate Panel for the First Circuit (the “BAP”).  The BAP has spoken, and its decision rejects the bankruptcy court’s approach—rooted in case law from 1985—in favor of the modern trend of expanding protection for trademark licensees. Here are some highlights from our December 2015 post that are relevant to a discussion of the BAP’s decision: In 1985, the Fourth Circuit held that a licensee under an IP licensing agreement rejected by a debtor-licensor loses the right to continue using licensed IP, in the case of Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985). In 1988, Congress enacted Section 365(n) of the Bankruptcy Code, which provides for licensees to retain their rights, including exclusivity rights, to use “intellectual property” and continue paying royalties for the duration of an executory licensing agreement that is rejected by a debtor-licensor. The Bankruptcy Code’s definition of “Intellectual Property” does not include trademarks. Until 2010, courts commonly read the omission of trademarks from the definition of “Intellectual Property” to create a “negative inference” that Congress intended for Lubrizol to govern trademark licensing rights when a debtor rejects a licensing agreement. Under the “negative inference” approach, a licensee must cease producing and selling goods bearing the licensed trademark, frequently on relatively short notice. In the past six years, the Federal Courts of Appeals for the Third, Seventh, and Eighth Circuits have rejected the “negative inference” in decisions that permit licensees to continue using licensed trademarks to produce and sell goods. Back to In re Tempnology, after the debtor rejected a co-marketing and distribution agreement providing a non-exclusive license to use the “Coolcore” trademark and logo, the counterparty, Mission Products Holdings, Inc., sought to preserve its rights under Section 365(n).  The bankruptcy court applied the “negative inference” and held that Mission could not retain its rights to use Tempnology’s trademarks and logos.  It further found that Section 365(n) did not protect Mission’s exclusive distribution rights. The BAP affirmed the bankruptcy court’s conclusions that Mission’s exclusive distribution rights, as well as its trademark rights, were unprotected by Section 365(n).  However, it reversed the bankruptcy court’s finding that the debtor’s rejection of the agreement terminated Mission’s rights in the trademark and logo.  The BAP adopted the rationale set forth in Sunbeam Products v. Chicago American Manufacturing, 686 F.3d 372 (7th Cir. 2012), cert. denied, 133 S. Ct. 790 (2012):  rejection of an agreement by a debtor does not “vaporize” the licensee’s trademark rights under the agreement.  The BAP found, like the Seventh Circuit, that such post-rejection rights are governed by non-bankruptcy law. Thus, although Section 365(n) does not protect a licensee’s trademark rights, a debtor’s rejection of a contract conferring a trademark license—the same act that would trigger Section 365(n) if the Bankruptcy Code’s definition of “Intellectual Property” included trademark rights—does not nullify the contract.  Rather, the act is tantamount to a breach and gives rise to state law contract damages or other applicable remedies for the counterparty, in this case Mission.  As the BAP’s decision highlights, this result is consistent with Section 365(g) of the Bankruptcy Code, which deems a debtor’s rejection of an executory contract it has not assumed to be a breach of the agreement immediately before the date the debtor filed its bankruptcy petition.  In such an instance, a counterparty like Mission is generally left with a claim for damages as of the petition date and its substantive contractual rights remain intact, excluding a right of specific performance against the debtor. The BAP’s decision is a victory for the right of trademark licensees to use licensed marks, but considering the issues that go hand-in-hand with trademark use, it may be a limited one.  Parameters of the licensee’s use of a trademark (i.e., Section 365(n)’s specification that a licensee may retain and exercise contractual rights to use the trademark for the duration of the contract), the status of the licensee’s non-trademark rights under the same agreement with the debtor (i.e., Mission’s distribution rights), and the debtor-licensor’s rights against the licensee remain unclear. Our December 2015 post points out a drafting lesson derived from the Tempnology case that holds true—to separate IP licensing agreements from agreements on matters unrelated to IP, such as distribution.  As the BAP’s decision shows, bootstrapping non-IP rights to an IP agreement likely will not achieve protection of those rights under Section 365(n).  Additionally, as we noted before, bundling various IP rights in an integrated agreement may help secure the protections of Section 365(n). Mission has appealed the BAP’s decision to the First Circuit Court of Appeals.  At this time, appellate briefing is not complete, but there can be little doubt that the appeal is an opportunity for the First Circuit to expound upon the applicability and scope of Section 365(n).  Whether and to what extent the First Circuit embraces the approaches of the lower courts and/or other circuits remains to be seen.

The Sixth Circuit recently issued an opinion in NetJets Inc. v. IntelliJet Group, LLC Inc. (unpublished), holding that where a trademark registration is incontestable, it may not be cancelled on the ground that it was void ab initio due to failure to use the mark in commerce at the time of registration. NetJets is a private aviation company specializing in fractional ownership of private airplanes, aircraft-leasing services and private jet services. In 1995, NetJets’ predecessor applied to register the trademark INTELLIJET in connection with computer software for managing the business of aircraft leasing and sales.  The application matured to registration, and in 2002, NetJets filed a “declaration of use and incontestability” that was accepted by the USPTO. IntelliJet Group is a company formed in 2005 that acts as a broker for private jet services and helps customers buy or sell aircraft.  NetJets sued IntelliJet Group for trademark infringement and unfair competition under federal and state law, relying on its incontestable registration for the INTELLIJET mark.  IntelliJet Group denied the allegations of likelihood of confusion and asserted a counterclaim for cancellation of NetJets’ registration on the grounds of abandonment and that the registration was void ab initio. The Ohio federal district court granted summary judgment to IntelliJet Group on NetJets’ claims for trademark infringement and unfair competition and on IntelliJet Group’s counterclaim for cancellation.  The court agreed with IntelliJet Group that NetJets’ registration was not in fact incontestable because internal use of the software by NetJets did not satisfy the use “in commerce” requirement of the Lanham Act.  Thus, according to the district court, the mark was not incontestable and the registration could be challenged on the ground that it was void ab initio. The Sixth Circuit reversed the district court’s grant of summary judgment to IntelliJet Group on the counterclaim for cancellation of NetJets’ registration.  The Sixth Circuit began its analysis by determining whether IntelliJet Group had established a valid ground for cancellation.  Pursuant to 15 USC § 1064, a mark registered for five years can only be cancelled on limited grounds, including fraud, abandonment and genericness.  Void ab initio is not one of the specified grounds.  IntelliJet Group argued on appeal that the limitations of § 1064 should not apply to registrations where there was no use in commerce prior to the date of application.  Under those circumstances, according to IntelliJet Group, the application would be void ab initio and the mark could not be deemed incontestable.  The 6th Circuit disagreed, holding that it was not necessary to examine whether or not the mark is incontestable because § 1064 barred IntelliJet Group from bringing a claim for cancellation on the ground that the application was void ab initio. However, the 6th Circuit found there was no likelihood of confusion between the parties’ marks, and thus affirmed the grant of summary judgment to IntelliJet Group on all of NetJets’ claims for infringement and unfair competition.  In addition, it remanded the case to the district court to address IntelliJet Group’s argument that NetJets had abandoned its mark through non-use, since a challenge to the registration on the ground of abandonment is one of the limited grounds for cancellation permitted by § 1064. The Sixth Circuit’s conclusion that § 1064 does not permit an affirmative claim for cancellation based on a void ab initio challenge after five years is based on sound textual analysis.  There is also good reason to “quiet title” in a federal registration after five years by narrowly limiting the grounds for cancellation.  The appellate court’s analysis is also consistent with the fact that the narrow grounds of cancellation under § 1064 apply whether or not the registrant has obtained the benefits of incontestability by filing and obtaining acceptance of a Section 15 declaration of incontestability.  Thus, in evaluating whether IntelliJet Group had a viable counterclaim for cancellation of NetJets’ registration, it was irrelevant to the appellate court whether the registration was incontestable or not. Nevertheless, even if a party cannot affirmatively request cancellation of a registration on the ground that the underlying application was void ab initio, a party defending against a trademark infringement action should be permitted to attack the validity of a plaintiff’s trademark rights, including whether the mark was in fact used on the goods or services covered by the registration and/or sold externally to customers, unless those rights have become incontestable.  The Sixth Circuit implicitly concludes that once the declaration of incontestability is filed and accepted, the registration is incontestable.  But that severely limits the opportunity to test the veracity of a self-interested party’s declaration that the mark was actually used in commerce for five years.  While § 1115(b) permits a party to contest a declaration on the grounds of fraud, NetJets exemplifies why this may not be sufficient.  It does not appear that NetJets used the mark in commerce, but neither does it appear NetJets committed fraud – which includes an intent to deceive – in asserting the mark was used in commerce.  The result: NetJets arguably has an incontestable registration, despite not having used the mark in commerce for five years continuously, and IntelliJet Group is left without grounds to challenge the mark.  Even if this is the correct result, it should be explicitly analyzed and decided. Whether a party can request cancellation of a registration, and whether a mark is incontestable are not two sides of the same coin – they are different inquiries, controlled by different statutory sections, and have different effects.  Regardless of whether a party may petition to cancel a registration, absent threshold trademark rights, a plaintiff should not be permitted to prevail on its claims, and a defendant should not be limited in the evidence it presents to undermine a registration unless the registration has become incontestable.

In a recent blog post, we introduced you to the new Consumer Review Fairness Act (CRFA), which prohibits businesses from including non-disparagement or “gag” clauses in their form contracts. The CRFA goes into effect later this month and will be enforced by the Federal Trade Commission.  Last week, the FTC issued a guide for businesses with recommendations on what they can and can’t do under the CRFA. Here are a few key points from the guide: The CRFA covers consumer reviews, whether made as an online review, social media post, or an uploaded video or photo. The FTC’s guide also makes clear that the CRFA covers consumer posts about a business’ customer service. The CRFA makes it illegal for businesses to include provisions in their form contracts that: bar or restrict the ability of a consumer to review a company’s products, services, or conduct; impose a penalty or fee against someone who gives a review; or require people to give up their intellectual property rights in the content of their reviews. The FTC’s guide makes clear that the CRFA does not cover provisions in employment contracts or agreements with independent contractors. Businesses may still remove content that: contains confidential or private information; is libelous, harassing, abusive, obscene, or otherwise inappropriate; is unrelated to the company’s products or services; or is clearly false or misleading. The guide also makes clear that the FTC will treat a violation of the CRFA the same was as it treats a violation of any FTC rule that defines an unfair or deceptive act or practice. This means that a business could be subject to financial penalties for violating the CRFA, as well as a federal court order. The FTC recommends that businesses be proactive and review their form contracts, including website terms and conditions, and remove any non-disparagement provisions, even if they have no intention of trying to enforce these provisions. Of course, we do not yet know how businesses will respond to the CRFA, or how aggressive the FTC will be in enforcing it, although the new guide makes clear that the CRFA is front and center on the FTC’s radar.

The Sixth Circuit Court of Appeals recently issued an important decision about the bona fide intent requirement when filing an intent to use (“ITU”) application and the consequences when there is a lack of bona fide intent as to some, but not all, of the goods or services identified in an application.  While the issue of bona fide intent to use is typically adjudicated by the Trademark Trial and Appeal Board, the issue in Kelly Services Inc. v. Creative Harbor LLC arose in federal court as part of a dispute over who had priority to use the mark WORKWIRE in connection with employment-based software applications.  The appellate court decision generated both a majority and dissenting opinion as to whether an application should be voided in its entirety, or selected goods stricken, when the lack of bona fide intent affects only some of the goods in the application. Creative Harbor is a start-up technology company that creates original content to be used across all media platforms.  On February 19, 2014, at 6:28 and 7:56 p.m. EST, Creative Harbor filed two ITU applications for the mark WORKWIRE covering 36 different goods and services, including computer application software for a variety of functions. Kelly Services is large staffing agency that began developing an app for its employment placement services in early 2013.  Soon after, Kelly Services decided to call its app “WorkWire.”  The app was released on the Apple App Store at 8:11 p.m. EST on February 19, 2014, with the first download occurring on February 20, 2014.  Thus, the filing of Creative Harbor’s ITU applications and the release of Kelly Services’ app occurred within hours of each other on the exact same day, setting up a priority battle. Less than a month after Kelly Services’ app was released, Creative Harbor sent a protest letter to Kelly Services demanding that it stop using “WorkWire” as the name of its app.  In response, Kelly Services filed suit in federal court in the Eastern District of Michigan seeking, among other things, a declaratory judgment that: (i) it had priority over Creative Harbor to the “WorkWire” mark; (ii) its use of “WorkWire” did not infringe upon Creative Harbor’s rights; and (iii) any rights Creative Harbor had in the WORKWIRE mark were invalid.  On May 2, 2014, Creative Harbor counterclaimed for declaratory judgment that it had superior rights in the WORKWIRE mark because its ITU applications for the mark were filed before Kelly Services commenced use. Soon after Creative Harbor’s applications were published for opposition, Kelly Services opposed them and the opposition proceedings were suspended pending the outcome of the district court action. Creative Harbor’s CEO, Christian Jurgensen, testified at a deposition that he instructed his attorney “to ‘protect the [WORKWIRE] mark’ as to different products and services for which the Mark ‘could’ eventually be used ‘in case the brand got bigger.”  Mr. Jurgensen also testified that: At the time the applications were filed, Creative Harbor had “clear ideas” for some of the goods and services, and some were meant for “future exploration.” Creative Harbor did not intend to use WORKWIRE on a computer game. He did not know what employee relations information services referred to. With regard to professional credentialing verification services, “he simply wanted to keep the option open to do that at some point.” As to business consulting services, Creative Harbor “could perhaps perform those services at some point in the future.” On cross-motions for summary judgment on the issue of priority, based on Mr. Jurgensen’s testimony, the district court concluded that Creative Harbor lacked the requisite bona fide intent to use the WORKWIRE mark on certain of the goods and services covered by its applications.  As a result, Creative Harbor’s applications were held to be void in their entirety. On appeal, Creative Harbor argued that the district court erred in finding that it lacked a bona fide intent to use the WORKWIRE mark on some of the goods and services contained in the applications, but even if it did lack the requisite intent, its applications should not have been voided in their entirety. The majority and dissenting opinions in Kelly Services agreed that Creative Harbor lacked a bona fide intent to use the WORKWIRE mark on at least some of the goods and services identified in the two applications at issue.  Based on the deposition testimony of Creative Harbor’s principal, the district court correctly held that Creative Harbor lacked a “firm intention” to use the mark with all of the goods and services identified in the applications and had included some of the goods and services merely to “reserve a right” in the mark. Where the majority and dissenting opinions diverged was in the legal consequences of lacking a bona fide intent to use the mark on some but not all of the goods and services in the application.  The majority opinion conducted a detailed analysis of the procedural context and holdings in four decisions of the TTAB on the issue, which were not easy to reconcile.  One such case was Grand Canyon West Ranch LLC v. Hualapai Tribe, 78 USPQ2d 1696 (TTAB 2006), where the application at issue was filed based on use in commerce (i.e., not ITU), and the applicant had failed to use the mark in connection with all of the goods listed in the application prior to the filing date.  The TTAB in Grand Canyon held that absent proof of fraud or that an applicant failed to use its mark on all of the goods or services in a use-based application, the application will not be deemed void in its entirety.  Rather, the applicant should be permitted to cure the problem by amending its application to delete the offending goods. The 6th Circuit ultimately concluded that the approach in Grand Canyon was correct, and should be applied by analogy to ITU applications.  Thus, the majority opinion held that absent fraud or proof that bona fide intent to use was lacking for all of the goods and services in an ITU application, the correct remedy is not to declare the application void ab initio, but rather to delete the goods or services for which an intent to use was lacking.  This was deemed the appropriate result whether or not an applicant took affirmative steps to seek an amendment of its application to delete the offending goods. The dissenting appellate judge credited the majority opinion with providing a “more-or-less accurate summary of the inconsistent landscape of TTAB precedent that has led to the dispute in this appeal....”  However, the dissent read the four decisions by the TTAB differently, concluding that in order to avoid invalidation of an application in its entirety,  an applicant must move to amend its application to delete goods for which bona fide intent to use cannot be established: “TTAB precedent suggests that it is incumbent upon the applicant to amend its application to eliminate portions of its [Section] 1(b) ITU application for which it cannot demonstrate bona fide intent, or else risk having the entire application voided.”  Because Creative Harbor did not take advantage of this remedy, the dissent maintained that the district court had correctly voided both of Creative Harbor’s applications ab initio. It will be interesting to watch for subsequent cases in the TTAB to see if the Board agrees with the majority opinion of the 6th Circuit in Kelly Services or further clarifies the import of the four decisions analyzed by the federal appellate court.

Assignment of an intent-to-use trademark application can be fraught with risk. To deter “trafficking” in ITU applications, Section 10 of the Lanham Act prohibits the assignment of an ITU application before an amendment to allege use has been filed unless the assignment is to a successor to all or a portion of the business of the applicant to which the mark pertains. A recent non-precedential decision of the U.S. Court of Appeals for the Federal Circuit in Emerald Cities Collaborative, Inc. v. Sheri Jean Roese shows how an improper assignment of an ITU application can fatally undermine the later enforcement of trademark rights. The case involved an application for the mark THE EMERALD CITY, filed on an intent-to-use basis by Perry Orlando in November 2008, later assigned to Emerald Cities Collaborative, Inc. (“ECC”) for business consulting services for the renewal energy industry. The subsequently issued registration was the basis for an Opposition filed by ECC against an ITU application filed by Sheri Jean Roese to register EMERALD CITIES for consulting services relating to environmentally friendly and sustainable products and services. Because of the overall similarity of the marks and the services, one would think this Opposition would have been a cakewalk down the yellow brick road.  But it wasn’t, and here’s why. In December 2009, ECC entered into an agreement with Orlando entitled “Trademark Assignment and License.” The agreement had an effective date of December 30, 2009 and expressly provided that the agreement “shall commence on the Effective Date.  While Orlando and ECC may have been attempting to make the assignment effective only upon the future registration of the THE EMERALD CITY mark, a number of provisions in the agreement contradicted that intention. Between the effective date of the assignment and registration, the agreement provided that Orlando “may continue” to use the mark, and upon registration and completion of the transfer of the mark, ECC would then license certain rights to Orlando.  The agreement also provided that Orlando would immediately receive $25,000 and, upon payment and execution of an irrevocable Power of Attorney, ECC’s co-founder would take over the prosecution of the pending intent-to-use application. Orlando agreed to execute any necessary documents to prosecute the application to registration, promised to make use of the mark by January 31, 2010, and to provide evidence for filing an amendment to allege use for the mark. The amendment to allege use was filed in April 2010, long after the effective date of the Agreement, and claimed a date of first use in commerce of January 15, 2010, also after the effective date of the Agreement.  The application proceeded to registration and, in July 2010, Orlando and ECC recorded an assignment of the registration to ECC with an effective date of July 6, 2010. ECC filed an Opposition in October 2010 against Roese’s application for EMERALD CITIES. Roese asserted affirmative defenses and a counterclaim to cancel ECC’s registration based on the improper assignment of an ITU application. The TTAB ruled that the Agreement, when construed as a whole, was an improper assignment of the intent-to-use application, rejecting ECC’s argument that the Agreement was merely an agreement to assign the mark in the future.  According to the Board, “the overall scheme and plan” of the Agreement reflected that, upon execution, Orlando relinquished, and ECC acquired, immediate control and ownership of the ITU application and mark, in a “manner tantamount to an assignment.” That included the right to control the quality of the goods and services sold under the mark by Orlando, the de facto licensee. Accordingly, the registration for the mark THE EMERALD CITIES was cancelled. Adding insult to injury, ECC could not rely upon any common law rights in its mark as the basis for the Opposition because it failed to claim those rights in the Opposition filed against Roese’s application.  The CAFC affirmed. Two lessons highlighted in this case: Do not fail to assert any common law rights that may exist in a trademark as a basis for an Opposition proceeding; and Do not assign an ITU trademark application before an amendment to allege use is filed and accepted at the PTO, unless the assignee is a successor to the business of the applicant. An improper assignment will result in a twister capable of wiping out a registration.

The NCAA has a well-deserved reputation for being quite zealous when it comes to protecting its registered trademark “March Madness.”  We previously blogged about this here at TheTMCA.com.  But a recent opposition filed by the NCAA at the TTAB takes “zealous advocacy” to new heights. About a year ago, the Big Ten Conference filed an intent-to-use application for “MARCH IS ON!” for a variety of television transmission and entertainment services related to athletic events and contests.  The examiner found “no conflicting marks that would bar registration” under the Lanham Act and MARCH IS ON! was published for opposition.  The NCAA received extensions of time to oppose the application, presumably for the purpose of exploring a possible resolution with the Big Ten or at least finding out more about how the Big Ten intends to use the MARCH IS ON! mark.  On February 13, the clock ran out on any further extensions of time, so the NCAA decided it was “game on” and filed an opposition to MARCH IS ON! The NCAA cites three registrations for “March Madness” as the basis for the opposition and concludes as follows: Use by Applicant of MARCH IS ON! for the services set forth in the Application is likely to result in confusion, mistake, or deception with Opposer, or the goods and services marketed in connection with Opposer’s MARCH MADNESS Mark, or in the belief that Applicant or its MARCH IS ON! Services are in some way legitimately connected with, or licensed or approved by, Opposer. The only basis for this alleged "confusion" between the two marks would be that they both contain the word “March,” which is, of course, the month when college basketball hits its zenith. So, what are we to conclude from the NCAA’s opposition? A reasonable take-away is that the NCAA believes it can exclude others from using the word “March” in conjunction with any sort of sports-related entertainment services. That may be a stretch. Unless the case settles, the TTAB will get to decide whether the NCAA can claim such expansive rights to the name of a month of the year. But the TTAB officials may conclude that this latest filing at the USPTO can be summed up in one word: Madness.

President Trump’s deep freeze of regulatory actions has delayed the effective date of new rules issued by the United States Patent and Trademark Office (USPTO) to assess and promote the accuracy of the trademark register. Marks that receive federal protection but are not actually used in commerce are known as “deadwood.”  Having an accurate and reliable trademark register helps avoid needless costs and burdens on the public caused by the presence of deadwood in the Federal Trademark Registry, such as conducting use investigations, proceedings to cancel the registration or oppose the application, civil litigation, or selecting alternative marks.  Because deadwood is a drag on the whole registration system, the USPTO has adopted new rules to address this issue. See Changes in Requirements for Affidavits or Declarations of Use, Continued Use, or Excusable Nonuse in Trademark Cases. Effective March 21, 2017, the new rules will allow the USPTO to require additional evidence of use (such as exhibits, affidavits or declarations) to verify that a trademark is in use in commerce in the United States in connection with all of the goods and/or services listed in the registration or application.  These rules apply to the examination of: Affidavits or declarations of continued use or excusable nonuse filed pursuant to Section 8 of the Trademark Act; and Affidavits or declarations of use in commerce or excusable nonuse filed pursuant to Section 71 of the Trademark Act. This is a shift from the current practice which requires an applicant or registrant to submit only a single specimen of use or continued use in commerce per class of goods and/or services listed for Section 8 or 71 affidavits. The USPTO took action to correct the issue of deadwood after a two year pilot program found that in 51% of the 500 registrations selected for the pilot, the trademark owners were unable to supply additional verified evidence of use on goods and/or services for which use in commerce was initially claimed. The new rules also enable the USPTO to clear the register of marks that were never in use or are no longer in use by cancelling, in whole or in part, registrations for marks that are not in use for the goods and/or services identified in the registration.  Section 8 or 71 affidavits in which the mark is registered for more than one good or service per class will be subject to random audit by the USPTO.  The USPTO anticipates that it will initially conduct random audits of up to 10% of such affidavits, and may increase the percentage going forward. To prepare for the changes in USPTO examination practice, applicants and registrants should consider taking the following actions: Conduct an audit of your trademark portfolio to ensure evidence of use exists for all goods and/or services identified in the applications or registrations; For goods and/or services no longer in use, amend the applications or registrations to remove those goods and/or services; and Retain evidence of use for all goods and/or services listed in the applications or registrations. Taking these actions will help prevent your valuable trademark assets from turning into deadwood to be cleared away by the USPTO.  

Comparative advertising can be highly effective in touting the advantages of a company’s products against those of its competitor, but the language used must be carefully crafted and accompanying visual depictions should be examined to determine if they convey an unintended message about the scope of the ad claim. Two recent decisions by the National Advertising Division highlight the problems that arise when comparative advertising communicates an implied message about an entire line of a competitor’s products, even though the advertiser may only be able to substantiate the comparative claim as to specific products sold by the competitor. The first case (NAD Case No. 6041, Dec. 23, 2016) was brought by L Brands, owner of Bath & Body Works, challenging a 60 second online video ad entitled “Let Your Senses Decide,” created by Unilever United States for its Suave Essentials Body Wash products. In the video, women were shown taking part in a blind sniff and compare test of three particular bath and shower gels sold by Bath & Body Works vs. three Suave body washes. The results of the sniff test revealed a preference for the three Suave products. L Brands argued that the commercial communicated a broader “line” claim about a general preference for Suave body washes over the entire line of Bath & Body Works bath and shower gels. NAD agreed. NAD first reiterated the four factors it considers to determine whether a commercial communicates a “line” claim: (1) are there general brand references in the ad; (2) does the text of the ad limit the applicability of the ad claim; (3) does the ad show just the specific competitive product targeted by the claim; and (4) is there a “beauty shot” of a full line of products that may reinforce the extended applicability of the ad claim. As a general rule, according to NAD, “where an advertisement makes general brand references but fails to adequately qualify the claim to limit its applicability to the one product shown in the advertisement, NAD has found that it is likely to convey the message that the benefits or attributes touted extend to the entire product line.” In the case of the sniff test video, the Suave Essentials brand logo remained on screen for almost the entirety of the video, and consumer respondents shown in the ad made general comments about Bath & Body Works. The specific fragrances tested were held up in the ad, but fleetingly, and the identification of the three products compared was communicated clearly only in the last few seconds of the commercial. A basket of Suave products was also displayed on screen with the three fragrances tested, but it was difficult to identify what was in the basket. All of these elements contributed to NAD’s conclusion that the net impression from the video was a general comparison of the Suave line of body washes to the full line of Bath & Body Works bath and shower gels. Because Unilever did not have substantiation for a full line comparative ad claim, NAD recommended that Unilever’s commercial be discontinued. In the Advertiser’s Statement, Unilever expressed its respectful disagreement with the decision and stated that it intended to appeal to the National Advertising Review Board. In a second decision (NAD Case No. 6043, Jan. 2017), Procter & Gamble successfully challenged Reckitt Benckiser’s 15 and 30 second television commercials comparing its Finish Tablets with Powerball detergent vs. Procter & Gamble’s Cascade Gel. RB’s advertising claim expressly stated that “unlike Cascade Gel, Finish has active enzymes,” but P&G argued that the ad did not sufficiently highlight that RB was comparing two different types of detergent products. In addition, other aspects of the commercial communicated a misleading message about the broader Cascade detergent line, when in fact, all of the products in the Cascade line except for Cascade gel contain active enzymes. On the first point, NAD observed “While advertisers are free to highlight differences between their products and can compare two dissimilar products even if there are more similar products made by the respective companies, the advertising should clearly identify the objects of the comparison and avoid implying that the comparison is to a competitor’s more similar product, or that the competitor does not make a more similar product.” NAD concluded that RB's commercial featured an “inappropriate apples-to-oranges comparison” because the objects of the product comparison were not clearly identified. NAD further determined that the challenged commercial reasonably communicated a line claim both as to Finish and Cascade, based on the four factors listed above in the Suave case. Although the Finish ad specifically mentioned Cascade Gel, the commercial showed a woman picking up a different Cascade product that did contain enzymes -- Cascade Action Pacs. The commercial also included general brand references to both Finish and Cascade, e.g., “Finish is recommended by more dishwasher brands worldwide than Cascade.” As NAD concluded, “The depiction of other Cascade products as well as the general reference to Cascade muddies the basis of comparison because the Cascade product shown in the commercials is the enzyme-containing Cascade Action Pacs.” Accordingly, NAD recommended that the television commercials referencing the challenged enzyme and performance claims be discontinued. In the Advertiser’s Statement, RB accepted NAD’s decision on the line claim issue, but said it would appeal other aspects of the decision on which P&G prevailed. The takeaways from these two cases is that comparative advertising must be carefully targeted and narrowly drawn to refer only to specific products of the competitor unless a company has adequate substantiation to justify a line claim. Surrounding context, such as visual elements, other products shown or general brand mentions elsewhere in the ad can transform a specific product comparison to a line claim that cannot be substantiated. Further, apples-to-oranges comparisons are permissible, but again, surrounding context may create a misleading impression if the ad does not clearly identify the objects of the comparison and highlight material differences in the products being compared.

The Kardashians, America’s favorite celebrity family, have been having a tough time of late, with Kim Kardashian being robbed at gunpoint in her Paris apartment, and her husband Kanye West attracting criticism for his support of Donald Trump.  A federal appeals court has recently added to the Kardashians’ woes. In a pun-laden opinion, the Eleventh Circuit Court of Appeals affirmed the district court’s ruling in Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc. that the Kardashian sisters Kim, Kourtney, and Khloe (the “Kardashians”) could not rely on the doctrine of equitable estoppel to compel Plaintiff Kroma Makeup EU, LLC (“Kroma EU”) to arbitrate its claims.  The Eleventh Circuit noted that at “first blush, the issue appears to require application of Florida’s doctrine of equitable estoppel under which a party to an agreement who relies on it in a dispute with a non-party can be required by that non-party to comply with other terms of the agreement, including the arbitration clause.”  However, as the court put it, “there is a wrinkle in this case:  the arbitration clause which the non-party to the agreement is seeking to enforce is explicitly limited to disputes between the parties.”  Where the arbitration clause is so limited, the Eleventh Circuit held that the non-party (the Kardashians) could not “re-sculpt what appears on the face of a contract” to force a party to the agreement (Kroma EU) to arbitrate its claims against the Kardashians. Background Back in 2004, the make-up company By Lee Tillett, Inc. (“Tillett”) developed and registered the Kroma trademark for a cosmetics line.  In 2012, Tillet entered into an agreement giving Kroma EU the exclusive rights to sell and distribute Kroma products in the EU.  The agreement contained an arbitration clause, stating in relevant part that “the Parties agree that disputes arising between them . . .  should be considered [in] independent arbitration in the State of Florida, United States.” While the Kroma EU agreement was in effect, the Kardashians entered into a licensing agreement with Boldface Licensing + Branding, Inc. (“Boldface”) to create a Kardashian makeup line named “Khroma.”  Boldface filed a lawsuit against Tillet for a declaratory judgment of non-infringement, and Tillett asserted counterclaims against Boldface and the Kardashians for trademark infringement. After that suit settled, Tillett refused to share any of the settlement proceeds with Kroma EU.  As a result, Kroma EU brought claims for trademark infringement and tortious interference with contract against Boldface, claims for vicarious liability for trademark infringement against the Kardashians, and a claim for promissory estoppel against Tillett.  The district court granted Tillett’s motion to compel Kroma EU to arbitrate, but denied the Kardashians’ motion to compel Kroma EU to arbitrate its claims against them.  The Kardashians appealed to the Eleventh Circuit. Analysis The Eleventh Circuit first clarified that although federal law generally governs arbitration agreements, the “issue of whether a non-signatory to an agreement can use an arbitration clause in that agreement to force a signatory to arbitrate a dispute between them is controlled by state law,” and that the parties “agree that Florida law controls on that issue.” The Kardashians argued that even though they are non-signatories to the agreement between Kroma EU and Tillett, they could nonetheless compel Kroma EU to arbitrate its claims by relying on Florida’s doctrine of equitable estoppel.  Under that doctrine, a defendant who is a non-signatory to an agreement containing an arbitration clause can force arbitration of a signatory’s claims when “the signatory . . . must rely on the terms of the written agreement in asserting its claims against the non-signatory.” As the court explained, however, a “non-signatory cannot invoke the doctrine to compel arbitration of claims that are not within the scope of the arbitration clause.”  Relying on the Florida District Court of Appeal’s decision in Koechli v. BIP International, Inc., 870 So. 2d 940 (Fla. 1st DCA 2004), the Eleventh Circuit held that, to invoke equitable estoppel, the Kardashians would need to show not only that Kroma EU was relying on the agreement to assert its claims against them, but also that the scope of the arbitration clause covered the dispute. The court then turned to the arbitration clause at issue, which by its own terms was limited to disputes between the “Parties.”  Because the Kardashians were not “Parties” to the agreement within the scope of the arbitration clause, the court held that they were barred from relying on equitable estoppel to compel arbitration of the claims against them. In doing so, the court rejected the Kardashians’ argument that such a conclusion ignores the “equitable nature” of the doctrine of equitable estoppel, which (in the Kardashians’ view) should operate to permit a non-signatory who is not bound by an agreement to enforce it notwithstanding the fact that the claims are outside the scope of the arbitration clause.  Indeed, the court found that “[s]uch a holding would be, well, inequitable” because it would “effectively be rewriting the agreement between the signatories about which disputes they would arbitrate to require one of them to arbitrate disputes that they had not agreed to.”  As the court explained, “Kroma EU never consented to arbitrate any disputes between it and the Kardashians or any other non-signatory.  All it consented to arbitrate were disputes between it and the other party, which was Tillett.”  By contrast, if the arbitration clause was not limited to disputes between the parties, but covered “any disputes concerning the validity, interpretation, etc., of the contract . . ., the Kardashians may have been able to use equitable estoppel to require Kroma EU to arbitrate the dispute between it and them. Given the rash of pro-arbitration decisions from the federal courts in recent years, the Kroma EU decision might seem surprising.  It should not be, however, since the court did no more than affirm the basic contract law principle familiar to all first-year law school students:  contracts are generally limited by their terms, and may not be rewritten by courts (or parties to a litigation).  As the Eleventh Circuit artfully concluded:  “Like makeup, Florida’s doctrine of equitable estoppel can only cover so much . . . . The district court correctly denied the Kardashians’ motion to compel Kroma EU to arbitrate the dispute between them.”

The Lanham Act prohibits registration on the Principal Register of a mark that is “primarily merely a surname” unless an applicant can show that the mark has acquired secondary meaning such that consumers perceive the surname as an identifier of source.  15 U.S.C. § 1052(e)(4).  Alternatively, a surname mark can be registered on the Supplemental Register, which is the junior federal register for marks that are considered not distinctive enough to be registered on the Principal Register.  Because there are numerous benefits associated with registration on the Principal Register, applicants often elect to argue against surname refusals. Federal courts and the Trademark Trial and Appeal Board have held that a term is primarily merely a surname if its primary significance to consumers is that of a surname when viewed in relation to the goods or services for which registration is sought.  This determination is made on a case-by-case basis, and there is no rule as to the amount or type of evidence necessary to demonstrate whether a mark would be considered primarily merely a surname.  Typically, the Board and trademark examiners have used the following five-part inquiry to determine whether the primary significance of a term is as a surname: Whether the surname is rare. Whether the term is a surname of anyone connected with the applicant. Whether the term has any recognized meaning other than as a surname. Whether the term has the structure and pronunciation of a surname. Whether the stylization of the mark is distinctive enough to create a separate commercial impression. These factors are known as the Benthin factors, derived from the Board’s decision in In re Benthin Management GmbH, 37 USPQ2d 1332 (TTAB 1995). The Board clearly felt more attention to these issues was necessary, as it issued three precedential opinions in surname registration cases in the latter part of 2016.  The unifying lesson of these cases is that the focus of the analysis will be whether the purchasing public will perceive a surname mark as having primary significance as a surname. In September, the Board upheld refusal of an application for the mark ALDECOA on the ground that ALDECOA is primarily merely a surname.  In re Eximius Coffee, LLC, 120 USPQ2d 1276 (TTAB 2016).  Although the Board found that the Aldecoa family had involvement in Applicant’s business and the name did not have any recognized significance other than as a surname, the Board also acknowledged that the ALDECOA surname is rare.  With respect to this latter point, the Board cautioned that the Lanham Act does not exempt registration of surname marks that are “shared only by a few, or provide that the purpose of the prohibition is to protect others’ rights to use their surnames except for those with uncommon surnames.  The only issue to be determined under the statute is whether a term ‘is primarily merely a surname.” Also in September, the Board issued its opinion in In re Integrated Embedded, 120 USPQ2d 1504 (TTAB 2016), in which it upheld refusal of registration of the mark BARR GROUP as primarily merely a surname.  In this case, the Board found that Michael Barr was applicant’s founder and that consumers would encounter Mr. Barr’s name in numerous key places on the applicant’s website, such that the consumers would likely view BARR as a surname.  Moreover, the Board held that the inclusion of the descriptive term GROUP in the mark does not alter the surname significance because it merely creates a perception of people that are led by an individual with the surname BARR. Finally, in November, the Board handed down its decision in In re Adlon Brand GmbH & Co. KG, 120 USPQ2d 1717 (TTAB 2016), refusing registration of the mark ADLON as primarily merely a surname.  The Board doubled-down on its emphasis on the importance of whether the public would perceive a mark as primarily merely a surname.  The Board bemoaned that “rather than using [the Benthin] factors as guidelines, practitioners and examining attorneys have often interpreted them with a rigidity that is not warranted.”  The Board cautioned that a surname’s rareness is not indicative of the amount or type of evidence that is necessary to establish whether the mark has primary significance to the purchasing public as merely a surname.  Additionally, although Applicant had argued that the public would perceive ADLON as having trademark significance, the Board stated that trademark law recognizes that functioning trademarks may have various non-distinctive meanings, including as surnames, “which may be appreciated by customers even though they primarily understand the mark to be source-indicating.”  After consideration of all of the factors and evidence, the Board found that applicant failed to demonstrate that the term ADLON had any significance that would be perceived by the public other than as a surname. The takeaway from this trilogy of cases is that Applicants facing surname refusals should not mechanically focus on the Benthin factors as proving or disproving surname significance.  Instead, even if any of the factors are decidedly against applicant (e.g., if the mark is the surname of a founder or important employee), applicants should focus their arguments on why the purchasing public will not perceive the mark as primarily merely a surname.

Authors and creators in Germany are given a leg up in dealing with the copyright industry and their publishers. The new rules introduced into German copyright law late last year focus on “full buy-out’ contracts where rights are granted to the publisher exclusively in consideration of a one-off lump sum payment (with no running royalties being payable). The new law tackles situations where authors give away the whole value of their work before its true commercial potential is tested in the market and will also help authors and creators in case of under-exploitation or under-investment by the publisher. The following new rules will apply to licensing contracts for German copyright works concluded as from 1 March 2017: Exclusivity reduced to 10 years: Where exclusive license rights are granted against the payment of a lump sum (a flat licence fee) with no obligation to pay ongoing royalties, by law after an initial 10-year-period the license will be deemed non-exclusive and the author will be free to exploit the licensed work and to grant licenses to other parties. The new rule will significantly strengthen authors’ rights, particularly in “full buy-out” scenarios. Reporting obligations: The new rules provide authors the statutory right to require licensees to provide annual reports setting out details of the manner in which the licensed works are being used and the proceeds generated by the licensees from such exploitation. This also will apply in “full buy-out” contracts (that is, a license in consideration of the payment of a one-off lump sum). It is envisaged that authors would use such information to obtain additional compensation under statutory rules. Exemption for collective arrangements, software and other sectors: The new rules provide that collective arrangements concluded between authors’ associations and licensees/users/user trade associations and trade union agreements may derogate from the new rules above. Exemptions apply largely to software and film rights. Furthermore, the 10 year exclusivity time limit may be derogated from in contracts relating to works of architecture, works to be used as trademarks or designs, or works not intended for publication. What to do:  Existing contracts are not affected, but new contracts (and possibly amendments to existing contracts) that are concluded from 1 March 2017 will be subject to the new law. Assuming the application of German law, the economics of copyright contracts in non-exempted sectors will have to take account of the maximum 10 year exclusivity period for one-off payment “buy-out-“ contracts and the additional costs arising from the annual reporting obligations (which would normally apply only in royalty contracts). To the extent not already done, licensees would need to put in place procedures to document the exploitation of licensed rights in order to be able to comply with the reporting obligations. Contracts with sub-licensees should reflect the shortened exclusivity period and should impose corresponding reporting obligations on sub-licensees (backed-up by suitable indemnification clauses). Where appropriate or necessary to avoid problems arising from the shortened exclusivity period, licensees should consider royalty based models as opposed to lump sum payments. Where applicable, contract drafting should reflect the factors that would support an exemption. For further info see this article.

As expected, President Trump has tapped Commissioner Ajit Pai to Chair the new-look FCC. This is great news for proponents of TCPA reform but, as with all things Commission related, we may not see any tangible results from his ascension for some time. For the uninitiated, the Telephone Consumer Protection Act (“TCPA”) requires “express consent” to call cell phones using automated dialing technology. Originally the statute only governed calls made using random or sequential number generators. Beginning in 2003, however, the FCC expanded the reach of the statute—first to include predictive dialers, then dialers that call from a list of numbers, and now to any dialing device that is software enabled (read: all modern phones.) Currently, there is no escape from the TCPA—any customer outreach program is likely to raise TCPA concerns—and the statutory damages are astronomical: $500.00-$1,500.00 per call. As the FCC continues to issue “clarifying” orders that have the force of law and can further expand (or perhaps restrict) the reach of the statute, the composition of the Commission is a closely-watched topic for TCPA practitioners and industry participants. But enough on the TCPA, and back to Pai. Judging from Pai’s past work on the Commission, he takes the task of faithfully interpreting Congressional enactments seriously, is a procedural stalwart, and is a masterful writer. His dissents—and he was forced to pen several of those in the shadow of Chairman Wheeler’s overreaching regime—were always well-reasoned and compelling. Colorful blooms of insight forcing their way through the cracked pavement, hinting at the promise the Commission might one day have if it were only in the right hands. Now it is. Under Chairman Pai the Commission will get faster and more nimble. From his first testimony before Congress in 2012 Commissioner Pai has focused on speed and efficiency. “Nimbleness” as he’s described it. He’s a proponent of Commission “shot clocks”—deadlines for the FCC to rule on petitions. (Remember that huge backlog of petitions that grew up for years before the Omnibus?) And he’s not afraid to hit substance with a bullet: “Speed is important for the small things, and especially so for the big ones,” he has quipped. With Pai as Chairman the FCC also gets smarter and less activist. That is not to say Chairman Wheeler was a dummy, but as anyone will tell you the Commission’s recent TCPA rulings have been, at best, inconsistent, and at worst, indecipherable. This is because the Commission was always trying to accomplish something with the TCPA, and something it really should not have been after: namely, expanding the statute beyond its roots to permit the FCC more power—the ability to regulate calls to cell phones in a manner that Congress never bestowed. But as then-Commissioner Pai always recognized, that is not the FCC’s proper function, and the TCPA is not the proper tool to enable it anyway. As he wrote in dissent to the Omnibus: “[I]f the FCC wishes to take action against newer technologies beyond the TCPA’s bailiwick, it must get express authorization from Congress—not make up the law as it goes along.” But under Chairman Wheeler the Commission never seemed to appreciate that it was making up the law as it went along and the results were dire. With every flick of the Commission’s pen that expanded the scope of the TCPA, hundreds or thousands of new lawsuits followed. Five-thousand federal TCPA suits were filed last year. Five-thousand. Consider that the statute resulted in zero lawsuits for about the first 15 years of its existence. As late as 2010 there were only 354 lawsuits filed. Heck, we just cracked a thousand lawsuits in 2012 and now—four years later—we have 5,000. And so the TCPA has earned its title as the “poster child for lawsuit abuse”; words that then-Commissioner Pai first penned in opposing the FCC’s disastrous 2015 Omnibus ruling. And the Omnibus was a disaster. Since the Omnibus, TCPA class action filings have tripled on a monthly basis. The freight train rolls along with no end in sight. Spokeo barely slowed it down. Cambpell-Ewald was a speed bump. We won a big one in Stoops, but even there the Court failed to adopt a bad faith TCPA defense—citing the Omnibus. And no, it’s not all Chairman Wheeler’s fault. It cannot be forgotten that the TCPA was first expanded to include predictive dialers in 2003 under the watchful eye of Republican Chairman Michael Powell. At the time there was hardly a murmur from industry. Of the four Commission statements filed in support of the 2003 Order only one even mentions the predictive dialer component. No one seemed to realize that a monster was born that day. So will Pai now act to slay the mighty TCPA dragon? Is he industry’s St. George? Maybe. As I wrote to a friend the day the Omnibus was decided—and yes my friends and I discuss the TCPA—“at least this Pai guy seems to get it.” I still believe he gets it. He seems to understand the damage that the statute—and the abusive lawsuits it has spawned—have done to industry and consumers (and the courts) alike. But more than this, he “gets” that the FCC’s job is to take a back seat to Congress, regulate with clarity, and never make the law up as it goes along. That’s important stuff, especially with $1,500.00 per call on the line. But will he get the chance to really (un)do any damage? That’s the big question. Unfortunately, Pai comes to us in a post-apocalyptic wasteland. While Pai now holds the nuclear codes, the silos have all long-since been emptied. Obviously TCPA reform cannot occur without a proper vehicle. The D.C. Circuit Court of Appeals can certainly provide such a vehicle with a remand of the Omnibus ruling back to Pai’s Commission. But what if—horror of horrors—the D.C. Circuit Court of Appeal blesses the Omnibus as appropriately decided? Surely industry will pursue their petitions to the Supremes, but in the meantime we may be stuck for additional years with terrible law decided by a prior Commission with a new FCC Chairman held hostage by earlier rulings. In that instance it will be necessary for industry to “nibble around the edges” with smart and pointed petitions to the Commission on specific issues impacting the TCPA. It will need to trust the FCC’s new “shot clock” mentality will assure swift rulings. And trust, above all, that Chairman Pai lives up to his promise as a smart and capable pragmatist, if not a savior.

In the digital age, online reviews of a business are often the first place consumers turn to in order to gather information about a business, such as a restaurant, retail store or even a professional service provider.  It is well known that a negative online review may not only impact the reputation of a business, but also its bottom line.  For that reason, businesses have sought to control what customers are saying about them by including non-disparagement clauses in their form contracts, such as standard customer agreements and online terms of service.  A non-disparagement clause essentially works to stop consumers from posting negative reviews or comments about products or services they may have purchased by imposing a penalty or fee for such actions. Attempts by businesses to enforce these types of “gag” or non-disparagement clauses in a form contract have made their way into the news and into the courts in recent years. For example, an inn located in upstate New York threatened a wedding party with $500 fines for every bad review they left on Yelp.  In a second example, a pet-sitting company in Texas unsuccessfully sued a couple who was unhappy with the services they had received and who posted a negative review to that effect on Yelp for $1 million in damages, based on their alleged violation of a non-disparagement clause the company had included in its customer agreement. To create more clarity at the federal level about the legal viability of non-disparagement clauses, which have been examined so far under differing state laws, such as anti-SLAPP statutes and under voluntary guidelines such as those set by the Better Business Bureau, President Obama signed into law on December 14, 2016 the Consumer Review Fairness Act of 2016.  The new federal law voids any form contract clause that seeks to prohibit a purchaser of goods or services from submitting a negative review of a business, or that seeks to impose a penalty or fee against the purchaser for doing so.  It also precludes a business from securing rights in review or feedback content, other than a non-exclusive license. The new federal law does not stop a business from suing for defamation, libel or similar causes of action, or from removing obscene, discriminatory or other inappropriate content.  A business will also still have leeway to pull down content that “is clearly false and misleading.”  It is unclear how that standard will be interpreted. The new federal law will take effect in March 2017 and will be enforced by the Federal Trade Commission under its authority to police unfair or deceptive business practices. Businesses need to be aware of this new federal legal protection for consumers, which affords consumers greater protection to speak their mind about their customer experiences, when dealing with negative online reviews and when crafting their customer contracts and terms.

This week we celebrated the life and legacy of Dr. Martin Luther King, Jr. Dr. King’s mission was to teach our nation the value of tolerance and mutual respect regardless of each person’s differences.  These lessons still ring true today as they did 50 years ago.  Dr. King’s words, including the famous and aspirational “I Have a Dream” Speech, can also serve as a lesson about copyright law and how to avoid having your dreams of honoring Dr. King turned into an infringement nightmare. If you are thinking of displaying, performing, or reproducing the Speech, you must first understand that the speech is still under copyright protection.  The Speech is not in the public domain or freely available for public use.  In the months following the Speech, Dr. King secured federal copyright protection for the Speech under the Copyright Act of 1909.  The copyright then passed to his estate at his death.  EMI Publishing, due to a deal with Dr. King’s estate, is now the owner of the copyright in the Speech. So, how is it that such a famous, widely-publicized speech is protected nearly 50 years after Dr. King’s death?  The answer lies in the Copyright Act – the old one and the new one. The 1909 Act governs work that received copyright protection before January 1, 1978.  Under this Act, a federal copyright was secured on the date the work was published, or for unpublished works, the date the copyright was registered.  After it was secured, a copyright lasted for 28 years, and was eligible for renewal during the final year of the term.  If renewed, a copyright could be extended for a second 28 years, potentially allowing for a total 56 years of copyright protection.  If the copyright was not renewed at the end of the first 28 year term, the work no longer had copyright protection. The 1909 Act has since been replaced by the Copyright Act of 1976.  With the passing of the 1976 Act, Congress increased the renewal term of works covered by the 1909 Act from 28 to 47 years.  The 1998 Copyright Term Extension Act increased the renewal term another 20 years to 67 years.  Thus, the maximum term of copyright protection for works protected before January 1, 1978 is now 95 years. Dr. King gave his “I Have a Dream” speech on August 28, 1963.  This means Dr. King’s speech has copyright protection until 2058.  Therefore, before reproducing, rebroadcasting, or publicly displaying the speech, you must seek permission to do so from EMI Publishing. One might compare the Speech to a speech given by an elected politician (such as President Barack Obama’s recent farewell speech) and wonder what the difference is.  Dr. King’s Speech is protectable under copyright because Dr. King was a private citizen, unlike speeches given by elected officials.  Similarly, while Federal government officials are prohibited by the Copyright Act from obtaining copyrights for speeches, reports, and press releases created while in office, because Dr. King was not in federal office at the time he delivered the Speech, the copyright belonged to him and passed to his estate at his death. Others have tried to challenge the validity of the copyright in the Speech because it was such a widely publicized event, as in Estate of Martin Luther King v. CBS, Inc., 194 F.3d 1211 (11th Cir. 1999).  However, despite being a national event, the Speech did not lose its protectability. So now you are probably thinking: how is it that we have been able to see and hear excerpts of the “I Have a Dream” Speech if it is still protected by copyright? This answer lies in the Copyright Act’s fair use defense.  Under the doctrine of fair use, third parties may use a reasonable amount of a copyrighted work for certain uses.  Fair use explains why a teacher may show portions of the Speech as part of a class lesson, news channels may broadcast clips of the speech in communicating current events, and creative film-makers may include a brief excerpt from the Speech in a documentary.  However, when it comes to substantial, for-profit uses of the Speech, the fair use defense may not be applicable.  In that case, parties who wish to use the speech are encouraged to contact EMI Publishing, the owner of the copyright in the Speech, to obtain a license, lest they become the next subject of EMI and the estate’s aggressive policing of unauthorized uses of the Speech.

In a decision published on 21 December 2016, the Court of Justice of the European Union (“ECJ”) invalidated legislation in two EU member states – the UK and Sweden – requiring telecommunication operators to retain users’ traffic and location data for 12 months and giving access to that data to intelligence, security and criminal investigation authorities.  The ECJ criticised the UK and Swedish legislation as imposing “general and indiscriminate” data retention requirements which it said were incompatible with EU law. Similar considerations led the ECJ in 2014 to invalidate an EU directive that also required a 12 month retention period for communications data and the same concerns played a key part in the invalidation by the ECJ, in October 2015, of the Safe Harbor scheme for the transfer of personal data from the EU to the U.S. (now replaced with the new EU-US Privacy Shield). The EU court ruled that member states’ legislation imposing data retention obligations on telecom operators must define specific conditions for a retention requirement which must be supported by objective evidence before retention obligations can be imposed in specific cases. At the same time the court acknowledged that in some cases more general retention requirements could be justified, for example, based on geographical criteria (such as the retention of communications data of users who recently visited a war zone or other area generally associated with terrorist activity). The ECJ held that access by security agencies to the communications data must be limited to what is “strictly necessary” and that general access to all traffic and location data, even if it can be useful for preventing serious crime, is more than what is ‘strictly necessary’. For the objective of fighting crime, the court held, access can, as a general rule, be granted only to the data of individuals suspected of planning, committing or having committed a serious crime or of being implicated in one way or another in such a crime and, except in extreme urgency, must be subject to the prior oversight of the courts. The ECJ also ruled that persons affected must be notified that their data has been retained and accessed “as soon as that notification is no longer liable to jeopardise the investigations being undertaken by those authorities”. The ECJ’s decision raises serious practical obstacles to governments hoping to utilise readily available communications data for purposes of national security and crime prevention. The decision coincides with the legislation coming into force in the UK which, among other things, replaces the provisions on retention of communications data and access to that data that were struck down by the ECJ. The new legislation introduces a more comprehensive scheme incorporating many new procedures and safeguards for the protection of privacy. Fresh challenges, however, may now be brought against the new legislation which will have to be assessed against the standards set out by the ECJ.