Trademark, Copyright + Advertising

In a recent trade secrets litigation in the United States District Court in the Northern District of California, a jury awarded the plaintiffs 40 million dollars, half of which was punitive damages. The Court also subsequently issued a permanent injunction enjoining the use of the misappropriated trade secrets. Though the defendant is currently seeking relief from the massive damages award and injunction, this case is a cautionary tale on poaching employees from a competitor in two aspects. First, in a “poaching” situation, a defendant can be enjoined from ever selling the product that uses the alleged trade secret and owe damages in the form of saved research and development (“R&D”) costs that it can no longer benefit from after the injunction takes effect. Second, it is a reminder of the vast discretion that juries have when awarding damages and their ability to award punitive damages in a “poaching” situation if they are left with a bad taste in their mouth from what appears to be a conspiracy to wrongfully take trade secrets. Background Plaintiffs Comet Technologies USA Inc., Comet AG, and YXLON International GmbH (collectively, “Comet”) sued Defendant XP Power LLC (“XP Power”) for misappropriation of its trade secrets under the Defend Trade Secrets Act (“DTSA”). Comet is a long standing player (over 70 years) in the semiconductor industry; whereas, XP Power is a newer player in the generator industry—entering this sector in 2017. In the lawsuit, Comet asserted that XP Power misappropriated its trade secrets associated with equipment used to manufacture semiconductor chips, specifically, Comet’s RF power generators (“RF Generators”) and electrical circuits referred to as impedance matching networks (“Electrical Circuits”). The RF Generators and Electrical Circuits are used to produce plasma chambers, which, in turn, are sold to silicon chip makers. So how did XP Power, a California based LLC, acquire the trade secrets of Comet, a Swiss company? Comet alleged that in late 2017, XP Power poached three Comet employees who were key members of the RF Generators and Electrical Circuits division. The poaching allegedly started with XP Power’s three hour interview with the first Comet employee to jump ship. During this interview, XP Power allegedly inquired about Comet’s trade secrets and then decided that it should also poach a supervisor in the same division. Comet claims the third employee later on participated in a group interview with the aforementioned employees before joining XP Power. After their new positions were secured at XP Power, Comet asserts that these employees surreptitiously collected and shared Comet’s trade secrets. This was allegedly done by (1) saving CAD drawings of Comet’s products as “resumes” to avoid detection, (2) downloading RF Generators and Electrical Circuits files onto external hard drives; and, when confronted, (3) misrepresenting to Comet that they did not save, download, or otherwise collect such files. XP Power purportedly not only was aware of, but also encouraged, this behavior. Comet asserted that XP Power ultimately misappropriated, among other types, trade secrets associated with the: (a) RF Generators; (b) Electrical Circuits; and (c) next generation of Electrical Circuits (“NexGen EC”) for use in the development of XP Power’s own line of competing generators and electrical circuits. Key Events at Trial XP Power did not enter the market before Comet instituted its action; therefore, there were no lost profits or sales to use as a basis for damages. Instead, Comet’s theories for damages was limited to either (1) unjust enrichment (quantified as the savings XP Power enjoyed by not investing time and money into R&D) or (2) a reasonable royalty. At trial, Comet’s damages expert testified about Comet’s R&D costs for the trade secrets associated with each of the RF Generators, NexGen EC, and Electrical Circuits. The approximate amount Comet spent on R&D for each trade secret was $5 million, $6 million, and $11 million, respectively. The expert also explained that the amount spent on R&D is not limited to the line item in the chart underneath each trade secret, but also the amount “that was the foundation that that [the] work was built on.” The expert then testified, that if the jury found that the NexGen EC trade secret was misappropriated, “it’s not just the 6 million, it’s everything because those were built upon all of that work.” Jury Decision and Permanent Injunction Ultimately, the jury found that XP Power improperly acquired the RF Generators, NexGen EC, and Electrical Circuits trade secrets, but that this improper acquisition was a substantial factor in causing damages to only the trade secrets associated with the RF Generators and NexGen EC. The jury awarded damages based on the unjust enrichment theory, i.e., how much money XP Power saved on its own R&D, and awarded $5 million for the RF Generator trade secret and $15 million for the NexGen EC trade secret. For punitive damages, the jury awarded Comet $20 million, resulting in a 1:1 ratio between compensatory and punitive damages. Shortly thereafter, the Court issued a permanent injunction against XP Power as to all three trade secrets, finding that though the jury’s award “compensated past harm, [it] did not address ongoing or future harm.” XP Power’s Current Request In its motion currently pending before the Court, XP Power claims that the jury’s damages award for the NexGen EC trade secret was not based on any evidence since it was $15 million and not the $6 million shown in Comet’s expert’s chart at trial. XP Power also offers a second argument that is focused on the permanent injunction the Court issued. The crux of the second argument is that, by issuing a permanent injunction against use of the RF Generator and NexGen EC trade secrets, the very same trade secrets that the jury already award compensatory damages for, this equates to a double recovery for Comet. XP Power states that it is undisputed that it never sold a generator or matching networks product. As such, it is inequitable and punitive to issue a permanent injunction since “Comet is effectively being compensated for benefits that XP [Power] never received,” i.e., the sale of the infringing products. Thus, either the permanent injunction should be vacated or there should be a new trial on damages. Comet has until December 2, 2022 to respond to XP Power’s pending motion. Practice Points Polling the jury would be the only way to definitively determine why they awarded $15 million in compensatory damages for the NexGen EC trade secret, instead of the $6 million in R&D costs put forward by Comet’s expert. However, the expert’s passing comment about “foundational R&D costs” in the damages calculation may very well have been the culprit. This serves as an important reminder to carefully listen to a damages expert’s testimony and refute any testimony that a jury may hone in on as a basis to award significant damages (which can at times be unpredictable). Additionally, XP Power’s pending request to vacate the permanent injunction may go a step too far. One of the salient tools in intellectual property law, and even more so when trade secrets are involved, is using an injunction to prevent your competitor from running off with your hard work. This prevents redundant litigation. It is also a recognition of the fact that there is something unquantifiable associated with riding on the coattails of a competitor’s intellectual property. It would be odd that after lengthy trade secret litigation, the infringing competitor could simply release its competing product in the market using the plaintiff’s trade secrets. Practitioners and business owners should always remember that there is a way to avoid a court ordered injunction in such situations: negotiate a licensing agreement. While the costs associated with a license could be steep, it does allow the company to theoretically stay in business. As this case has shown, it is possible to be out 40 million dollars and a product line where a company opts to misappropriate a competitor’s trade secrets instead. Finally, all companies should work with their counsel to create the best hiring practices and potentially a special protocol when bringing on an employee of a competitor, which should include a review, prior to hiring, of any restrictive covenants that the employee has with their former employer. These steps could serve as a safety measure ensuring that new employees are fully aware of the gravity of taking potentially proprietary information from their former employee without express permission.

Casa Bonita – a self-described “Eatertainment” establishment near Denver, Colorado, featuring cliff divers, stage shows, and subpar Mexican food, appeared destined to become another Covid-19 related restaurant casualty. In 2020 Casa Bonita initially ceased operations due to a local order mandating the closure of indoor restaurants and entertainment due to the global pandemic. As a result of a lengthy closure and ensuing restrictions on indoor dining and entertainment establishments, Casa Bonita fell behind on its rent payments. On April 6, 2021, facing an eviction suit from its landlord, Summit Family Restaurants, Inc., the owner of Casa Bonita, filed for Chapter 11 bankruptcy protection: In re Summit Family Restaurants, Inc., Case No. 21-13328-MER (Bankr. Colo.). With the National Restaurant Association reporting that more than 90,000 restaurants have closed due to the pandemic, a standalone restaurant’s closure and subsequent bankruptcy filing would typically be unremarkable. However, most local restaurants do not have the benefit and notoriety of their own South Park episode. Casa Bonita gained national attention in 2003 when South Park, an animated series on Comedy Central, released an episode titled “Casa Bonita.” The episode features Casa Bonita as the much sought-after location of character Kyle Broflovski’s birthday party, to which heckler Eric Cartman is not invited. Cartman spends the episode manipulating his way onto the guest list (including kidnapping an invitee) to visit the “Disneyland of Mexican Restaurants.” Summit Family Restaurants sought to sell Casa Bonita in its bankruptcy case. The sale was complicated by the large pre-petition claim owed to the landlord whose consent was needed to consummate a sale. Additionally, the intellectual property required to operate Casa Bonita was held by a separate but related non-debtor entity, meaning that a buyer would also need to reach a deal with the third party in order to actually operate the restaurant. A group of Denver area locals banded together to form “Save Casa Bonita” and attempted to negotiate with Summit to purchase the restaurant. Negotiations broke down when the landlord would not consent to the sale. Enter South Park creators Trey Parker and Matt Stone. Parker and Stone successfully negotiated an agreement to purchase Casa Bonita with the landlord’s consent through the bankruptcy case for $3.1 million, an amount sufficient to pay all of Summit’s creditors in full. The Save Casa Bonita group objected to the sale, arguing that their offer to purchase the restaurant for $3.5 million was higher and better. The group’s founder expressed in an interview that the group sought to avoid for Casa Bonita to become a “‘South Park’ joke or ‘South Park’ fun land.” However, for reasons not publicly specified, Save Casa Bonita ultimately withdrew its objection to the sale. Could this have been because of the separate deal required to acquire or license the intellectual property rights for the restaurant? Maybe - Parker and Stone have publicly expressed their childhood love of the restaurant as a reason for purchasing Casa Bonita, but the timing suggests the purchase was also a strategic business move. The agreement to purchase Casa Bonita was reached shortly after the two entered a six-year, $935 million pact with ViacomCBS that includes 14 streaming South Park movies. Some in the media suspect the acquisition is part of a strategy for Parker and Stone to enhance the value of the South Park brand and capitalize on fandom trends. Parker and Stone recently announced their plans to reopen the restaurant, including improving the food, which was known to be less than stellar. The two have hired Dana Rodriguez, a three-time James Beard Award winner and Denver restaurant owner as the head chef of the new Casa Bonita. However, it appears the quirky charm of the restaurant will remain, including its cliff divers, arcade, and cave, as the new owners have expressed their motto to “change nothing and improve everything.” Time will tell how this investment works out and if and how Stone and Parker further intermesh Casa Bonita and the South Park brand.

photo by Arthur Shevtsov / Shutterstock.com Sometimes, the best place to determine whether a work qualifies as art is in a courtroom. In a recent decision, Judge John H. Chun of the District Court for the Western District of Washington found that a driving simulator video game, Spintires, is an expressive work entitled to First Amendment protection. See Saber Interactive Inc. v. Oovee, Ltd., No. 2:21-cv-01201-JHC, Dkt. 51 (W.D. Wash. Oct. 6, 2022). Spintires simulates driving through various wilderness tracks in a variety of real-world vehicles. While Oovee has licensed some of the vehicles depicted in Spintires, it has not licensed all of them. For the unlicensed vehicles, Oovee provides the following disclaimer: All other trademarks are the property of their respective owners. All characters and vehicles appearing in Spintires® are fictitious (except where licensed). Any representations to real-life persons (living or dead), or real-world vehicle designs (except where licensed), is purely coincidental. It is, of course, one of the unlicensed vehicles appearing in Spintires, the K-700, that is at the heart of the dispute in Saber Interactive v. Oovee. photo by Filmbildfabrik / Shutterstock.com In November 2015, Oovee released an update to Spintires that included, and seemed to emphasize, the K-700, which is a distinctive tractor with articulated steering. Peterburgsky traktorny zavod JSC, which is known under the brand name “Kirovets,” manufactures and sells the K-700. Kirovets exclusively licensed certain of its intellectual property rights in its vehicle designs to a video game developer call Saber, which sells its own driving simulation video game, Mudrunner. The license with Kirovets gives Saber the right to take legal enforcement action against infringers of Kirovets’s licensed IP rights. Oovee’s unlicensed use of the K-700 in Spintires led Saber to sue Oovee on September 2, 2021. On April 26, 2022, Saber filed a Second Amended Complaint (“SAC”) which included three claims: (1) unfair competition under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125; (2) unfair competition under Washington’s Consumer Protection Act (“WCPA”), Washington Revised Code (“RCW”) 19.86.010; and (3) unjust enrichment. Oovee moved to dismiss the SAC under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, arguing that the First Amendment bars Saber’s claims, and, even if it does not, Saber failed to plead facts sufficient to survive a motion to dismiss. The SAC alleged that Oovee engaged in unfair competition under the Lanham Act by using Saber’s trademark and trade dress without authorization. Saber argued that the First Amendment does not bar its unfair competition claim because Spintires is not an expressive work, and Spintires’ disclaimer is misleading. In the Ninth Circuit, courts use the “likelihood-of-confusion” test when evaluating an infringement claim under the Lanham Act unless artistic expression is at issue. When the alleged infringement involves artistic expression, courts apply a test set forth in Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989), which balances the First Amendment interest in protecting artistic expression against the interest in securing trademark rights under the Lanham Act. Rogers requires a defendant to make a threshold showing that its allegedly infringing use is part of an expressive work. If successful, the plaintiff then has the heightened burden of showing the likelihood-of-confusion test and one of Rogers’s two prongs: (1) the unauthorized use of the trademark has no artistic relevance to the underlying work whatsoever, or (2) the use of the trademark explicitly misleads as to the work’s source or content. Saber argued that Spintires is not an expressive work because it does not express ideas or social messages, it has no characters, dialogue, or plot, its music is simplistic and only in the background, and the simulated world is generic and computer-generated. Judge Chun cited a U.S. Supreme Court case and a Ninth Circuit case holding that video games may qualify for First Amendment protection, and then discussed another case in which the Ninth Circuit affirmed a district court’s conclusion that a race car driving simulation video game contained express elements such as the race car drivers being characters and the plot being the drama of the races. VIRAG, S.R.L. v Sony Computer Entertainment America LLC, No. 3:15-cv-01729-LB (N.D. Cal. Aug. 21, 2015), aff’d, 699 F. App’x 667, 668 (9th Cir. 2017). In view of the case law, Judge Chun determined that many of the features of Spintires alleged in the SAC establish that Spintires is an expressive work, explaining that “[u]sers interact with the virtual world by selecting a vehicle (which is like a character) and by navigating the virtual environment (which is like a plot).” As to the first Rogers prong, Saber failed to explain how Oovee’s use of the K-700 is artistically irrelevant, so the court did not consider the first prong. The court also determined that Saber could not meet the second prong, that Oovee’s use of the K-700 explicitly misleads consumers about its source or endorsement. The court concluded that Saber did not satisfy the second prong because it failed to point to an expressly misleading statement. The court noted that, while “the disclaimer is far from a model of clarity,” it does not explicitly mislead customers into thinking that Saber or Kirovets is associated with Spintires. Moreover, use of the K-700 mark alone is insufficient to satisfy the second Rogers prong. The court dismissed Saber’s claim for unfair competition under the Lanham Act, because the First Amendment protects Oovee’s use of the K-700. Under the same rational, the court also dismissed Saber’s claim for unfair competition under the WCPA. In addition, the court dismissed the trade dress claim because Saber failed to plead any facts to create a reasonable inference that the identified features of the K-700 are non-functional. Finally, the court dismissed the unjust enrichment claim because, under Rogers, Oovee did not impermissibly infringe Saber’s trademark rights and, therefore, did not receive a benefit at Saber’s expense. Accordingly, the court dismissed all claims against Oovee in the SAC but granted Saber leave to file a Third Amended Complaint. Saber Interactive is a win for anyone seeking validation for the idea that video games can be works of art, just like books, movies, etc. This decision also shows that courts take a broad view about what constitutes an expressive work in the context of video games. Video games do not require a traditional narrative structure, a memorable soundtrack, or stunning visuals to qualify for First Amendment protection. If a video game lets the player select their own vehicle, hop in, and take a drive through an interactive environment, that’s probably enough.

Trust and estate attorneys regularly advise their clients to enter into prenuptial agreements to protect the valuable assets each spouse brings to the marriage as well as how to distribute community property in the event of a divorce. Brand collaborations with celebrities, influencers or other brands are much like marriages, but brand collaborations are even more unlikely to last. Why not plan for the split, whether it be a conscious uncoupling or a Page 6 kind of divorce, with a prenup? . . . . Click here to see the rest of Fara’s article on IPWatchdog.

On August 30, 2022, the Hong Kong Privacy Commissioner for Personal Data (the “PCPD”) released a guidance note (the “Guidance Note”) on data security measures for information and communications technology to provide data users with recommended data security measures to facilitate their compliance with the relevant provisions under the Personal Data (Privacy) Ordinance (Cap 486 of the Laws of Hong Kong)(the “PDPO”). The PDPO was amended last year to criminalize doxxing, which we wrote about last year. According to the PCPD, in recent months, data users have been confronted with considerable challenges with respect to protection of data privacy and data security in light of the new normal consisting of hybrid modes of working and learning. In the first seven months of 2022, the PCPD received 68 data breach notifications from organizations, a quarter of which involved vulnerabilities of information and communication technology systems of data users. In light of these cybersecurity incidents, the PCPD issued the Guidance Note to provide comprehensive recommendations on best practices to strengthen data security systems in organizations, especially small and medium-sized enterprises. Background Data Protection Principle (“DPP”) 4(1) of Schedule 1 to the PDPO requires data users to take all practicable steps to ensure that personal data held by it is protected against unauthorized or accidental access, process, erasure, loss or use. In essence, it requires an organization to take into account the kind of data and the harm that could result if a data security incident occurs. The resulting harm from a data security breach depends on the volume and sensitivity of the relevant personal data and required steps to ensure security and compliance with the PDPO will need to be accordingly proportionate to the volume and degree of sensitivity. Summary of Recommended Data Security Measures To help guide organizations in their compliance efforts in protecting personal data, PCPD’s Guidance Note provides recommendations on data security measures in the following areas: Data Governance and Organizational Measures. An organization should establish clear internal policy and procedures on data governance and data security that cover areas including, among other things, roles and responsibilities of staff in maintaining systems and safeguarding data security, data security risk assessments and handling of data security incidents (such as an incident response plan and reporting mechanism). It may make reference to the IT security or cybersecurity standards and best practices set by reputable organizations and review and revise its policies and procedures periodically based on prevailing circumstances. A data user should also appoint suitable personnel specifically responsible for personal data security (such as a Chief Information Officer) and should provide sufficient training for staff members to educate and inform them of the organization’s data security policies and procedures. It may also include confidentiality obligation in its employment contracts with its staff members where appropriate. Risk Assessments. An organization is recommended to conduct risk assessments on data security for new systems and applications before launch and periodically thereafter. The PCPD also recommends SMEs to consider engaging third party specialists to conduct security risk assessments to identify relevant risks so as to address them promptly. Technical and Operational Security Measures. The Guidance Note provides a non-exhaustive list of technical and operational measures that an organization may consider putting in place to ensure data security. It should be noted that the adequacy of the security measures will depend on the circumstances and may vary on a case by case basis. Some of these measures include securing computer networks, establishing a database management system, adopting access control measures, setting up firewalls and anti-malware, protecting online applications, using encryption when transferring or storing data, preventing misuse of and filtering emails, setting up backup systems and ensuring timely destruction or anonymization of unnecessary or expired personal data. Data Processor Management. The Guidance Note recommends for organizations to properly manage data processors. Since it is common to engage contractors such as data processors for processing personal data (such as cloud and data analytics service providers), organizations should note that they may be liable for acts of its agents including data processors. As such, organizations should consider factors when engaging data processors such as competency and reliability of data processors, nature of personal data being transferred, security measures taken by data processors, protocols for reporting on data security incidents, and conducting field audits to ensure compliance with the data processing contract by data processors. Remedial Actions in the event of Data Security Incidents. DPP4(1) provides that organizations must take all practicable steps to protect the personal data they hold having regard to harm resulting from a data security incident. The Guidance Note, therefore, provides some common remedial actions organizations may take in the event of such incidents. These include: disconnecting the affected systems, changing passwords and ceasing access, changing system configurations, notifying affected individuals, reporting to PCPD and other relevant regulators, fixing the security weakness and following up on the lessons learnt. Monitoring, Evaluation and Improvement. The Guidance Notes recommends for organizations to engage an independent task force, such as an internal or external audit team, to monitor compliance with the organization’s data security policy and evaluate the effectiveness of the data security measures periodically. Other data security measures and recommendations including cloud services, ‘Bring-Your-Own-Devices’ (“BYOD”) and portable storage. As working remotely from the office has become increasingly more common, it is also common that data is transferred out from an organization’s information and communications systems. As a result, organizations may be exposed to a variety of security issues. The Guidance Note provides recommendations applicable to such circumstances and issues to consider with respect to using third-party cloud services, protecting personal data of an organization in BYOD situations and where portable storage devices are used. Conclusions The Guidance Note provides useful guidelines with specific measures that businesses should take to strengthen their data security systems and to minimize risks of data breaches which could cause reputational and financial damages. It would be a good time for businesses to review the adequacy and effectiveness of their existing data security policies and measures or putting in place one that is in line with the prevailing circumstances.

Slovenian-born Luka Doncic became a professional basketball player at the young age of sixteen years old and the towering height of 6’7”. He quickly made a name for himself, leading his Spanish team Real Madrid to the 2018 EuroLeague title, while also winning EuroLeague MVP, EuroLeague Final Four MVP, ACB Best Young Player, and ACB Most Valuable Player honors and participating in the EuroLeague 2010-2020 All-Decade Team. Recognizing that the sky was the limit for her young and talented son, Doncic’s mother, Mirjam Poterbin, filed a series of trademark applications with the U.S. Patent and Trademark Office in 2018-2019. The trademarks were intended to protect her son’s likeness for a vast variety of promotional-based goods and services, including computer games for basketball in Class 9, sporting equipment in Class 28, and business management services in Class 35. These trademarks each incorporate a variation of Doncic’s name and the “7” jersey number he was wearing during his time in the EuroLeague. According to the Trademark Manual of Examining Procedure (“TMEP”) § 813, when a trademark identifies a particular living individual, that mark can only be registered “with the written consent of the individual…if there is evidence that the name identifies a specific living individual who is publicly connected to the goods or services.” Unsurprisingly, Doncic gave his mother consent to use his name and protect his interests. The applications matured to registration, and Doncic’s career continued to take off. In 2018, Doncic was selected third overall in the NBA draft by the Atlanta Hawks, and was then immediately traded to the Dallas Mavericks, with whom he currently plays. In his first season in the NBA, Doncic became the youngest 20-point scorer in the Mavericks’ history, scored his first 30-point game, made the NBA’s All-Rookie First Team, and was named NBA Rookie of the Year, all while wearing the number “77” jersey. Everything seemed satisfactory for Poterbin and her up-and-coming NBA superstar son. However, recognizing the need to protect his own likeness and career potential, Doncic founded Luka99, Inc. to handle his business affairs. In 2021, Luka99 filed numerous trademark applications, the most pertinent ones of which include the wordmarks LUKA DONCIC and ORIGINAL HOOPS OF LUKA DONCIC, covering a wide array of goods and services, from printed books about athletes in Class 16 to insulated beverage sleeve holders in Class 21 and basketball hoops in Class 28. However, Doncic immediately ran into problems at the USPTO. The problem? None other than his own mother. On March 9, 2022, the USPTO’s examining attorney refused two of Doncic’s applications based on a likelihood of confusion under Section 2(d) of the Lanham Act with his mother’s existing LUKA 7 trademarks. In an attempt to clear the way for his applications, and in what appears to be an issue of first impression for the USPTO, on September 7, 2022, Doncic filed a cancellation action against his mother’s registrations seeking to revoke his consent under Section 813. His petition for cancellation notes that, on July 23, 2021, he sent his mother a letter “specifically and expressly revok[ing] the consent effective immediately.” As a result, his mother’s marks “remain[] registered without Mr. Doncic’s consent,” which violates Section 2(c) of the Lanham Act. The petition also includes claims for abandonment under Section 14(3) and false suggestion of a connection with an individual under Section 2(a). The outcome of Doncic’s petition is difficult to predict, as neither the TMEP nor applicable case law provide a clear answer to the question whether an individual can revoke their consent once it has been given. Doncic argues that allowing his mother’s registrations to stand will undoubtedly cause consumer confusion, creating the presumption that Doncic is affiliated with, sponsored by, or otherwise connected to his mother’s LUKA DONCIC 7 trademarks. He also points out that he granted his consent in the first place when he was young and reliant on his mother “to provide assistance and guidance for his off-court business opportunities.” But now, as an adult superstar with millions of professional fans, Doncic wants control of his own affairs. Unfortunately for the stare decisis fans out there, the outcome of this case might not establish new trademark law. While the revocation of consent issue is the most fascinating claim in Doncic’s petition, there is an easy way out—abandonment. According to Doncic, his mother is not using the LUKA 7 trademarks, and has no known licensees. As such, her registrations may be subject to cancellation on that ground alone, leaving the consent issue for another day and another matter. But this cancellation proceeding is one to keep an eye on – it could very well result in new trademark law. And new law regarding consent would have far-reaching applications, especially as athletes, including those in college, take a more vested interest in the rights to their own likeness and publicity. Poterbin’s answer to the petition is due on October 17, 2022, and her response (if any) may provide more clarity as to how this action will shake out. At this stage, it’s truly a jump ball.

It is not every day that Supreme Court oral arguments include references to The Lord of the Rings (both the books and the movies!), the Syracuse University athletic program, Mork and Mindy, All in the Family, Norman Lear (inaccurately characterized as having passed away, when he just celebrated his 100th birthday), the Mona Lisa (in a red dress, yet), photos of Abraham Lincoln and biographies of George Washington, but today’s oral argument in the case of Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith included all of that and plenty more. Prior readers of this blog will be familiar with the underlying facts of this matter, but the core question in the case is whether the use of a copyrighted photograph taken of the artist Prince by the photographer Lynn Goldsmith, subsequently modified by the artist Andy Warhol to create what was referred to during the argument as the “Orange Prince,” qualifies as a fair use under Section 107 of the U.S. Copyright Act. Goldsmith says no, the Andy Warhol Foundation says yes, and the Office of the Solicitor General of the U.S. Justice Department has sided (mostly) with Goldsmith. Goldsmith Warhol                 So how did the argument go? The Court peppered the Foundation’s counsel with a wide range of questions, and at times expressed great concern that the test advocated by the Foundation for the first of the Section 107 fair use factors – the purpose and character of the use – cannot just focus on the “meaning or message” of the new work without severely limiting the rights of original creators. Justice Thomas asked the Foundation’s counsel if he took Warhol’s image, added the words “Go Orange,” and used it to promote the Syracuse University Athletic program (selling posters based on this new work at the same time), whether that use would be fair under the Foundation’s test, since the meaning and message of this new work were different from Warhol’s. When the Foundation’s counsel said probably not, Justice Thomas suggested that the Foundation’s position was both inconsistent and incapable of being practically applied. For her part, Goldsmith’s counsel attacked the Foundation’s position as putting the interests of copycats above the purposes of copyright. At the same time, multiple Justices expressed concern that treating the “meaning or message” of new works as irrelevant, as the appellate court below had (arguably) done, was a step too far. Indeed, several Justices, notably Justice Kagan, appeared to argue for an approach in which a new work’s meaning or message could be considered as part of the inquiry into the purpose and character of the new use, but not as shorthand for that factor as a whole. A recurring theme of the arguments was the nature of the “use” the Court was supposed to be considering for purposes of the fair use analysis. Was it Warhol’s original creation of the “Orange Prince” back in 1984, when he made a number of changes to Goldsmith’s photo, with her permission, for publication of the “Orange Prince” in a Vanity Fair article? Was it Warhol’s subsequent creation of fourteen additional works based on the Goldsmith Photo, dubbed the “Prince Series,” that now hang in museums and on the walls of collectors? Or was it the Foundation’s decision to license the “Orange Prince” to Vanity Fair again in 2016 for inclusion in another article about Prince following his death, this time without Goldsmith’s permission and without paying her? Goldsmith and the Solicitor General see this case as being about only (or at least primarily) the last of these uses, with the licensing of the “Orange Prince” essentially usurping a market Goldsmith actually exploits – the licensing of her images to media outlets – without compensation. But to the Foundation, the underlying meaning and message of Warhol’s “Orange Prince” – to comment on the reductive and dehumanizing nature of modern celebrity – was not diminished by the appearance of the “Orange Prince” in a Vanity Fair article published after Prince died. And, per the Foundation, the case is also about the original act of creation and the need to foster the ability of future artists to make use of preexisting works to communicate their own messages on subjects of their choosing. Another source of dispute between the parties and, at times, the Justices themselves, was what the purpose of the use of the “Orange Prince” was. To the Solicitor General and Goldsmith, the purpose of the two images was the same – to show Prince as Prince, unlike Warhol’s prior use of Campbell’s Soup cans to comment on consumerism, not to sell food products – such that no further inquiry into that aspect of the first fair-use factor was necessary. But Justice Roberts appeared to reject that argument, noting how different the two Prince images were, and that both communicated different messages. The Foundation argued on this point that, per the Supreme Court’s prior holding in Campbell v. Acuff-Rose, 510 U.S. 569 (1994), it was not necessary for any court to determine what the meaning or message was of a new work, but that what mattered was whether a new meaning or message could reasonably be perceived from the new work. Both counsel for Goldsmith and the Solicitor General were asked for their own tests as to how to evaluate the first fair use factor, and both advocated, at various points and somewhat inconsistently, for a requirement that the second artist show that it was “essential,” “necessary” or “highly useful” for them to use the first work. But several Justices expressed concerns that these proposed tests were overly limiting and/or too vague, and the Foundation vigorously argued that a test based on “necessity” would eviscerate the fair use defense and chill both creativity and freedom of expression. Finally, and for parties, perhaps most importantly, there is the question of what the effect of a Supreme Court holding will have on the case at hand. Several Justices asked what would or should happen if the Court ruled in favor of one side or the other on the first fair use factor, since none of the other three fair-use factors had been briefed. The Court gave no clear sense about what would happen next if it ruled for either side, although the prospect of a remand to the Second Circuit or the District Court was brought up by a number of Justices, depending on how the case was decided. In the end, what this case boils down to is balancing two equally important rights: the right of original creators to safeguard their copyrights and be compensated for their expression, and the right of secondary creators to innovate and build upon preexisting works, even if they are copyrighted. The Supreme Court argument did not clarify whether the balance is likely to tip in favor of one right or the other, or how to demarcate the boundaries between a use that is infringing and a use that is fair. Equally unclear is whether the Court will issue a limited ruling that does little more than address either the specific facts of this dispute or the interpretation of the first fair-use factor, or offer a broader balancing test capable of wider applicability in copyright cases that covers fair use as a whole. The decision, when it comes down, likely in 2023, will surely be an interesting and important read regardless of the outcome.

Unlike the current prohibitive policies on the trading and dealing of cryptocurrencies in China, the Chinese government has taken a more pragmatic approach towards non-fungible tokens (“NFTs”). It considers NFTs to be digitalized fine artworks/collectibles or ‘trending artistic digital products’ rather than digital financial products. This pragmatic approach is an effort by the Chinese government to adapt to the rising tide in NFT-related development based on block chain technology, given the rapidly increasing popularity of NFTs among Chinese traders and collectors, and the fast growing transactional market for NFTs in China. In April 2022, China saw its first court judgment on NFT infringement, which was issued by the Hangzhou Internet Court (the “Hangzhou Court”) in the case of Shenzhen Qice Diechu Culture Creation Co., Ltd vs Hangzhou Yuanyuzhou Technology Co., Ltd, a.k.a “chubby tiger having its shot” case. The Hangzhou Court is a district level court which was formed in 2017 and specializes in Internet-related cases. This post provides a brief introduction on this case and its potential influence on the dealing of NFTs by trading platforms in China. The facts of the case are not complicated. The plaintiff, Shenzhen Qice Diechu, has been granted an exclusive license to use the copyright relating to the artwork “chubby tiger having its shot” by the copyright owner. (the underlying artwork “chubby tiger having its shot”) The defendant Hangzhou Yuanyuzhou operates an NFT trading platform. A third party was found to have offered and sold NFT products created and based on the artwork “chubby tiger having its shot” on the defendant’s platform. The plaintiff therefore sued the defendant for copyright infringement. The defendant sought to rely on the Safe Harbor Principle in its defense – generally, a network service provider may be protected in a “safe harbor” against any infringement claim regarding any third party contents posted/offered on its platform if it has exercised reasonable duty of care and it has adequately followed a notice and takedown procedure. The defendant therefore sought to protect itself by arguing that it was just an NFT trading platform which simply hosts content. The Hangzhou Court held that the defendant cannot hide behind the Safe Harbor Principle in the present case and found the defendant liable for copyright infringement as a trading platform, because the role played by the defendant as a trading platform in the NFT transaction requires it to exercise its duty of care to a higher degree to ensure that the NFT products traded on its platform do not infringe the intellectual property rights of others. The Hangzhou Court was influenced by evidence that the defendant, although seemingly acting just as a trading platform, charged gas fees for minting the NFT digital work, and also charged commissions from the sales of NFT works; therefore, the defendant was a participant in the transaction rather than merely a platform providing an online trading venue to its members. As such, the Hangzhou Court held that the defendant must assume a higher level of responsibility and a stricter duty of care in relation to the dealing of NFTs on its platform in order for it to be able to seek the protection under the Safe Harbor Principle. The defendant in this case poorly exercised its duty of care in monitoring for IP infringement, because the infringing NFT work based on “chubby tiger having its shot” clearly bears a watermark with the Internet name of the real copyright owner. This should have immediately raised an alarm for the defendant. The Hangzhou Court held that the defendant could have easily found the existence of copyright infringement in relation to the NFT work in question by conducting simple check on the Internet. The Hangzhou Court discussed what it considered to be an adequate exercise of the duty of care in relation to NFTs. An NFT trading platform has to establish a pre-placement IP review mechanism. The platform must also have reasonable measures in place to conduct an ownership check of the NFT works which are to be placed on its platform and of the underlying artwork by requesting the traders/NFT creators to provide documents to prove ownership in or in relation to the underlying copyright, to the extent that a reasonable person would believe that the trader/creator is the owner of the underlying copyright or otherwise has been authorized to use the said copyright. The Hangzhou Court also addressed certain technical issues relating to NFTs, for example, in terms of the plaintiff’s request of deleting the infringing NFT work in question from the defendant’s platform, the Court ordered the defendant to “disconnect the infringing NFT digital work on the block chain and punch it into the address black hole to stop the infringement” given that the deletion of NFTs from the Internet is not possible. Unlike the other recent high profile cases involving NFTs in other jurisdictions, such as the Nike, Inc. v StockX LLC (involving Nike sneaker NFTs) and Hermès International v Mason Rothschild (Hermes Birkin bag-inspired NFTs), which are between the IP rights owners (as the plaintiffs) and the infringer creator of NFTs (as the defendants), this first NFT infringement case in China is against a trading platform. The reason is that the plaintiff could not ascertain the true identity of the infringing creator. As such, the plaintiff requested in the court proceeding, among other things, that the defendant provide the real identity of the creator so that the plaintiff can initiate legal proceeding against the creator as well. This indicates that the plaintiff is contemplating a new and further court proceeding against the creator of the infringing NFT work. The defendant in this case has appealed this judgment of a first instance court to the Hangzhou Intermediate People’s Court. We will continue to monitor this case and will report on any new developments. We will also keep an eye on any new court decisions involving NFTs in China, especially those from higher level courts.

The first California Consumer Privacy Act (CCPA) settlement was announced on August 24, together with a strong message from California Attorney General Rob Bonta regarding compliance with the CCPA. The settlement involves Sephora USA, Inc., and resulted from a sweep of enforcements by the Attorney General last year. As part of the settlement, Sephora agreed to pay $1.2 million and comply with requirements related to its CCPA obligations. Prior to the AG investigation, Sephora was notified of its alleged CCPA violations but failed to cure within the 30-day period allowed under law. This failure prompted the AG to initiate the enforcement action. The definition of “sale” under the CCPA is extremely broad, and includes “selling, renting, releasing, disclosing, disseminating, making available, transferring, or otherwise communicating” personal information “for monetary or other valuable consideration.” According to the complaint, Sephora made consumers’ information available to third parties in connection with targeted advertising and “analytics” services, both of which the complaint indicated constituted a “sale.” The complaint alleges further that Sephora’s vendors were not subject to appropriate “service provider” contracts necessary for the vendor’s processing to not be considered a sale for purposes of CCPA. At the time, the Sephora privacy policy stated that it did not “sell” personal information, and did not include an opt-out of sale link. Taking these issues into account, the complaint alleged that Sephora violated the CCPA by failing to: (i) display a “do not sell my personal information” link on its homepage, (ii) describe the categories of personal information sold or shared in its privacy policy, and (iii) honor opt-out requests, including through response to the Global Privacy Control (GPC), a browser plugin designed to enable consumers to automatically opt-out of data sales on numerous websites with a single setting. In addition to curing these violations, the settlement also requires Sephora to conform its service provider agreements to the CCPA’s requirements, properly configure service provider products and services, and provide reports to the California Attorney General relating to its sales of personal information, its relationships with service providers, and its ability to honor requests via GPC settings. The complaint also previewed to Sephora that the technologies it used may create additional risks for consumers’ sensitive information related to health conditions. This, by extension, could create risk of non-compliance with forthcoming CCPA requirements applicable to businesses’ processing of sensitive personal information. Companies should note that CCPA requirements are complex to implement, and the 30-day cure period may be insufficient to make all needed changes. In addition, the cure period currently allowed under the law will expire as of January 1, when the CPRA amendments to the CCPA becomes effective. It is therefore critical for companies to evaluate their CCPA compliance posture prior January 1, 2023, as the California Attorney General’s office, together with the new California Privacy Protection Agency, appear poised to increase their enforcement efforts, and may be less tolerant of non-compliance. In a press release issued together with the Sephora settlement, Attorney Rob Bonta stated: “I hope today’s settlement sends a strong message to businesses that are still failing to comply with California’s consumer privacy law. My office is watching, and we will hold you accountable. It’s been more than two years since the CCPA went into effect, and businesses’ right to avoid liability by curing their CCPA violations after they are caught is expiring. There are no more excuses.” Together with announcing the Sephora settlement, the Attorney General’s office also issued notices to a number of other businesses alleging non-compliance relating to their failure to honor opt-out requests via the GPC or similar controls. Recipients of these notices will have 30 days to cure the violations, or they will face enforcement actions. Businesses receiving such notices after January 1, 2023, however, will have no such opportunity to cure. Examples of the notices to cure sent by Bonta’s office can be found at oag.ca.gov/ccpa. There are several important lessons in the Sephora settlement. The California AG is treating GPC as a requirement, rather than an option. Although the statutory text of the CCPA does not mandate compliance with the GPC, the AG suggested this was a requirement in the 2021 amendments to the CCPA regulations, and in the CCPA FAQ page in July, 2021. Whether or not this constitutes sufficient notice and a true statutory requirement is somewhat debatable, but companies should take notice and ensure GPC compliance in order to avoid potential enforcement for non-compliance. Any doubts regarding whether third-party online behavioral advertising and profiling constitute data sales have now been removed (though such relationships are likely to fall within the scope of the CPRA’s new “sharing” opt-out requirements once the CPRA amendments take effect). Privacy policies must clearly disclose the categories of data sold, the fact that sales are taking place, and other requirements specified in the CCPA. Companies engaging in data sales must have a “do not sell” link on their homepage and in their privacy policy, with the required means to opt-out enabled. Service provider contracts must meet CCPA’s service provider contract requirements in order for the relationship to be exempt from the “sale” definition. Note that each relationship must, in fact, meet relevant service provider requirements, and language alone will not accomplish this. Similarly, service provider technologies may require additional configuration for processing to be in scope of the service provider agreement. Companies should be aware of using targeted advertising in a manner that implicitly reveals sensitive information (e.g. pregnancy or other health conditions). With the CPRA and other state laws becoming effective in the next year, companies have numerous tasks to do to prepare. For companies engaging in data sales, GPC implementation should be near the top of the to-do list, and more information is available at Global Privacy Control — Take Control Of Your Privacy

In a recent Show Cause Order, the United States Patent and Trademark Office took on the ghost of trademark attorneys past or rather it took aim at a scary level of fraud. The USPTO has threatened sanctions against Shenzhen Haiyi Enterprise Management Co. and its affiliates (collectively, “Haiyi”) for allegedly coopting the good name of deceased attorney Jeffrey Firestone and using the fake name “Jackson George” for other submissions. In recent years, the USPTO has tightened restrictions by requiring that all foreign applicants are represented by a licensed U.S. attorney. It also now requires that all filings are submitted using USPTO.gov accounts, which must be registered to individuals and are not to be shared among multiple people. Reports from the USPTO show an uptick in fraudulent filings presumably due, at least in part, to attempts to circumvent the USPTO’s requirement that registrants must eventually show use of their mark in the U.S. Haiyi, an intellectual property consulting firm based in China, allegedly helped applicants and registrants circumvent the rules by filing documents in the names of Mr. Jackson and Mr. George. As detailed in the order, Haiyi filed over 300 submission, “personally” signed by Mr. Jackson, after his death. There are over 2,500 records associated with the fictitious Mr. George, some filed at a suspiciously impossible rate. Two applications were filed at the exact same time from two different computers. Thirteen new applications were filed in a single hour from three different computers. Haiyi also has multiple USPTO.gov accounts registered in Mr. George’s name. The USPTO’s order also detailed how Haiyi filed fraudulent specimens of use, showing mock product lists on dubious websites and fabricated invoices listing vacant lots as shipping addresses. This paranormal activity was sniffed by cross-referencing emails, time stamps, signatures, trademark owners, computer networks, and credit cards used for fee payments. The USPTO’s sleuthing may shed new light on the more robust inquiries sent from Examining Attorneys reviewing trademark filings. If Haiyi cannot provide reasonable explanations for the alleged fraud, the USPTO has threatened to scrub Haiyi’s contact information from all the records, ignore submissions made by Haiyi, terminate proceedings involving Haiyi, delete Haiyi’s UPSTO.gov accounts, and block payments from Haiyi’s credit cards. At the time of this post, the USPTO has not yet sanctioned Haiyi, but we will continue to monitor this developing case.

Last month, the Court of Appeals for the Eleventh Circuit weighed in for the first time on the scienter requirement for copyright infringement under Section 1202(b) of the Digital Millennium Copyright Act or “DMCA.” In Victor Elias Photography, LLC v. Ice Portal, Inc., the Eleventh Circuit held that the DMCA has a “double scienter requirement” – not only does an alleged infringer need to know that so-called “copyright management information” or “CMI” has been removed or altered, the infringer also has to know that the removal would likely result in copyright infringement. In this decision, the Eleventh Circuit joined the Second and Ninth Circuits in holding that the defendant has to know that removing CMI would likely lead to future infringement, and not just make infringement possible or easier to accomplish. Victor Elias, the sole owner of the plaintiff (“Elias”), is a professional photographer who specializes in taking photographs of hotels and resorts throughout the U.S., Mexico, and the Caribbean, which he then licenses to these hotels and resorts. Elias registers his photographs for copyright and embeds CMI in the metadata of the images, which identifies Elias as owner and is used to find instances of copyright infringement. The defendant, a division of Shiji (US), Inc., acts as an intermediary between hotels and online travel agents, such as Expedia, by providing images of the hotels to these agents. In order to optimize the quality of the photographs, Shiji converts them to a different format, which sometimes erases metadata, including the CMI. Like any conscientious copyright owner, Elias regularly monitors the internet for evidence of copyright infringement. When, in 2016, he found unauthorized copies of his photographs on websites (including some non-online travel agent websites) from which his CMI had been stripped, Elias sued Shiji for violation of the DMCA. After discovery, the district court granted summary judgment to Shiji, concluding that Elias could not satisfy the “second scienter requirement” of Section 17 U.S.C. § 1202(b) of the DMCA. In other words, Elias had not established that Shiji “knew or had reason to know that its actions would induce, enable, facilitate, or conceal infringement.” Elias then appealed to the Eleventh Circuit. On appeal, the court noted that interpretation of Section 1202(b) of the DMCA was an issue of first impression in the Eleventh Circuit. That section prohibits a person from intentionally removing or altering CMI, or distributing works from which CMI has been removed or altered, “knowing, or . . . having reasonable grounds to know, that it will induce, enable, facilitate, or conceal [copyright infringement].” It was the last part of that provision that was at the crux of this dispute, and that the Eleventh Circuit sought to interpret. The court looked to its sister Circuits for guidance, as both the Second and the Ninth Circuits had previously addressed this provision. In Mango v. BuzzFeed, Inc., 970 F.3d 167 (2d Cir. 2020), the Second Circuit had held that, to establish a violation of Section 1202(b), a plaintiff must prove that the defendant distributed works originally containing CMI while (i) knowing that the CMI had been removed or altered without authorization and (ii) knowing or having reasonable grounds to know that such distribution “will induce, enable, facilitate, or conceal an infringement.” Those two knowledge elements are known as the “double-scienter requirement” of Section 1202(b). In Stevens v. Corelogic, Inc., 899 F.3d 666 (9th Cir. 2018), the Ninth Circuit had similarly held that a violation of Section 1202(b) requires the defendant to possess the mental state of knowing, or having a reasonable basis to know, that the defendant’s actions “will induce, enable, facilitate, or conceal an infringement.” Given the express language of the statute, Elias conceded that Section 1202(b) had a double-scienter requirement. Elias nonetheless argued that a defendant should be held liable if it knows, or has reasonable grounds to know, that its actions “make infringement generally possible or easier to accomplish.” Shiji, on the other hand, argued that a defendant must know or have reasonable grounds to know that removing CMI would likely lead to future infringement. In other words, the fight here was essentially about the probability of future infringement – does it have to be likely or just generally possible? Following the reasoning of the Ninth Circuit in Stevens, the court concluded that Shiji had the better of the argument. As the court noted, under Elias’s proposed standard, “the defendant would always know that its actions would ‘induce, enable, facilitate, or conceal’ infringement because distributing protected images wrongly cleansed of CMI would always make infringement easier in some general sense.” The court reasoned that such an interpretation would “effectively collapse the first and second scienter requirements.” (It would also mean we wouldn’t get to use the fun phrase “double-scienter requirement!”). Applying its statutory interpretation to this case, the court affirmed the district court, holding that Elias had failed to submit evidence sufficient to create a genuine issue of material fact as to whether Shiji knew or had reason to know that its actions “will induce, enable, facilitate, or conceal infringement” of Elias’ copyrighted works. Elias had argued that Shiji’s involvement in a 2016 arbitration involving allegations of CMI removal, as well as examples of images of Elias’ photographs on non-party websites that had been stripped of his CMI, reflected that Shiji had or had reason to have such knowledge. The court, however, found that the arbitration was factually distinguishable and would not have given Shiji any reason to know that its software’s effects on CMI would make copyright infringement “likely.” Similarly, the court held that there was no evidence linking Shiji’s actions of removing CMI with the instances of infringement Elias had discovered online. Did the court get it right? It seems so, at least on these facts, since there doesn’t appear to have been any evidence that Shiji knew or should have known that its action would make copyright infringement likely. The Eleventh Circuit’s statutory interpretation seems on the mark too – and is in accord with the conclusions reached by the Second and Ninth Circuits. What’s beyond doubt is that plaintiffs alleging a violation of Section 1202(b) have a very high burden indeed in these Circuits. Not just scienter – double-scienter!!

“Writing is thinking and thinking is hard work.” – Lewis Black Image from Debby Wong / Shutterstock.com Over his highly successful career, comedian Lewis Black has certainly done his share of hard work writing jokes. He also has copyrighted them. Now he and a host of other famous comedians are seeking compensation for the use of those jokes by streaming giant Pandora Media, LLC. Lawsuits by Black and George Lopez recently were added to the consolidated copyright infringement lawsuit in the United States District Court for the Central District of California titled In re Pandora Media, LLC Copyright Litigation, 2:22-cv-00809-MCS-MAR. Black and Lopez join other copyright holders of the comedic material created by Bill Engvall, George Carlin, Ron White, Robin Williams, Andrew Dice Clay, Nick Di Paolo, and Bill Hicks. Together, the comedians challenge Pandora’s practice of making available through their digital broadcast radio and interactive streaming services the copyrighted works of these comedians without the proper licenses. Image from Everett Collection / Shutterstock.com The suit calls into question Pandora’s entire business model for providing spoken word comedy content, and provides a useful backdrop for introducing the various copyright and licensing issues at play (pun intended) in the context of broadcasting and streaming comedy and literary works, as opposed to music. The claims center on the plaintiffs’ copyrights in their spoken word compositions recorded on various comedy albums; in other words, their jokes and other comedic material. Anyone wishing to perform these albums, or portions thereof, needs a public performance license from the rights holders of the underlying material. In the music industry, the required public performance licenses are typically obtained from organizations like BMI and ASCAP, which streamline the licensing process. Historically, there was no analog to BMI or ASCAP for literary works (more on this below), so Pandora obtained no public performance licenses for any of its comedic content. Plaintiffs allege this failure violates their copyrights both when Pandora broadcasts that content on its digital radio service, and makes it available through interactive streaming. For streaming, the comedians also fault Pandora for not obtaining a mechanical license to stream the underlying comedic works. They note that the mechanical license is required regardless of whether Pandora has obtained a license to stream the sound recording of the plaintiffs’ comedy albums, the copyright to which is typically owned by the record label, and not the artist. The plaintiffs argue that Pandora has long been aware that its practices in the comedy space are illegal. They cite to Pandora’s SEC filings from 2011-2017, in which it disclosed that it performs spoken-word comedy content “absent a specific license from any . . . performing rights organization” and has never obtained a license for the underlying compositions for the sound recordings that it streams.  Pandora also acknowledged that it could be subject to significant liability for copyright infringement arising out of its providing spoken-word comedy content. That “significant liability” is potentially over $60 million in statutory damages for the 475 copyrighted comedic works at issue for the plaintiffs (not counting the works of Black and Lopez). For its part, Pandora claims that the comedians are compensated through licensing fees paid to the owners of the copyrights in the sound recordings, which are then shared with the comedians, and by pointing out that the comedians have historically accepted this arrangement. Up until now, no comedian has ever licensed separately the rights to their copyrighted jokes, and that, except for what Pandora calls the “dysfunctional music licensing market,” all other copyright-intensive industries have relied on the creators of the final product like record labels to secure and pass along the required rights. Pandora also notes that comedians earn valuable publicity and exposure from their works being made available by Pandora, such that the current system is fair. Pandora also has gone on the offensive, asserting antitrust counterclaims against the comedians and Word Collections—which markets itself as the ASCAP and BMI for spoken word instead of music. According to Pandora, Word Collections is a “cartel leader” that seeks to consolidate naturally competing rights into a “monopolistic portfolio” to fix the price of the only license available for the rights in the comedic works. Both the comedians and Word Collections moved to dismiss the counterclaims.  At the same time the court was adding Black and Lopez to the case, it also conducted a hearing on those motions, but has not yet issued a decision. The court also has given the parties approximately a year to engage in fact discovery. The case has the potential to change the entire system by which non-musical content is broadcasted and streamed over the internet, so the TMCA will be closely watching.

What additional value does a copyright registration confer on a run-of-the-mill neighborhood social media post? Not a lot, it appears. Earlier this year, the First Circuit affirmed the dismissal of a lawsuit brought by one neighbor against another. From 2002-2017, neighbors in the Davis Square area of the 80,000-person Massachusetts city of Somerville used the Russian-owned social networking platform LiveJournal to host a neighborhood online forum. Starting around 2010, anonymous users posted comments accusing the Plaintiff Jonathan Monsarrat of unsavory things. Monserrat made his own social media post, quoting the forum’s “abuse policy” and threatening to report anyone who had not removed the posts. Monsarrat then filed for copyright protection of his social media post. In 2017, LiveJournal changed its user terms related to censorship – consistent with Russian law – and the then-moderator, Defendant Ron Newman, decided to move the group to a different social media platform. Newman copied all existing LiveJournal threads in whole onto the new platform, including Monsarrat’s copyrighted post and the anonymous posts. Monsarrat sued Newman, alleging defamation, with respect to the anonymous posts, and copyright infringement, with respect to Monsarrat’s post. The federal district court in Massachusetts dismissed the case at the Rule 12 motion-to-dismiss phase, without any discovery. The court dismissed the defamation claims because Newman was within an exemption for re-published information within the Communications Decency Act. The district court also ruled that the publication was fair use “as a matter of law” and the case could be dismissed without discovery. The First Circuit agreed, noting “[W]e can see no plausible argument that Newman has not established fair use.” As many of you know, the fair-use test set forth in the Copyright Act has four factors: (1) the purpose of the use, (2) the nature of the work, (3) the amount of the work used, and (4) the effect of use on the potential market. The First Circuit put it bluntly: “Monsarrat cannot claim with a straight face that Newman’s copying – seven years later and on a different platform – was aimed at the same purpose.” Monsarrat’s purpose was to “encourage users in 2010 to immediately stop harassing him.” While the Court noted the district court had “overreached” by finding that Newman’s purpose was “solely for historical and preservationist purposes,” it noted that Newman’s copying was “at least minimally” transformative and was non-commercial, and therefore the first factor favored Newman. The second factor also favored Newman, because the post’s “brief workaday prose” threatening action “lies much more on the factual and informational side of the line than near the ‘core’ of copyright protection.” And although Newman copied the entire copyrighted work, which would usually tip the scales in favor of the copyright holder on this factor, the court decided this factor favored neither party, because “it would have made scant sense for Newman to take just part of the copyrighted post” and “would have misrepresented what Monsarrat wrote.” The fourth factor – the effect on the market – also favored Newman. The First Circuit agreed with the district court that “there is no plausible market for the copyrighted post,” and Monsarrat did not dispute this point. The court rejected Monsarrat’s argument that the copyright registration itself demonstrated the post’s value. The court logically reasoned that the fact of copyright registration “would be present in every case, and thus be largely beside the point in differentiating one case from another.” The outcome of this case is no surprise, but the procedural disposition is interesting. The court’s opinion was more fact-intensive than most at the Rule 12 stage – an outcome that may not be repeated in a case with less stark facts. And, at the end of the day, Monsarrat’s quest to suppress the harmful comments about him had the reverse effect: they were published nationwide. Be careful what you wish for.

We reported here last summer the outcome of Coca-Cola Company’s petitions to cancel the registrations for the above-captioned marks owned by Meenaxi Enterprise, Inc. Meenaxi appealed the TTAB’s decision to cancel the registrations to the U.S. Court of Appeals for the Federal Circuit. The basis for the appeal was that Coca-Cola did not establish a statutory cause of action based on lost sales or reputational injury as required under Section 14(3) of the Trademark Act. Coca-Cola needed to establish its entitlement to a “statutory cause of action under the Lanham Act” by “demonstrating (1) an interest falling within the zone of interests protected by the Lanham Act and (2) an injury proximately caused by a violation of the Act.” In an opinion issued on June 29, the Federal Circuit held that the TTAB erred in its reliance on evidence that was speculative regarding the claim of damages, and reversed the cancellation of the registrations owned by Meenaxi. There does not seem to be any real question here that Meenaxi’s adoption of the identical trademarks owned by Coca-Cola in India was copycat activity. Nor is there any real question that Coca-Cola’s rights in the THUMS UP and LIMCA trademarks in India and elsewhere outside of the U.S. rise to the level of “famous” trademarks. The primary question is whether the reputation or fame of the marks extended from outside of the U.S. to U.S. consumers such that sales by Meenaxi were presumably riding the coattails of the reputation of Coca-Cola’s marks and thus causing damage to Coca-Cola’s rights. The case did not address the territoriality tension of rights in trademarks owned outside of the U.S. with no established rights in the U.S. and whether such marks are entitled to protection from reputational injury in the U.S. through the Lanham Act. With respect to the evidenciary issue, the TTAB relied upon the affidavits of two Coca-Cola executives that speculated that Indian-Americans would know of the THUMS UP and LIMCA branded products because of an interest in the goods in the United States by Indian grocers, restaurants and other retail outlets. While third parties imported and sold the THUMS UP and LIMCA branded products in the U.S., Coca-Cola did not make any direct sales of its products except for de minimis sales of its THUMS UP product in Atlanta and Orlando. Additional evidence, such as a consumer survey, would have been helpful, but Coca-Cola also did not rely on a famous-marks exception. “It maintains only that it experienced reputational injury in the United States because (1) members of the Indian-American community in the United States were aware of the THUMS UP and LIMCA marks and (2) Meenaxi traded on Coca-Cola’s goodwill with Indian-American consumers in those marks by misleading them into thinking that Meenaxi’s beverages were the same as those sold by Coca-Cola in India.” It appears that Coca-Cola was not directly making more than de minimis sales of the THUMS UP branded product in the U.S. and that it did not own registered trademark rights in either mark in the U.S. at the time it filed petitions to cancel the registrations for the marks owned by Meenaxi. Notably, Coca-Cola has since filed trademark applications for the marks in the U.S. Because Coca-Cola did not provide any evidence that U.S. consumers were aware of the brands and could not demonstrate reputational harm or economic injury, the Federal Circuit did not answer the territoriality vs. confusion questions raised in this case. The majority opinion merely stated that “it remains unclear the extent to which territoriality principle applies” to false designation of origin or misrepresentation of source claims, which do not require U.S. trademark rights to bring. The court’s discussion of its decision in the Person’s Co. v. Christman case (Person’s was a well-known retailer in Japan and its attempt to stop a U.S. citizen from producing goods under its marks in the U.S. was unsuccessful because U.S. consumers were not aware of the mark or its underlying products) seems to indicate that even if Coca-Cola had submitted relevant evidence of consumer awareness in the U.S., without established trademark rights in the U.S., the court might not consider canceling a U.S. registration based on reputational damage to foreign marks due to the territoriality doctrine. Coca-Cola’s pending applications for the THUMS UP and LIMCA marks at the USPTO remain suspended pending the outcome of the cancellation proceedings. Presumably, once the cancellation proceedings are resolved in the TTAB in favor of Meenaxi, these pending applications will be refused registration based upon a likelihood of confusion. How will Coca-Cola respond to the refusal of its applications? Will it instead focus on boxing in Meenaxi’s use and registration of the marks to the U.S. only?

Who owns the creations of an artificial intelligence? From ownership in general to copyright and patent law, the answer is unclear. However, the question has taken on a new sense of urgency: inventors are creating increasingly advanced AI systems which can paint Rembrandt-style works of art, generate paragraphs of text from a single sentence, design original memes, and even generate their own music and compete in rap battles against human beatboxers. Rap aficionados may have had some complaints about the quality of the music, but when beatboxer Reeps One performed in a battle against an AI in 2018, it was still quite an accomplishment for the world of artificial intelligence. But can these AIs own their own creations, or even apply for intellectual property protections? Several inventors argue that the AI’s creations rightfully belong to the machine itself, and have applied for patent or copyright registration on its behalf. We previously discussed a notable example where the inventors of the Device for Autonomous Bootstrapping of Unified Sentience (aka “DABUS”) tried to have the AI’s creation—a unique plastic container—patented, with DABUS itself listed as the inventor. The inventors filed the application to see how far patent offices were willing to go, and how much protection they would give to an AI. The answer? Not much. Patent applications are ongoing in several countries, but the USPTO denied the application, stating unequivocally that the plain language of patent laws limits patent applications to naming only human persons as inventors. While the case is currently on appeal to the Federal Circuit, the judges have seemed skeptical of the inventor’s position, with one asking how an AI could be considered an individual. To date, the DABUS system has been awarded only one patent in its own name, from the patent office of South Africa. The US Copyright Office has adopted similar standards, most notably a “human authorship” requirement for creative works pursuant to the Copyright Act. Most recently in 2019, an inventor who tried to copyright a work of art produced by his AI (which supposedly created a visual simulation of a near-death experience), saw his application rejected by the Office. The USCO used lower court precedent—including one case we previously discussed in which the USCO ruled that a monkey could not sue for copyright infringement—to rule that the work was ineligible for protections due to its lack of a human author. A three-person board denied his request for reconsideration in February. Until and unless AIs are recognized as legal persons, they are unlikely to receive copyright protections for their creative endeavors. "The Next Rembrandt," which bears striking artistic resemblance to a real Rembrandt, is of uncertain copyright status. The question likely turns on the amount of creative input the human inventors put into the painting; did they make a substantial contribution to the outcome, or was the AI the one making the creative decisions, with the humans functioning only in a training or programming role? If the human inventors had minimal control of the creative or inventive process, the work will likely fall under the public domain, being ineligible for IP protections. Here, while the creative team did train the AI to recognize and mimic Rembrandt’s particular artistic style, a great deal of the creative decision-making was left up to the algorithm itself. As AI algorithms become more advanced and more fully integrated into everyday life, the problems surrounding them will only become more complex. Already, the USPTO has voiced concerns about human-authorship requirements stifling invention, and asked for public comment on the issue when ruling on the DABUS application. Other commentators have raised concerns about public disclosures: some inventors may attempt to hide an AI’s involvement in a new invention in order to qualify for patent protections. On the other side, some commentators worry about the consequences of giving AI inventions the same protections as those made by humans; namely, the further humanization of AI systems. Given the stance of the USCO and USPTO and the significant areas of ambiguity when it comes to AI-produced inventions, these concerns are likely to continue.

Technology is changing, but is copyright law keeping up? Stephen Thaler clearly believes it is not and has sued the U.S. Copyright Office over its refusal to register artwork created by his artificial intelligence software. You may remember Thaler from a previous TMCA article discussing his bid to obtain a patent for an AI-generated invention, which the U.S. Patent and Trademark Office rejected on the ground inventorship requires a “natural person.” In November 2018, Thaler filed a copyright application for the artwork shown above, listing the author of the work as the “Creativity Machine” (which is an AI program created by Thaler that autonomously created the work). The Copyright Office refused to register the work based on the (at least current) axiom that human authorship is necessary to support a copyright claim. The Copyright Review Board upheld the refusal in February 2022, stating it “is compelled to follow Supreme Court precedent, which makes human authorship an essential element of copyright protection.” Last month, Thaler filed a federal lawsuit challenging the Copyright Office’s decision under the Administrative Procedure Act. The main thrust of his position is that the Copyright Act affords protection to “original works of authorship” and makes no specific reference to “human authorship.” Thaler points to the fact that corporations and other “non-human entities” have been considered authors under the Copyright Act for over a century, and the extension to AI is consistent with this principal. He also contends no case has directly ruled on the issue of AI-generated works, which is significant because AI is capable of “producing creative output that, at least functionally, is equivalent to ‘the fruits of intellectual labor’ that ‘are founded in the creative powers of the mind.’” Thaler also advances a number of property-based theories, including based on accession, first possession, and the work-made-for-hire doctrine. Given the current state of the case law, Thaler likely faces an uphill battle. Courts, including the Supreme Court, have uniformly interpreted the Copyright Act to require human authorship, citing to Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, 56 (1884) as the origins of the concept, where the Court referred to authors as human. Since then, the Court has cited to Burrow-Giles in ways that seem to require human authorship, such as in Mazer v. Stein, 347 U.S. 201, 214 (1954), where it concluded a work “must be original, that is, the author’s tangible expression of his ideas.” 347 U.S. 201, 214 (1954) (emphasis added). In Goldstein v. California (again citing to Burrow-Giles), the Court also held that, “[w]hile an ‘author’ may be viewed as an individual who writes an original composition, the term in its constitutional sense, has been construed to mean an ‘originator,’ ‘he to whom anything owes its origin.’” 412 U.S. 546, 561 (1973) (emphasis added). Lower courts have also applied the human requirement to copyright authorship. For example, materials allegedly “‘authored’ by non-human spiritual beings” are not entitled to copyright protection without “human selection and arrangement of the revelations,” Urantia Found. v. Kristen Maaherra, 114 F.3d 955 (9th Cir. 1997), and a monkey is not entitled to claim copyright protection for a selfie because “humanity excludes animals,” Naruto v. Slater, 888 F.3d 418, 426 (9th Cir. 2018). But, despite the challenges, this case is an important one. AI is becoming increasingly present in our everyday lives, extending far beyond the scientific realm. As shown here, AI machines can now produce creative works, including music, inventions, and artwork. The human-authorship requirement could have negative implications for the growth and advancement of this relatively nascent technology. Why dedicate resources to creative AI when the work product will not receive copyright protection and can be exploited by others without remedy? Time will tell but, for now, the current landscape leaves AI creations in a less than picture-perfect world. The TMCA will continue to track this developing issue, including another forthcoming article more broadly discussing AI authorship.      

After two years of groundwork, the Copyright Office’s new forum for hearing small copyright claims is finally here. The Copyright Claims Board (CCB) began accepting claims on June 16 and seeks to provide a streamlined alternative to resolving copyright disputes in federal court. It is unclear how successful the CCB will be. The CCB’s inability to decide cases without the voluntary participation of all parties raises questions about how many disputes it will actually resolve. Add in a lack of injunctive relief, a narrow appeal pathway, and even an annual limit on the number of cases an attorney can bring, and the CCB could raise more hurdles for litigants than it eliminates. The CCB was created through the Copyright Alternative in Small-Claims Enforcement Act of 2020 (CASE Act) and consists of a three-member tribunal based in the Copyright Office. Claimants must pay $40 to file, plus an additional $60 if the respondent does not opt out and the claim becomes “active.” If successful, the claimant can recover statutory damages up to $30,000 ($15,000 per work) for registered works and up to $15,000 ($7,500 per work) for works not yet registered. Injunctive relief is not available. Since federal courts only award statutory damages for registered works, the CCB opens a unique door to statutory recovery for claimants who have started—but not yet completed—the copyright registration process. The CCB shares some procedural similarities with federal courts. For example, corporations, partnerships, and unincorporated associations can register a dedicated service agent through the CCB’s website. After providing contact information, listing additional trade names, and paying a $6 fee, the entity’s agent will appear in the CCB’s online directory of agents. Any subsequent claims brought against the entity must then be served on the agent via certified mail (or by email, if the entity has consented to receive electronic service). The CCB agent directory shares no overlap with the DMCA agent directory, so an agent registered in one directory will not automatically appear in the other. Yet, the CCB also deviates from federal courts in some procedures. Filings are submitted electronically though the CCB’s website, and all hearings are conducted remotely. Additionally, the CCB does not follow the Federal Rules of Civil Procedure or Evidence and instead uses a streamlined—but somewhat analogous—set of rules contained in Title 37 of the Code of Federal Regulations. These rules limit discovery to standard interrogatories and requests for document production in an attempt to simplify the fact-building process for pro se litigants. What may ultimately come to define the CCB, though, is that participation is optional: any party to a CCB claim can opt out by notifying the CCB within 60 days after being served notice of a claim. This automatically terminates the proceeding, and the plaintiff must bring the case again in federal court to pursue the matter further. A special provision also allows libraries and archives preemptively to opt out of any CCB claims against them. All other respondents, however, must opt out on a case-by-case basis by completing an opt-out notification form. The inability to force parties to litigate their claims in front of the CCB could stifle its effectiveness, but voluntary participation from all parties is necessary to avoid the constitutional concerns that arise when the legislative branch seeks to perform a judicial role. The CCB rules state that, by not opting out, parties lose the opportunity to have an Article III court decide the case and waive their rights to a jury trial. Because the only way to waive these rights is to make participation optional, the CCB is forced to give parties the choice to opt-out. If parties do agree to litigate in front of the CCB, they can only appeal its decision to a federal court on narrow grounds. The first line of appeal is to request that the panel reconsider its decision for a clear error of law, a clear error of material fact, or a technical mistake. Next, a party can ask the Register of Copyrights to review the panel’s decision for abuse of discretion. Getting external review is harder—the only path to review by a federal district court is by alleging fraud, corruption, misrepresentation, or misconduct. This high hurdle may make it difficult to correct erroneous findings that could have been avoided with more thorough discovery and briefings. To address concerns of copyright trolls flooding the system, the CCB contains some defensive measures to combat unmeritorious claims. First, a CCB attorney must pre-approve all claims before they can be served, throwing out any that clearly do not state a claim upon which relief can be granted. Additionally, bad faith conduct is punishable with fines up to $5,000 (including attorneys’ fees), and repeated instances of such conduct can trigger a bar on bringing future claims before the CCB. Bad faith conduct is not the only limitation on bringing claims, however. The CCB rules place limits on the number of cases anyone can bring over a 12-month period. Individuals and corporations can bring up to 30 claims, while this limit is raised to 40 for solo practitioners and 80 for law firms (opt-outs still count towards the limit). Will these limits ultimately serve the CCB’s objectives of discouraging trolls and increasing access to justice? The caps could be simultaneously too high to keep out all frivolous claims, but too low to incentivize lawyers and firms to specialize in CCB-claims. Time will tell how large the CCB’s docket may ultimately grow (there were 36 open cases as of June 30, 2022), but there are plenty of questions to ask as the program gets underway. Will defendants choose to proceed in the CCB when they have the ability simply to opt-out? Will plaintiffs find it worthwhile to wait 60 days for defendants to decide to participate, knowing there is no prospect of injunctive relief? Will attorneys bother focusing on the CCB when they face fewer restrictions in federal court? More fundamentally, will the CCB actually simplify anything? The streamlined rules of procedure and evidence adopted by the CCB are designed to facilitate litigation by pro se parties. But the Copyright Office admits it “must allow for some degree of complexity in those situations where complexity is inherent in the factual context.” And the CCB has the authority to dismiss cases it thinks are unsuited to its administrative capacity or expertise. Will the CCB overcomplicate proceedings or punt on cases it does not want to hear? These unanswered questions suggest it will be some time before the true advantages and shortcomings of the CCB become apparent.

A federal court judge in the U.S. District Court for the Southern District of New York recently denied the prevailing Defendants’ motion for $11.6 million in attorneys’ fees in a trade secret misappropriation case between two large competitors providing translation services. Despite the Court indicating that the lawsuit had not been filed and pursued in good faith, and also finding the Plaintiff’s overall litigation conduct to be “unsavory business,” the Court nevertheless ruled that the Defendants failed to meet the requisite standard of bad faith necessary to receive an award of fees under the Defend Trade Secrets Act (“DTSA”). The Court’s ruling is a useful illustration of the high bar that courts may set for establishing bad faith under the DTSA. The dispute goes back to August 2015 when the Delaware Court of Chancery ordered a court-supervised auction for the sale of Plaintiff TransPerfect Global, Inc. (“TransPerfect”), so that one of its co-founders could dissolve her relationship with TransPerfect and sell her ownership interest. Defendant H.I.G. Middle Market, LLC (“H.I.G.”), which acquired TransPerfect’s largest competitor—Lionbridge Technologies, Inc. (“Lionbridge”), a second defendant in the case—in February 2017, was one of the participants in the auction. As such, H.I.G. was given access to TransPerfect’s confidential information. TransPerfect claimed that H.I.G. was never a legitimate bidder in the auction, but instead used the auction to gain access to TransPerfect’s trade secrets and confidential information, including documents that a court-appointed TransPerfect Custodian erred in uploading in unredacted form, and then unfairly competed with TransPerfect. TransPerfect also alleged that Lionbridge changed its sales strategy, offered products and pricing to mirror those of TransPerfect, and used TransPerfect’s trade secrets to poach its clients. Accordingly, TransPerfect filed suit in 2019 against Lionbridge and H.I.G. alleging, among other claims, misappropriation of trade secrets under the DTSA and state law. TransPerfect sought injunctive relief and damages. Approximately two years later, and after significant discovery, Defendants moved for summary judgment on all of TransPerfect’s claims. The Court granted the motion, finding that TransPerfect had failed to show sufficient evidence to support its claims. In analyzing the trade secret misappropriation claims, the Court found that TransPerfect failed to show evidence that a majority of the documents identified by TransPerfect as allegedly containing trade secrets that were misappropriated by Defendants, were either accessed by Defendants or actually contained trade secrets. However, the Court confirmed that two categories of information that were accessed by H.I.G.—TransPerfect’s average payment to its freelance linguists in cents per word and its 2014 and 2015 revenues per customer—constituted trade secrets. But the open question before the Court was whether these trade secrets had been acquired by improper means so as to constitute misappropriation. The Court ruled that TransPerfect had failed to establish misappropriation. The Court reasoned that the parties had a confidentiality agreement explicitly permitting H.I.G. and its representatives to access information about TransPerfect to conduct due diligence and evaluate a potential acquisition of TransPerfect, and that the court-appointed TransPerfect Custodian’s error in uploading unredacted documents that included the trade secrets at issue was not in fact misappropriation by Defendants. The Court also stressed that TransPerfect had not requested the return or destruction of that information. Finally, the Court found that the confidentiality agreement permitted Defendants to use information about TransPerfect in connection with the auction and that TransPerfect has failed to demonstrate that its trade secrets were used for any other purpose. Having prevailed on their motion for summary judgment, H.I.G. and Lionbridge filed a motion for attorneys’ fees exceeding $11.6 million. In support of their motion, Defendants argued that TransPerfect had initiated the lawsuit solely to seek revenge against, and to harass Lionbridge, its largest competitor, and H.I.G., Lionbridge’s private equity sponsor, for their participation in the auction of TransPerfect, even though there was no supporting evidence for TransPerfect’s allegations. Under the DTSA, a court can award reasonable attorneys’ fees to the prevailing party when a claim of misappropriation is made in bad faith, which can be established by circumstantial evidence. Courts also have inherent power to award attorneys’ fees for bad faith, which requires the movant to show that the challenged claim lacks any legal or factual basis and was brought in bad faith, i.e., was motivated by improper purposes such as harassment or delay. A finding of improper purposes can be inferred when an action is so completely without merit so as to necessitate the conclusion that the action must have been undertaken for some improper purpose. In light of the summary judgment ruling, Defendants were clearly the prevailing party. Accordingly, the Court analyzed whether Defendants had demonstrated that TransPerfect filed the misappropriation claim in bad faith. First, the Court indicated that TransPerfect did not have a good faith basis to file the lawsuit initially, seemed to be conducting a search for a viable claim after commencing suit, and then continued to pursue its claims even after it became clear that it had not suffered any damages. Second, the Court looked at the conduct of TransPerfect’s CEO in other lawsuits against almost every other entity connected to the auction, in what was alleged to be an orchestrated campaign to undermine the auction, which the Delaware Supreme Court described as “reprehensible.” The Court stated that, “this is unsavory business” but the question remained whether Defendants had established TransPerfect’s “bad faith to the degree demanded by law.” The Court ultimately concluded that Defendants had made a strong showing of TransPerfect’s bad faith but had failed to reach the required standard, and thus denied their motion for fees. As this case demonstrates, the expense of trade secrets litigation can be very significant. Yet, prevailing defendants may nonetheless be left holding the bag for their fees, as establishing the bad faith required for fee shifting to occur under the DTSA may require extraordinary circumstances.  

California employers have navigated the ever-changing privacy landscape when it comes to employee and personnel personal information (“human resources data”). For years, California employers’ obligations were narrow in scope compared to covered businesses’ broader obligations to consumers under the California Consumer Privacy Act (“CCPA”). The California Privacy Rights Act (the “CPRA”) expanded these obligations and set a deadline for employer compliance by January 1, 2023. Now, with two pending privacy bills on the horizon, California employers may need to meet additional obligations in 2023 and beyond. As previously shared, employers already have existing obligations under the CCPA regarding human resources data – the personal information of a job applicant, employee, owner, director, officer, medical staff member, or contractor of a covered business collected and used (1) in the context of the covered business’s relationship with the employee or personnel, (2) to maintain emergency contact information on file, or (3) to administer benefits. Under the CCPA, California employers must provide a notice to employees and personnel describing the categories of human resources data to be collected and the purposes for which the categories shall be used. By the time the CPRA goes into effect on January 1, 2023, California employers will need to have revised the notice to meet three broader obligations. First, the notice must disclose whether the employer sold the human resources data. California employers should keep in mind that CPRA broadly defines “sale” – if a California employer receives monetary or “other valuable consideration” for “selling, renting, disclosing, disseminating, making available, or otherwise communicating” human resources to a third party, the notice must disclose this as action as a sale. Second, the notice must describe the retention period that applies to the human resources data. California employers can meet this obligation by describing either (a) “the length of time the business intends to retain each category of personal information, including sensitive personal information,” or (b) “the criteria used to determine that period” provided that the human resources data is not retained for longer than is necessary for the disclosed purpose. Third, the notice must disclose categories of “sensitive personal information” as a separate category if the information is collected or processed with “the purpose of inferring characteristics” about the employee or personnel. “Sensitive personal data” includes, among other things, a Social Security, driver’s license, state identification card, or passport number; an account log-in, financial account, debit card, or credit card number in combination with credentials needed for access to the account or cards; precise geolocation; racial or ethnic origin, religious or philosophical beliefs, or union membership; mail, email, or text messages contents unless the business is the intended recipient; and, genetic data (this would likely mean that the notice should disclose that certain sensitive personal information is submitted to the Department of Fair Employment and Housing should Senate Bill 1162 pass). California employers can meet the broader CPRA obligations by January 1, 2023 by taking steps now. Aside from broadened obligations under the CCPA and the CPRA, California employers may need to account for two privacy bills when collecting and processing human resources data should the bills become law. Assembly Bill 1651 (“AB 1651”), coined as the “Workplace Technology Accountability Act,” seeks to build upon the CCPA and CPRA regarding human resources data. Introduced by Assembly Member Ash Kalra, AB 1651 seeks to “impose various duties on employers and their vendors regarding the ability to collect and use worker data, as defined.” The proposed definition of “worker data” includes “any information that identifies, relates to, describes, is reasonably capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular worker.” “Worker data” includes some categories of data already covered by the CCPA and CPRA, such as biometric information, but also includes “human resources information” such as a personnel file or performance evaluation. Like the CCPA and CPRA, AB 1651 would require California employers to provide a notice “at or before the point of collection” that informs workers about the specific categories of worker data to be collected, the specific purpose for which the specific categories of worker data are collected or used, and whether and how the data is related to the worker’s essential job functions. However, the AB 1651 enlarges the CCPA and CPRA by generally prohibiting “audio-visual monitoring of a workplace in a worker’s residence, a worker’s personal vehicle, or property owned or leased by a worker” unless that audio-visual monitoring is strictly necessary to accomplish compelling purposes. The bill also generally prohibits electronic monitoring systems that incorporate facial recognition, gait, or emotion recognition technology. AB 1651 further requires employers or vendors to submit to the labor agency a summary of its uses of algorithms, also referred to as “automated decision systems,” and to complete an algorithmic impact assessment before using the system to make or assist an employment-related decision. The bill has been met with criticism from several groups, including the California Chamber of Commerce. AB 1651 was referred to the California State Assembly Committee on Privacy and Consumer Protection last month, but was later withdrawn from consideration prior to a hearing in the Assembly’s Committee on Labor and Employment. The bill currently sits with the Committee on Privacy and Consumer Protection. California employers may have additional obligations under Senate Bill 1189 (“SB 1189”), which also seeks to build upon the CPRA by further refining obligations for biometric information. Introduced by Senator Bob Wieckowski, SB 1189 seeks to require private entities in possession of biometric information, as defined, to develop and make available to the public a written policy. The proposed definition of “biometric information” includes a “faceprint, fingerprint, voiceprint, retina or iris image, or any other biological characteristic that can be used to authenticate the individual’s identity.” Human biological samples used for valid scientific testing or screening and information captured by a health care provider under the federal Health Insurance Portability and Accountability Act are not covered by the proposed bill. Similar to the CPRA, SB 1189 would require California employers to develop a retention schedule and guidelines for destroying biometric information by earliest of (a) the date on which the initial purpose for collecting or obtaining the biometric information is satisfied; (b) one year after the individual’s last intentional interaction with the private entity; or (c) within 30 days after the private entity receives a verified request to delete the biometric information submitted by the individual or the individual’s representative. Should the bill pass, California employers would need to develop this policy by September 1, 2023. SB 1189 was referred to California Senate Appropriations Committee last month. At the May 19, 2022 Appropriations Hearing, the bill was taken under submission. Will California employers have more obligations beyond the CCPA and CPRA if AB 1651 and SB 1189 pass? Yes. In addition to supplementing the CCPA/CPRA required notice, California employers will need to expand the notice to include worker data as defined by AB 1651 and to assess workplace monitoring systems and any use of algorithms. California employers will also need to revise retention schedules to set clear guidelines for destroying biometric information. For now, California employers will need to wait and see if these bills become law. In the meantime, the CCPA/CPRA-required notices should be revised in preparation for January 1, 2023. Additionally, other states have introduced similar legislation. National employers should monitor pending legislation in Minnesota, New York, Washington, and Virginia.

A trademark infringement lawsuit filed in Minnesota by Taco John’s against Minnesota Mexican restaurant Taco Chon Mexican Grill is heating up in federal court and the court of public opinion. Taco John’s is a large restaurant franchise founded in the late 1960s, with more than 300 locations centered in the mid-western United States. Taco Chon is a restaurant founded in 2019 with two locations in Minnesota. Both entities sell similar dishes, like tacos, quesadillas, and burritos, and have similar prices. Claiming consumers are likely to confuse the restaurants, Taco John’s sued Taco Chon in Minnesota federal court in late April. After Taco John’s served its lawsuit, Taco Chon has attempted to capture the public narrative by casting the dispute as a David and Goliath battle between a corporate fast food powerhouse and a local family restaurant. Taco Chon also fired back with a counterclaim for abuse of process. The dust-up highlights the potential public relations blow back when a large brand owner attempts to enforce its rights against a smaller and potentially sympathetic defendant. Taco John’s calls itself “one of the largest Mexican quick-service restaurant brands in America” and traces its roots to a taco stand in Cheyenne, Wyoming that opened in 1968. Taco John’s signature dish is the Potato Olé, a bite-sized, fried and seasoned round potato snack. Taco John’s holds numerous trademark registrations through its trademark licensing entity, Spicy Seasonings, LLC, including a registration for TACO TUESDAY, a Tuesday tradition Taco John’s claims to have launched. Despite its trademark holdings, Taco John’s does not appear to be a frequent trademark litigant—a search of federal court records revealed no other trademark lawsuits in the last ten years. Taco John’s complaint alleges that it first learned of Taco Chon in early 2022. Taco John’s asserts infringement of its TACO JOHN’S marks, citing U.S. Trademark Registration Nos. 1,088,950, 1,617,184, and 1,627,389. Taco John’s alleges that the Taco Chon name is “an attempt to trade on the goodwill and commercial magnetism that Taco John’s has built up in the [TACO JOHN’S trademark] and to free-ride on Taco John’s fame as a preeminent Mexican restaurant brand.” The complaint points out that both Taco Chon locations are located within five miles of Taco John’s stores and that both entities use “the exact same trade channel … quick service Mexican restaurants.” Taco John’s brought claims for federal trademark infringement, dilution, and unfair competition, as well as related state law claims. The Savage, Minnesota, Taco John’s location identified in Taco John’s complaint as 4 miles from the Taco Chon location in Burnsville, Minnesota. Taco Chon was founded in Minnesota in 2019 and opened its first location in a suburb of Minneapolis. It opened a second location in St. Cloud, Minnesota, in late 2021. Taco Chon’s owner (and co-defendant) Juan Ramos attributes the name to his father and has said his family operated a restaurant of the same name in Mexico. Ramos has told the media that he didn’t think about the Taco John’s brand when naming his restaurant because “I never thought it was going to be related because we are Taco Chon, not Taco John’s, you know?” One of two Taco Chon locations, this one located in Burnsville, Minnesota, a suburb of Minneapolis. Taco Chon struck back on social media and attracted regional media coverage of the dispute. Taco Chon characterizes the lawsuit as trademark bullying and denies that consumers are likely to confuse the two entities. Taco John’s has kept a lower profile, but has cast itself as a reluctant litigant, telling the media “We take no joy in enforcing our trademark rights in court against a small business owner and only do so after other options have been exhausted.” The lawsuit has attracted significant media coverage, including from Minneapolis’s CBS and Fox affiliates. Media reports also indicate that Taco Chon intends to fight back. Taco Chon’s social media accounts have numerous references to the lawsuit and generally cast Taco Chon as a victim unable to defend itself against the larger entity. Taco Chon launched a crowd funding page seeking donations to pay for legal counsel, which has attracted modest financial support. In a statement released on Taco Chon’s Facebook page, Taco Chon’s defense counsel characterized the lawsuit as “trademark bullying … that is reminiscent of a schoolyard showdown between the classic bully and his easy target.” The statement went to say that the lawsuit “raises questions of cultural appropriation” because “Taco John’s menu is not Mexican food but features burritos, nachos, and other foods not originating from Mexican cuisine.” Taco Chon filed its answer and counterclaim with the court on May 16, alleging themes similar to its media narrative. Taco Chon characterized the lawsuit as an attempt to “bully a small business owner … to destroy their American dream.” Taco Chon asserts that its “authentic Mexican cuisine” cannot be confused with Taco John’s “Mexican-inspired fast food, which it calls ‘West-Mex.’” Taco Chon’s counterclaim for abuse of process asserts that Taco John’s brought suit “with an ulterior motive of intimidating, embarrassing and harming [Taco Chon]’s reputation.” Just as Taco John’s will need to prove the allegations in its complaint, Taco Chon will need to prove the allegations in its counterclaim through the court process. This lawsuit is not the first time a large brand owner has been accused of trademark bullying after suing a smaller entity. Trademark owners must actively police their marks, or those marks can be weakened through non-enforcement. Still, brand holders must strike a balance between aggressive, appropriate enforcement and an over-zealous approach that creates more public relations blowback than additional brand value. Some choose PR-friendly, whimsical tactics for cease-and-desist letters; others choose less humorous approaches. Another option is a “wait and see” approach—if an infringing user is small (and may not last in business), a trademark owner might consider simply monitoring to see if the infringer’s use expands. This can be cost effective, although it does create the risks that the infringer may be less inclined to change its mark the longer it has been in use and that courts might be less sympathetic to a trademark plaintiff that waited to enforce its rights. The Taco John’s-Taco Chon battle is off and running in the court of public opinion, but the court process is just beginning. Only after the strength of Taco John’s claims is evaluated in court will it be possible to assess whether Taco John’s overreached to bully a small business owner, or whether Taco Chon’s is unfairly trading off of Taco John’s name. Disclosure: Dorsey & Whitney LLP was involved in assigning one of the trademark registrations asserted in Taco John’s lawsuit in the 1980s.

Image from ArifinArt / Shutterstock.com Typically, Godzilla and other kaiju (Japanese for “strange beast” and also referring to a genre of fiction involving giant monsters) use their armored skin, massive size, and superpowers to protect themselves against almost anything, including human armies, natural disasters, and other kaiju. Perhaps the most powerful non-physical weapon/defense in a kaiju’s arsenal is copyright law. The Honorable Percy Anderson of the Central District of California recently confirmed that copyright can protect even kaiju who are monstrous mountains in Summit Kaiju LLC v. Legend Pictures, LLC, CV 21-9779 PA (ASx) (C.D. Cal. Apr. 12, 2022). Summit Kaiju (“Summit”) hired an artist to create concepts for new kaiju that would live within Godzilla’s fictional universe. One such kaiju is named “Batholith,” which is “a living mountain kaiju made in part of stone.” Summit registered its copyright in Batholith’s “Character Design” with the U.S. Copyright Office on July 7, 2017. That same month, Summit announced Batholith at the Annual Godzilla Festival and began publicizing Batholith through social media. In 2014, three years before Batholith’s public unveiling, Legend Pictures (“Legend”) began developing a film titled “Godzilla: King of the Monsters” as well as a novelization of the film. Legend originally planned to license an assortment of Kaiju from Toho Co. Ltd., the Japanese film company best known for creating Godzilla. Unfortunately, Legend discovered that it could not afford Toho’s terms. Realizing that the show must go on, Legend resolved to find its kaiju elsewhere. Thus, on or about July 2018, Legend either created a new kaiju – Titanus Methuselah (“Methuselah”). Or, according to Summit, Legend simply copied Batholith and renamed it as Methuselah. Despite the fact that development of Legend’s film began before Batholith was created, there does not currently appear to be any suggestion that Batholith was created after Titanus was created. Summit filed a Complaint for direct and indirect copyright infringement that includes images of kaiju allegedly showing “not only substantial, but also striking” similarities resulting in public confusion. This confusion allegedly caused Summit to have problems developing merchandise and media for Batholith. Summit contended that Legend’s designers had access to Batholith through at least the 2017 Godzilla Conference and Summit’s Batholith blitz on various social media accounts, some of which were followed by Legend’s designers. Legend moved to dismiss the Complaint for failure to state a claim for copyright infringement, arguing that Summit cannot establish that Batholith is protected by copyright or that Methuselah is substantially similar to Batholith. To prevail on a copyright infringement claim, the plaintiff must establish (1) ownership of a valid copyright and (2) copying of original elements of the copyrighted work. Legend argued that Summit could not meet either requirement because Batholith could not be protected by copyright and the two monsters are not substantially similar. Analyzing the first requirement, Judge Anderson recognized that characters cannot be protected by copyright per se, because the Copyright Act does not specifically list them as copyrightable subject matter. Summit’s copyright in Batholith was, therefore, limited to the artistic rendition of Batholith in a visual form, rather than the concept of such a character. However, there is a long history of extending copyright protection to graphically-depicted characters if a character is particularly distinctive. Under DC Comics v. Towle, 802 F.3d 1012, 1019 (9th Cir. 2015), courts in the Ninth Circuit permit copyright protection of a character if (1) the character has physical as well as conceptual qualities, (2) it is sufficiently delineated to be recognizable as the same character whenever it appears and displays consistent, identifiable character traits and attributes, and (3) the character is especially distinctive and contains unique elements of expression. Applying the Towle test to Batholith, Judge Anderson first found that Summit sufficiently alleged that Batholith has physical as well as conceptual qualities – i.e., the images of Batholith combined with a succinct explanation that Batholith is “a living mountain kaiju made in part of stone” suffice to meet this requirement. Second, the Court found that Batholith was recognizable wherever it appears and has consistent, identifiable character traits and attributes. Specifically, Batholith “consistently presents as a rampaging mountain kaiju made in part of stone and set in the Godzilla universe,” and images of Batholith consistently show it as a giant quadrupedal mountain monster with a tail. Third, Judge Anderson determined that Batholith is especially distinctive and contains unique elements of expression because it is not merely a stock character. It is a four-legged living mountain made partly of stone within the Godzilla universe, it has a distinctive name, and it also has its own stories. Accordingly, Summit plausibly alleged ownership of a valid copyright. The second requirement of a copyright claim, substantial similarity, has two components: (1) copying and (2) unlawful appropriation. The Court found that there were enough similarities between Basolith and Methuselah for reasonable minds to differ as to whether those similarities are substantial. Summit alleged more than trivial similarities, and those differences could be further analyzed and developed by experts. Thus, Summit alleged sufficient similarities between the two monsters to survive a motion to dismiss. Since Legend’s motion to dismiss Summit’s direct and indirect infringement claims were based on the same arguments, Judge Anderson denied the motion to dismiss in its entirety. It is certainly easier to survive a motion to dismiss than to prevail at trial or on summary judgment. The Court’s opinion here was reserved and even-handed. Clearly Judge Anderson thinks that Summit’s case is strong enough to move beyond the pleading stage. However, nothing in his opinion suggests that victory for Summit is a foregone conclusion. Based on the content of the Complaint and the evidence mentioned in Legend’s motion to dismiss, Summit might have a difficult time proving infringement. Assuming that Summit meant to put its best foot forward when it filed its Complaint, the comparative pictures of Batholith and Methuselah show, to my lay person’s eye (full disclosure, while not a kaiju expert, I have seen and enjoyed several Godzilla movies), vague, but not substantial similarities. Here is an image of Batholith from the Complaint: For comparison, here is the first picture of Methuselah in the Complaint (blue circle): The similarities between the two kaiju are hazy at best. If not for the text of the Complaint and the blue circle, I would have guessed pile of rubble before living mountain kaiju. None of the images of Methuselah used in the Complaint show more than blurry, ambiguous details. This is because, as Legend’s motion to dismiss explains, “Methuselah appears in the Film for approximately twenty seconds and is never seen clearly.” Unless Summit is able to find better images of Methuselah during discovery, proving substantial similarity will be a challenge.

Image from tanuha2001 / Shutterstock.com To end the harm following Russia’s invasion of Ukraine on February 24, 2022, numerous forms of sanctions were imposed against the Russian government and economy. Many Western governments limited access to financial systems, denied entry of Russian nationals into their countries, and prohibited the import and export of certain Russian commodities. Even some Western-based companies imposed their own forms of sanctions, including ceasing all business from or within Russia, shuttering franchised restaurants, and even suspending the release of movies and products in the country, in order to reflect their stance against the war. But Russia has issued its own response, and one of its first surprising targets is the loveable pink cartoon pig, Peppa. Peppa Pig is a British animated television series about Peppa, a female piglet, her family, and friends of varying animal species. It first aired in May 2004, and has since been broadcast in nearly 180 countries and translated into over forty languages. In light of her worldwide popularity, undoubtedly because of her adorable demeanor, Peppa’s brand value has soared. In December 2019, Hasbro, Inc. acquired Entertainment One, the television studio that owns rights to the Peppa Pig franchise, for $3.8 billion, and renewed the series for additional seasons until 2027. Peppa has theme parks, videos games and feature films based on her adventures, and the series has won numerous awards and accolades, including the praise of British Prime Minister Boris Johnson, who watches the series with his children. But with fame comes those attempting to take advantage. In September 2021, Entertainment One sued a Russian entrepreneur, Ivan Kozhevnikov, for copyright infringement based on his unauthorized versions of the Peppa character and her friends. The compensation for copyright infringement was minimal compared to Peppa Pig’s value—just 40,000 rubles, or about $400 at the time—but Entertainment One had had prior success in enforcing its rights in the cartoon in Russia. But in a shock to intellectual property owners everywhere, Judge Andrei Slavinsky subsequently dismissed the case in March 2022, citing the “unfriendly actions of the United States of America and affiliated foreign countries.” Slavinsky noted that Russians were free to use the Peppa Pig characters as they pleased. This ruling came on the heels of an official decree from the Kremlin, which opens the gates for willful intellectual property infringement. The decree states that Russian businesses are under no obligation to pay for their unauthorized use of patented inventions, industrial designs, and utility models from “unfriendly countries” such as the U.S. and the U.K. The list of “unfriendly countries” is expansive and also includes the Ukraine, all members of the European Union, Canada, Australia, Japan, and South Korea. The ruling in Entertainment One’s suit is alarming for many reasons, and opens up the door to rampant abuse of others’ intellectual property rights, including trademark and copyright rights. Some companies even fear that local operators will be allowed to run shuttered Western-branded restaurants and stores left behind when companies exited the country. But as the impact of the war is felt, we will keep you updated on how companies are navigating the current restrictions on their ability to enforce rights, and what steps can be taken to mitigate harm.

Image from Evan El-Amin / Shutterstock.com During the 2016 presidential primaries, then presidential candidates Donald Trump and Senator Marco Rubio exchanged insults, with Trump calling Rubio “Little Marco” and Rubio commenting on the size of Trumps hands. Recently, this exchange was the basis for a Federal Circuit decision reversing a refusal to register the trademark TRUMP TOO SMALL as an unconstitutional restriction of speech under the First Amendment. In 2018, Steve Elster applied to register the mark for use on T-shirts and related apparel. As the Federal Circuit recounts, “According to Elster’s registration request, the phrase he sought to trademark invokes a memorable exchange between President Trump and Senator Marco Rubio . . . and ‘aims to ‘convey[] that some features of President Trump and his policies are diminutive.’” The Examining Attorney at the United States Patent and Trademark Office denied Mr. Elster’s application under Sections 2(a) and 2(c) of the Lanham Act. On appeal to the Trademark Trial and Appeal Board (“TTAB”), the TTAB affirmed the refusal of the application, relying solely on Section 2(c) of the Lanham Act. Section 2(c) of the Lanham Act prohibits registration of a trademark that: “Consists of or comprises a name, portrait or signature identifying a particular living individual except by his written consent.” 15 U.S.C. § 1052(c). Section 2(c) does not prohibit all uses of an individual’s name in a trademark. Rather, it applies only when: (1) the public would reasonably assume that the goods associated with the mark are connected with the particular individual due to the individual’s fame or recognition; or (2) the individual is publicly connected with the business in which the mark is, or will be, used. There was no dispute that President Trump is sufficiently famous to fall within the protection of Section 2(c) “not only because of his political office but also because of his prior celebrity.” Elster argued that refusing to register the TRUMP TOO SMALL trademark violated his right to free speech under the First Amendment. The TTAB noted that as an administrative tribunal, it does not have the authority to strike down any statute as unconstitutional, but noted that a constitutional challenge may involve “many threshold questions . . . to which the [agency] can apply its expertise”, and went on to find that the refusal to register TRUMP TOO SMALL was not unconstitutional. The TTAB first opined that Section 2(c), like all of Section 2 of the Lanham Act, merely sets forth criteria for obtaining a federal trademark registration. It does not control the use of the trademark. Indeed, one can use a trademark in commerce without obtaining a registration and Elster could do so here even if the registration is denied. Second, the TTAB found that Section 2(c) does not restrict any particular type of speech, but applies in “an objective, straightforward way to any proposed mark that consists of or comprises the name of a particular living individual, regardless of the viewpoint conveyed by the proposed mark.” Accordingly, the TTAB affirmed the Examiner’s refusal to register TRUMP TOO SMALL. On appeal, the Federal Circuit reversed the TTAB, finding that Section 2(c) is unconstitutional as applied to the TRUMP TOO SMALL trademark, while deferring any decision on whether it is unconstitutional in all cases. The Court noted that trademarks can be protected speech and that denying registration, while not prohibiting use of the trademark, “chills speech” by stripping the mark of the many advantages associated with federal registration. Accordingly, there must be a substantial government interest to justify restricting speech by denying a registration. The purpose of the Section 2(c) is to protect state law rights of privacy and publicity that individuals have in their names, appearance, and likeness. The Court quickly found that a right of privacy cannot shield a public official from comment or criticism. The Court also questioned whether a political figure maintains a right of publicity at all. At the very least, the political figure’s right of publicity would not permit a prohibition on the distribution of posters, buttons, apparel, or other materials that express support for or disagreement with the political figure. In short, “[a]s a result of the President’s status as a public official and because Elster’s mark communicates his disagreement with and criticism of the then-President’s approach to governance, the government has no interest in disadvantaging Elster’s speech.” As we reported previously, the Supreme Court has found that portions of Section 2(a) of the Lanham Act, which prohibit the registration of “immoral, deceptive, or scandalous” trademarks and trademarks “which may disparage . . . any persons, living or dead” are unconstitutional. While this opinion expands the Supreme Court’s reasoning to Section 2(c), whether its reasoning applies to trademarks that do not involve political figures or that do not criticize famous individuals remains to be seen. The Federal Circuit noted that it was only asked to analyze Section 2(c) as applied to Elster’s mark. But it did go on to note that Section 2(c) may be “impermissibly overbroad” because it does not leave the USPTO discretion to permit registration for marks that advance First Amendment interests.

Hyperbolic descriptions of the supposed importance of cases dealing with intellectual property rights are as numerous as they are unfounded, but that is not true when it comes to The Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, Case No. 21-869, in which the U.S. Supreme Court just granted certiorari. It is no exaggeration to characterize Warhol Foundation as the most important fair use case to come before the Supreme Court since 1994, and more than reasonable to posit that Warhol Foundation is the most important fair use case ever. Why? Because this case is likely to settle two of the most vexing copyright issues that has bedeviled courts all over the country for decades: to what extent can an author take a prior copyrighted work and incorporate elements of that prior work into a new work under the doctrine of fair use, and what makes that use fair? In particular, courts have struggled to apply the fair use doctrine in cases where there are arguments that the new work is “transformative,” and therefore fair. If Warhol Foundation articulates a clear standard for what makes a new work transformative, as seems likely, then the decision to come will be a true game changer. The TMCA has covered Warhol Foundation before, and the facts are not in dispute. In 1981, the photographer Lynn Goldsmith took the then-unpublished photo below of the iconic singer Prince. In 1984, Goldsmith licensed her photo to Vanity Fair magazine for use as an “artist reference,” that an unnamed artist would create for Vanity Fair to publish. Warhol turned out to be the artist, and his new work was published later that year, as shown below. However, unbeknownst to Goldsmith, Warhol took Goldsmith’s photo and also used it to create a series of fourteen additional works, dubbed the “Prince Series,” some of which appear below. Following Warhol’s death in 1987, the works that embody the Prince Series were either sold to third parties or sent to the Warhol Museum in Pittsburgh for display, and the Warhol Foundation regularly licensed them for commercial use. In 2018, following Prince’s death, Goldsmith allegedly learned for the first time of the existence of the Prince Series and the Warhol Foundation’s licensing of the Prince Series without any credit to her underlying work, or payment for its use. After Goldsmith sent a letter asserting claims of copyright infringement, the Warhol Foundation filed an action in the Southern District of New York seeking a declaration of non-infringement based on fair use. Goldsmith counterclaimed for infringement. The district court granted summary judgment to the Foundation on its fair use defense, holding that all four factors set forth in 17 U.S.C. § 107 bearing on the issue of fair use favored the Foundation, in that the Prince Series was: (1) “transformative” because, while Goldsmith’s photo portrayed Prince as “not a comfortable person” and a “vulnerable human being,” the Prince Series portrayed Prince as an “iconic, larger-than-life figure”; (2) although Goldsmith’s photo was both creative and unpublished, which would traditionally weigh in Goldsmith’s favor, this was “of limited importance because the Prince Series works are transformative works”; (3) in creating the Prince Series, Warhol removed nearly all of the Goldsmith photo’s protectable elements; and (4) the Prince Series was not a market substitute that harmed or had the potential to harm Goldsmith. On appeal, the Second Circuit reversed – twice – holding that the Prince Series was neither transformative nor a fair use as a matter of law, and also concluding that the Goldsmith photo and Prince Series were substantially similar as a matter of law. Even after the Supreme Court’s decision in Google LLC v. Oracle America, Inc., 141 S. Ct. 1183 (2021), reaffirmed the principle that a new work is transformative if it “adds something new . . . [by] altering the copyrighted work ‘with new expression, meaning or message’” (quoting Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (!994)), the Second Circuit stuck to its guns and held that the Prince Series of works were not transformative. Following the Second Circuit’s ruling, the Warhol Foundation filed a petition for certiorari that the Supreme Court has now granted, focusing primarily on the question of what makes a work transformative. To the Second Circuit, where a secondary work like the Prince Series “does not obviously comment on or relate back to the original or use the original for a purpose other than that for which it was created,” the bare assertion of a “higher or different artistic use,” is insufficient to render a work transformative. Instead, in order to be transformative, “the secondary work itself must reasonably be perceived as embodying an entirely distinct artistic purpose, one that conveys a ‘new meaning or message’ entirely separate from its source material.” Elaborating, the court held that “the secondary work’s transformative purpose and character must, at a bare minimum, comprise something more than the imposition of another artist’s style on the primary work such that the secondary work remains both recognizably deriving from, and retaining the essential elements of, its source material.” The Prince Series did not pass muster as to Goldsmith’s photo because, even though the Second Circuit agreed that the meaning and message of the two works were different, a point Goldsmith herself conceded, the two sets of works served the same function, the Prince Series remained “a recognizable depiction of Prince,” and Goldsmith’s photo remained the “recognizable function upon which the Prince Series is built.” In sum, Warhol needed to add more, or make more changes, to Goldsmith’s photo to make it transformative. In its cert. petition, the Warhol Foundation vigorously contested this analysis. To the Foundation, the issue is not whether the underlying work remains recognizable, or how many changes get made to it, but whether the new work adds something new that has the effect of altering the original with new expression, meaning or message, a la Campbell and Google. The Second Circuit’s decision, according to the Foundation, precludes any consideration of the message behind the new work, in a manner wholly at odds with Campbell and Google, and also the holdings of most other circuit courts. Far from deriding judicial inquiry into the meaning of the two works at issue as an effort to turn courts into “art critics,” as the Second Circuit did, the Foundation argued that an essential element of the inquiry into what makes a new work transformative is whether the new work alters the meaning of the prior work. The Foundation’s petition also argued that the real-world ramifications of the Second Circuit’s decision on other artists, museums and galleries to create or display works derived from prior works were severe. Both the Foundation and a series of amici argued that limiting the application of the fair use doctrine in a manner like the approach adopted by the Second Circuit would stifle artistic expression, compromise First Amendment rights and result in unwarranted litigation not just against appropriation artists, but the owners of the locations where such works are displayed. Even the ability of purchasers of art appropriated from prior works to resell what they had bought was at risk, according to the Foundation. Evidently, those arguments found a receptive ear among some members of the Court, given that the petition was granted and the case will be heard next term. What makes Warhol Foundation arguably the most important fair use case of all time is that the holdings of Campbell and Google have been characterized as being limited to parody and software, respectively, and sometimes not applied in other contexts. But Warhol Foundation is a case in which one artist made alterations to the work of another to create a new work with a concededly different message. If that new work is deemed to be a fair use of the prior work as a matter of law, then the fair use defense is likely to be broadened significantly across a wide range of artistic categories and fact patterns.

Welcome to the final chapter of our Burger War Trilogy. In our earlier installments, Part I and Part II, we discussed the secondary meaning surveys proffered by both parties in this trade dress dispute. We now turn to In-N-Out’s likelihood of confusion study in this case as it provides the perfect opportunity to discuss a decision that trial counsel and their consumer survey experts routinely grapple with: To Squirt, or Not to Squirt, that is the question. Before discussing that question in the context of this dispute, a slight detour is in order. Broadly speaking, there are two types of generally accepted consumer survey formats when testing for “likelihood of confusion” in trade dress and trademark cases. There is the “Eveready” format, and the “Squirt” format. The Eveready format has been referred to as the “gold standard” when the senior user’s trade dress or trademark is a commercially strong mark. In an Eveready survey design, the senior user’s mark or trade dress is not shown to survey respondents as part of the survey and is assumed to be known to most of the relevant consumers and thus already in mind. Instead, respondents are just shown the (allegedly) offending trademark or trade dress and asked a series of questions regarding who they believe makes or puts out the product or service at issue or who the product or service might be affiliated with. By contrast, the Squirt design shows both parties’ trademarks (either juxtaposed together at once or separately seriatim) and asks a series of questions as to whether the survey respondents believe there is an affiliation or connection between the products or the companies that put them out. Neither format is necessarily a panacea in all cases. Some courts criticize the use of the Eveready format in cases where the senior user’s mark is not commercially strong because it artificially deflates confusion on the theory that not enough respondents are familiar with the senior user’s mark to draw a connection with the junior user’s mark. See e.g., Vineyard House, LLC v. Constellation Brands United States Operations, Inc., 515 F. Supp. 3d 1061, 1072 (N.D. Cal. 2021) (noting the “[w]here the query concerns marks for everyday products, used by vast majority of consumers, such as Apple, Coca-Cola, or EverReady, the short simple survey can provide some insights. That is not, and never was, this case.”); but see Hal Poret’s study in the Trademark Reporter where he concludes that “the research described herein empirically demonstrates that Eveready surveys may be appropriate for senior marks that are not top-of-mind.” The Squirt format can create “demand effects” by suggesting to consumers that there must be a connection between the two companies whose products they have just been shown. A number of courts have suggested that unless the two products are actually sold or marketed in close proximity in the marketplace, a Squirt design should not be used. See e.g., Down the Hatch: Jägermeister Douses Impaired Survey Evidence in Trademark Victory. In the present case, In-N-Out’s expert used the Squirt design in which images of the In-N-Out and Doll N’ Burger restaurants were shown seriatim, and her survey took a bit of grilling from the opposing party for doing so. The primary argument advanced by Doll N’ Burger’s expert (who used an Eveready format for his own defensive likelihood of confusion survey) is that the parties’ goods are not sold in the same geographic markets. Thus, because consumers are not likely to encounter them in close proximity in the marketplace, the Squirt design should not be used, or so went the argument. Notwithstanding these and other alleged deficiencies, the Court ultimately ruled that Plaintiff’s expert’s decision to use Squirt was a “judgment call” and that the wisdom of that call is for the fact finder. Also, the Court observed that Doll N’ Burger’s expert had used a similar Squirt design in a recent case where the two companies “d[id] not serve the same geographic regions.” In non-judicial parlance, what’s good for the goose is good for the gander. Here are some final thoughts on this burger bonanza: Use of either the Squirt or Eveready survey designs should be carefully considered by trial counsel and their experts and the pluses and minuses of both designs should weighed and assessed based on the marketplace context of the dispute. Trial counsel should be mindful of statements being advanced by an expert in your case vs. what the expert may have said or survey designs chosen by the expert in prior cases. Having a thorough, detailed discussion of the rebuttal points being advanced by the expert will be important. Don’t rule out reviewing prior reports and declarations of the expert - although it could be a bit time consuming, it could prove to be illuminating and prepare the expert for anticipated cross-examination or critiques. Lastly, the Court’s decision is a whopper of a Daubert order. The discussion of survey evidence was over 30 pages long. We did not cover all of the issues set forth in the decision in this three-part series. If you are dealing with survey evidence in a trade dress dispute, you should spend a bit of time devouring this decision along with our prior blog posts. You will leave satisfied!

Most lawyers are familiar with the well-known legal maxim that “ignorance of the law is no excuse.” In a 6-3 opinion issued on February 24, 2022, in a copyright case, the Supreme Court nonetheless held that ignorance of the law is a valid excuse in certain circumstances. Let’s take a look at the decision to see why. Unicolors, Inc. v. H&M Hennes & Mauritz, L.P. involved allegations by Unicolors, a fabric designer, that the multinational Swedish fashion company H&M Had infringed Unicolors’ copyrights. After a California jury found in Unicolors’ favor, H&M sought a determination that those copyrights were invalid because Unicolors included inaccurate information on its registration application, rendering the registration invalid. Specifically, H&M claimed that Unicolors had improperly filed a single application seeking registration for 31 separate works, even though Unicolors had at different times sold some designs separately to different customers. As such, the Copyright Office’s “single unit of publication” requirement (which provides that a single registration can cover multiple works only if those works were “included in the same unit of publication”) barred Unicolors from filing a single application. The district court denied H&M’s motion, holding that under Section 411(b) of the Copyright Act, a copyright registration that contains inaccurate information is valid, unless the inaccurate information was included with knowledge that it was inaccurate. The district court reasoned that because Unicolors did not know that it failed to satisfy the “single unit of publication” requirement, the inaccuracy did not invalidate its copyright. Unhappy with that result, H&M appealed to the Ninth Circuit, which reversed the district court. The Ninth Circuit held that it didn’t matter if Unicolors knew it failed to satisfy the “single unit of publication” requirement. In the Ninth Circuit’s view, the statute only excused good-faith mistakes of fact, not law. Since Unicolors had known the relevant facts – but not the law – it could not rely on the Copyright Act’s safe harbor. It was now Unicolors’ turn to be unhappy, and it appealed to the Supreme Court. In an opinion written by Justice Breyer, the Supreme Court held that Section 411(b) of the Copyright Act does not distinguish between a mistake of law and a mistake of fact. As such, lack of knowledge of either fact or law can excuse inaccuracy in a copyright registration. Justice Breyer – apparently an avid bird-watcher – began with, well, a bird analogy. Here’s how it went: If someone mistakes a scarlet tanager (red with black wings) for a cardinal (all red) because they didn’t see the bird’s black wings, that’s a mistake of fact. If, on the other hand, the person saw the black wings but didn’t know that scarlet tanagers – but not cardinals – have black wings, that would be a “labeling mistake.” Justice Breyer likened the bird labeling mistake to Unicolors’ mistake – Unicolors had the facts right, it just didn’t know the proper scope of the label “single unit of publication.” (Keep an “eagle” eye peeled for further bird analogies from Justice Breyer as he prepares to retire from the Court.) The opinion then proceeded to explain the bases for its holding that mistakes of law, and not just those of fact, are covered by the Copyright Act’s safe harbor for good-faith errors. First, the statute itself states that the inaccurate information must be included on the application “with knowledge that it was inaccurate” in order to invalidate the copyright registration. Knowledge, however, is equally applicable to both facts and law. Moreover, according to the Supreme Court, other statutory provisions in the Copyright Act make clear that “knowledge” means “actual, subjective awareness of both the facts and the law.” While using legislative history as a guide has fallen out of fashion of late, Justice Breyer also diplomatically noted that “those who consider legislative history will find that history persuasive here.” The legislative history here indicates that Congress enacted the safe harbor provision of Section 411(b) to make it easier, not more difficult, for non-lawyers to obtain valid copyright registrations. If that is true, it makes little sense to excuse mistakes of fact, but not those of law (i.e., the type of mistakes one would expect non-lawyers to make more often). The Supreme Court also considered and rejected two arguments that H&M made. First, the Supreme Court did not think that H&M’s interpretation of the statute would make it too easy for copyright holders to avoid the consequences of inaccurate applications, as circumstantial evidence may lead to a conclusion of actual awareness or willful blindness, neither of which is protected under the safe harbor. Second, the maxim “ignorance of the law is no excuse” applies to criminal cases, not to a civil case concerning the scope of a safe harbor provision. One interesting thing to ponder is whether this decision will only affect the interpretation of Section 411(b)’s safe harbor provision or whether litigants and courts will apply the Supreme Court’s reasoning in other contexts. We know that lack of knowledge of the law is generally not a defense in criminal actions, but might it be a defense in certain civil cases where “knowledge” is a necessary element? We shall see.

Last week we introduced our readers to the imbroglio featuring the burger behemoth In-N-Out, who accused upstart Doll N’ Burgers of infringing In-N-Out’s registered and unregistered trade dress. Typical of these sorts of savory squabbles, both sides retained consumer survey experts, both experts took broadsides from the opposing party, and the Court was left to assess the damage. In our previous post, we discussed how the Court’s analysis of Plaintiff’s secondary meaning survey provides some useful sustenance. This week’s special features a discussion of Defendant’s secondary meaning survey and how the claimed deficiencies left the Court asking Plaintiff, “Where’s the Beef?” Here’s how the Court disposed of the issues raised regarding Defendant’s secondary meaning survey: No Trade Dress Secondary Meaning Experience. Plaintiff first alleged the Court should bounce Defendant’s expert because he only had experience designing surveys in trademark disputes, not trade dress disputes. The Court quickly (and correctly) rejected this claim because “[w]hile trade dress involves some unique factors, the legal standards utilized are closely aligned, and the consumer survey methodology used for trademark and trade dress are largely interchangeable.” Excluding Other “Indicator of Source” Elements. As we observed in our previous post, when testing for secondary meaning of trade dress, it is customary to obscure the “brand and company name and other source-identifying indicia” so that the expert can isolate the trade dress at issue and measure consumer reactions to it. Accordingly, Defendant’s expert used various pictures of In-N-Out joints, but removed the “source-identifying indicia” from them, including the trademarked palm trees, the In-N-Out logo, and the fluorescent yellow sign. The Court was not persuaded that this was a fundamental flaw (or even a flaw of any kind). It indicated that this design choice was a “judgment call” and that Plaintiff was free to criticize this approach at trial if it desired to do so. Control Images Were Not “Blatantly Improper.” Plaintiff also took aim at Defendant’s expert’s decision regarding the control stimulus. For the control design, Defendant’s expert simply used the same test stimulus images, but swapped in a “blue and grey” color scheme instead of the red and white color scheme of Plaintiff’s alleged trade dress. The Plaintiff argued that the expert’s control images were “so distinctive” that it pushed survey respondents in a totally different direction towards a rival burger joint altogether, White Castle. While the Court questioned whether Defendant’s expert used a control that would “lean towards” Defendant’s desired outcome, it ultimately concluded that the expert’s decision was not “blatantly improper.” No “Freeloader” Phenomenon in the Survey Universe. Lastly, Plaintiff claimed Defendant’s expert’s survey universe was faulty. In defining who qualified for the survey, Defendant’s expert required respondents to be adults who had recently "personally purchased" a burger from a fast-food restaurant. Plaintiff claimed this universe was too narrow because it excluded “freeloaders” (the Court’s word) who would have dined at a burger joint but on someone else’s dime. In rejecting this argument, the Court observed that it was “highly skeptical that the inclusion of the word ‘personally’ caused any material change in the survey's population or led to bias in its results.” All in all, none of these alleged flaws were sufficient to keep Defendant’s expert out. So now you know “the rest of the story” with regards to the secondary meaning surveys in this case. Stay tuned for our final installment where we discuss both parties’ likelihood of confusion studies and whether they will be In-N-Then-Out of Court. One of Defendant’s Expert's "test" stimuli photos that excluded palm trees (from the cup and the fries holder) because they were other “source-identifying indicia.” Two of Defendant’s Expert's "control" stimuli photos that used a “blue and grey” color scheme. While expressing some skepticism over this design choice, the Court noted the decision was not “blatantly improper.”