August 16, 2012
Here is a general checklist of things to consider when licensing IP, in no particular order. If you spot any significant omissions, please comment.
1) What precisely is being licensed?
2) What will be the term of the license?
a) any automatic renewal?
c) fee changes in subsequent license periods?
d) termination rights?
3) What will be the fee?
a) how calculated? flat fee? percentage of sales? gross or net?
b) how often paid?
c) what currency?
4) What territory?
5) Exclusive or non-exclusive?
6) Licensee’s Rights and Duties
f) Quality control
g) Right to modify materials?
h) Who owns licensee modifications?
i) Any right to sublicense?
j) Any right to assign license?
k) Any sell off of any materials at the end of the term?
l) Any minimum sales quota or other duty to exploit the IP?
m) How will complaints be handled?
7) Licensor’s Rights and Duties
a) Warranties or Indemnities (duty to defend licensee?)
d) Provision of materials
e) Trouble shooting?
f) Right to inspect/monitor/approve product and/or marketing materials
8) Choice of law, choice of forum, mediation or arbitration?
9) IP registrations, how will they be handled? Licensee acknowledges licensor’s IP?
10) Who sues infringers? If license is exclusive, will licensee have any right?
August 11, 2012
The Practical Difference Between Contributory Infringement and Inducing Infringement in Patent Cases
The Federal Circuit’s recent decision in Toshiba v. Imation highlights a key difference between the concept of contributory infringement and inducement of infringement in patent cases. It is that an accused infringer may escape liability for contributory infringement if his product is capable of “substantial non-infringing use”, but if the accused infringer encourages infringing use, the fact that his product is capable of substantial non-infringing use will not save him from inducement liability.
Toshiba illustrates the point. The Federal Circuit affirmed summary judgment for the defendant on contributory infringement, but reversed on inducement. The case involved patents for DVD recorders. The court held: (1) Toshiba had not proven that an insubstantial number of Imation users did not take the last step claimed by the patent of “finalizing” their DVDs after recording them; (2) therefore (common sense notwithstanding) a not insubstantial number of Imation users could be skipping that step; and thus (3) Toshiba had not proven that the Imation recorders were not capable of substantial non-infringing use and its claim of contributory infringement therefore failed.
With respect to inducement, however, the Federal Circuit held that because Imation urged users of its product to finalize the DVDs, it was error to grant summary judgment for the defendant. The Court explained that just because a product is capable of non-infringing use does not mean the defendant is not inducing its users to use it in an infringing manner. Moreover, in this context, the court explained, where an alleged infringer designs a product for use in an infringing way and instructs users to use the product in an infringing way, there is sufficient evidence for a jury to find direct infringement.
In addition to highlighting the important distinction between contributory infringement and inducement, the case illustrates the potential significance of burdens of proof. If Imation had been required to prove substantial non-infringing use, it does not seem certain it could have done so. One might ask whether, as a matter of policy, it is best to place the burden on the plaintiff to prove that an accused product is not capable of substantial non-infringing use, but that is a topic for another day, or for comments to this post.
July 19, 2012
A judge in the Western District of New York (think Buffalo) wrote last week in a case between two beauty pagaent promoters, Mrs. United States and Miss United States of America :
The potential loss of good will and customers by plaintiff, and possible damage to its reputation, as a result of defendants’ alleged infringement of plaintiff’s marks is not easily quantifiable or remediable by damages, and supports a finding of irreparable harm.
This is more evidence that concerns that the Supreme Court decision in eBay v. MercExchange rejecting the presumption of irreparable harm in patent cases would raise the bar to obtaining injunctions in all IP cases, were overblown. Potential loss of good will and customers and possible damage to reputation are likely to be present in the majority of trademark infringement cases.
The court in the Mrs. United States case went on to give the following useful summary of the state of the presumption of irreparable harm law in IP cases.
It is unclear whether a court may presume irreparable harm upon a finding of likelihood of success on a trademark claim. The Supreme Court has held that such a presumption is improper in patent or copyright cases, see eBay, 547 U.S. at 392 (noting that Court’s ruling with respect to patent cases “is consistent with our treatment of injunctions under the Copyright Act”); see also Flexible Lifeline Sys., Inc. v. Precision Lift, Inc., 654 F.3d 989, 996 (9th Cir. 2011) (“under eBay, a presumption of irreparable harm is equally improper in a case based on copyright infringement as it is in a case based on patent infringement”); Salinger, 607 F.3d at 82 (“After eBay, … courts must not simply presume irreparable harm”) (copyright case). To date, however, no consensus has emerged as to whether that holding applies to trademark infringement cases as well. See Peoples Federal Sav. Bank v. People’s United Bank, 672 F.3d 1, 9 n.11 (1st Cir. 2012) (finding it unnecessary, and declining, to decide issue); Southern Co. v. Dauben Inc., 324 Fed.Appx. 309, 318 n.13 (5th Cir. 2009) (same); North American Medical Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1228 (11th Cir. 2008) (same). At least some district judges from within this circuit have applied eBay to trademark cases, however. See, e.g., Ascentive, LLC v. Opinion Corp., ___ F.Supp.2d ___, 2011 WL 6181452, at *5 (E.D.N.Y. 2011) (“Although prior to Salinger, courts in this circuit presumed irreparable injury in trademark cases where a likelihood of confusion was shown, post-Salinger, this presumption is no longer applicable”); Tecnimed SRL v. Kidz–Med, Inc., 763 F.Supp.2d 395, 402 (S.D.N.Y. 2011) (applying Salinger to a trademark claim), aff’d, 462 Fed.Appx. 31 (2d Cir. 2012). The Second Circuit has not yet spoken directly on this question, though it has suggested that the presumption may still have some force in trademark cases; see Zino Davidoff SA v. CVS Corp., 571 F.3d 238, 246-47 (2d Cir. 2009) (noting presumption in trademark cases, without referencing eBay or Salinger, but finding that even without benefit of presumption, plaintiff had shown irreparable injury).
July 5, 2012
Two recently-decided cases brought by Apple illustrate the necessity of identifying real harm to one’s business before filing a lawsuit in federal court. The court dismissed the first, Apple v Motorola, because Apple was unable to show that it had been damaged by the alleged patent infringement. In contrast, Apple achieved a tremendous victory in Apple v. Samsung. The court granted a preliminary injunction prohibiting Samsung from selling its new Galaxy Nexus smartphone, because Apple was able to demonstrate that it was likely to suffer irreparable harm if Samsung was permitted to continue to infringe Apple’s patents.
Apple v. Motorola illustrates the types of claims a business should not pursue. At the end of that case, Apple was left with claims that Motorola had employed two features subject to its patents, the value of which Apple could not quantify. At bottom, the court’s reaction was “stop wasting everyone's time.” Finding that Apple would not be able to prove any money damages, and could not prove entitlement to an injunction, the court dismissed the case. The court gave the back of its hand to Apple’s claims that the court should issue a declaration that Motorola had infringed or award symbolic “nominative” damages. The court wrote: “You can’t go into federal court and say you had a contract with X and X broke it and you’re really annoyed even though you sustained no injury of any sort (in fact you made money because you re-contracted at a higher price) so please give me a judgment for $1 that I can pin on my wall.”
Apple v. Samsung, on the other hand, illustrates precisely the type of case a business should pursue. In that case Apple was able to show that, unless the court issued a preliminary injunction, Apple would be likely to lose not only phone sales, but immeasurable additional sales when purchasers of the Galaxy Nexus followed that purchase with purchases of other Android products and applications rather than the Apple products and applications they would be likely to purchase if they first purchased an iPhone. The size of the victory for Apple is reflected in the size of the bond the court required Apple to post: $95 million, the amount of profit Samsung asserted it would lose if it could not sell the Galaxy Nexus. It seems intuitive that Apple is correct that the smart phone is a “gateway” device that leads one to purchase additional products that use the same operating system as the phone. Therefore posting the $95 million bond (which is unlikely to be posted in cash, and which will be returned to Apple unless Samsung succeeds in overturning the injunction on appeal or otherwise proving that the court was wrong to grant the injunction) to knock out the Galaxy Nexus seems like it will be good business for Apple.
The take away for businesses should be that there is little utility in starting lawsuits out of spite. Although you may cause your adversary to incur legal fees and suffer disruption caused by litigation, you are bound to incur costs like that of your own, and to lose momentum when the strong action you trumpeted at the outset of the case turns into fodder for your adversary at the end. On the other hand, Apple v. Samsung teaches that despite the incessant protests of those who would curtail the protection given to IP owners, those who do suffer actual harm can still obtain not mere vindication, but effective relief in federal court.
June 26, 2012
This third post discussing the L.A. Printex case concerns the effect of errors in copyright applications. The defendants sought summary judgment on the ground that L.A. Printex’s registration should be held invalid because its designs were registered as an unpublished collection, but included two designs that previously had been published.
The rule, however, is “inadvertent mistakes on registration certificates do not invalidate a copyright and thus do not bar infringement actions, unless the alleged infringer has relied to its detriment on the mistake, or the claimant intended to defraud the Copyright Office by making the misstatement.” The court held that the error did not invalidate the registration or render the certificate of registration incapable of supporting a copyright infringement claim. There was no evidence that L.A. Printex knew that the two designs had been published at the time it submitted its application for copyright registration, or that it intended to defraud the Copyright Office. Upon learning of its registration error, L.A. Printex corrected it. It filed an application for supplementary registration, communicated with the Copyright Office about the error through email and phone correspondence, and filed a second application for supplementary registration. Moreover, the Copyright Office’s decision to issue a supplementary registration after it was told of the two designs’ prior publication shows that the error was not one that “if known, would have caused the Register of Copyrights to refuse registration.
June 19, 2012
The Ninth Circuit’s opinion in the L.A. Printex case offers two useful insights with respect to the manner in which courts in that circuit are to evaluate substantial similarity.
The first is a re-affirmation that a court should not evaluate the intrinsic test, involving a subjective comparison of the two works, on summary judgment. The subjective comparison should be reserved for trial. Court’s should only conduct the intrinsic test, the objective listing and comparison of similarities on summary judgment.
The second is the court’s actual application of the intrinsic test. Here is an excerpt:
C30020 is a repeating pattern of bouquets of flowers and three-leaf branches. The idea of a floral pattern depicting bouquets and branches is not protectible, and C30020 has elements that are not protectible, for example the combination of open flowers and closed buds in a single bouquet or the green color of stems and leaves. However, L.A. Printex’s original selection, coordination, and arrangement of such elements is protectible. Because there is “a wide range of expression” for selecting, coordinating, and arranging floral elements in stylized fabric designs, “copyright protection is ‘broad’ and a work will infringe if it’s ‘substantially similar’ to the copyrighted work.” That is, “there are gazillions of ways” to combine petals, buds, stems, leaves, and colors in floral designs on fabric, in contrast to the limited number of ways to, for example, “paint a red bouncy ball on black canvas” or make a lifelike glass-in-glass jellyfish sculpture. Our comparison of Defendants’ allegedly infringing design and C30020 reveals objective similarities in protectable elements. Both patterns feature two types of small bouquets of flowers, one featuring the largest flower in profile view, the other featuring the largest flower in an open-face view, and both emerging from three buds. Both patterns also depict small, three-leaf branches interspersed between the two types of bouquets. The shape and number of the flower petals and leaves are similar in the two designs. The two types of bouquets are arranged at similar angles in both designs, and the bouquets and branches are coordinated in similar spatial combinations on a grid of similar scale and layout. Moreover, the color arrangement of C30020 in white/berry is markedly similar to the color arrangement of Defendants’ design…The differences noted by the district court do not compel the conclusion that no reasonable juror could find that Defendants’ design is substantially similar to C30020. Rather, in light of the similarities described above, the differences support the opposite conclusion, that there is a genuine dispute of material fact on substantial similarity. It is true that the flowers, stems, and leaves in Defendants’ design are less detailed than those in C30020, and that Defendants’ design does not use multiple shades of color to give the flowers and leaves definition as does C30020. But a rational jury could find that these differences result from the fabric printing process generally and are “inconsequential,” or could credit Jae Nah’s assertion that these differences result in part from “print[ing] using cruder, lower quality techniques and machinery. Moreover, because we conclude that stylized fabric designs like C30020 are properly entitled to “broad” copyright protection, it is not necessary that Defendants’ design be “virtually identical” to infringe. A rational jury could find that despite some differences between Defendants’ design and C30020, the similarities in the selection, coordination, and arrangement of bouquets and three-leaf branches are sufficiently substantial to support an inference of copying. Accordingly, we hold that objective similarities in the expressive elements of Defendants’ design and C30020 present a genuine dispute of material fact under the extrinsic test.
If you don’t understand the intrinsic/extrinsic distinction, call me up or send an email. I can probably confuse you even more. Look for further discussion of this case, hopefully with pictures of the works in question, in the 2013 update of Substantial Similarity in Copyright Law.
June 12, 2012
Widespread dissemination of a work sufficient to show a reasonable possibility of access can be confined to particular region and/or industry. That is one of the rulings in the Ninth’s Circuit’s recent decision in L. A. Printex v. Aeropostale. This is the first of three posts about the case, each addressing a single aspect of the court’s opinion.
Most readers of this blog will know that in order to prove copyright infringement, a copyright owner must prove that the defendant copied the copyrighted work. In most cases there is no confession, eyewitness or other direct evidence of copying, so plaintiffs typically prove copying by proving that the defendant had access to the plaintiff’s work, and that similarities between the plaintiff’s work and defendant’s suggest copying.
In the Aeropostale case, L. A. Printex claimed that Aeropostale and co-defendant Ms. Bubbles infringed L.A. Printiex’s copyright in a floral fabric design. L.A. Printex asserted that defendants had access to the copyrighted print because it was widely disseminated in the Los Angeles fashion industry. The Ninth Circuit agreed, writing:
L.A. Printex and Ms. Bubbles (Aeropostale’s wholesaler and co-defendant) operate in the same industry in the same Los Angeles area. L.A. Printex, a fabric printing company, sold more than 50,000 yards of fabric bearing C30020 to fabric converters. It is a reasonable inference that many or most of these purchasers were in the Los Angeles area. Apparel vendors like Ms. Bubbles purchase fabric from fabric printing companies and fabric converters. In addition, the dissemination of C30020 occurred over a four-year period immediately preceding Defendants’ alleged infringement. A reasonable jury could find that C30020 was widely disseminated in the Los Angeles-area fabric industry, and hence that there was a “reasonable possibility” that Defendants had an opportunity to view and copy L.A. Printex’s design…We hold that L.A. Printex raised a genuine dispute of material fact on access.
June 5, 2012
As the name suggests, copyright termination rights give authors the ability to terminate copyright assignments and licenses. The effect of termination is to put both the author and assignee/licensee back where they were originally. After termination, the author has all the rights he had originally. The assignee/licensee has no rights, except with respect to derivative works, a topic for another time.
Different termination rights apply depending on when the copyright was assigned or licensed. The important date for termination purposes is the date of the grant (assignment or license), not the date the work was created. For sound recordings (masters), there are basically three categories.
On or After January 1, 1978. Recording artists (or their heirs) can terminate grants executed after January 1, 1978, effective between 35 and 40 years after the date of the grant (with some variables depending on publication issues).
February 15, 1972 through December 31, 1977. Recording artists (or their heirs), can terminate grants executed between February 15, 1972 and December 31, 1977, effective between 56 and 61 years after the date of the grant.
Pre-February 15, 1972. Because pre-1972 sound recordings are not subject to U.S. copyright law, there are no termination rights with respect to them.
The first category, post-January 1, 1978 grants, is the one that has been getting attention recently because the termination period for 1978 works is imminent. 1978 grants can be terminated effective next year, 2013.
The mechanics of termination are very important. In order to be effective, termination notices must be sent within a specific time period, between 2 and 10 years before the date of intended termination. As an example, anyone wanting to terminate a January 1, 1978 grant as of January 1, 2013, should have given notice between January 1, 2003 and January 1, 2011. If one were to give notice today, the earliest termination could be effective is May 17, 2014. Any notice given after January 1, 2016 would be ineffective. Notices must include specific information, must be delivered in specific ways, and must be recorded in the Copyright Office prior to the effective date of termination.
Termination rights do not apply to works made for hire. Record companies have taken the position that sound recordings are works for hire, and therefore not subject to termination. They also assert that regardless of who owns the copyright in the recording, they own the actual master. Therefore, they reason, even if an artist can recover the copyright in the recording, he cannot recover the recording itself. So, if an artist terminates we will have a stalemate where the record company cannot exploit the master because of the copyright law, and the artist cannot exploit it because he cannot get access to the recording. The courts have not ruled definitively on either of these issues.
A third issue that may be raised is whether a sound recording is a collective work, or a joint work. If a sound recording were a collective work, each band member might own their own part, and the record company may claim that it owns the copyright in the whole. Even if the recording is not characterized as a collective work, it may be a joint work: the product of all of the musicians, and perhaps even the producer, who performed on the recording. In the case of a joint work, a majority of the authors who executed the grant must terminate for the termination to be effective. This is one of the issues in the recent Village People case. Apparently, various members of the Village People executed separate grants to the music publisher. The court ruled that one author could terminate his grant because he was the only one who executed it, but presumably the grants from the other group members are left standing. One then must determine how the patchwork of grants affects the rights.
Here are links to a New York Times article describing the termination controversy with respect to sound recordings, a Rolling Stone interview with Don Henley about the subject, and an AFTRA notice regarding termination.
Here are links to the termination statute and a Copyright Office circular describing termination rights.
Work to Do
Recording artists should consider whether their ultimate goal is to obtain possession of the masters, or to negotiate a new agreement, which could include an advance. At a minimum, termination creates an opportunity for recording artists to negotiate new agreements with their record companies. Therefore, no matter what the artist’s intentions, he may want to consider sending notices of termination at the appropriate times, or at least tell his record company that he is considering sending such notices as a starting point for negotiations. Attorneys can help with calculating deadlines and preparing the notices. Artists may also want their attorney to review the artist’s recording contracts, learn the facts concerning the contributions of other musicians who performed on the recordings and review their agreements if possible, and otherwise evaluate the factual and legal issues pertaining to their individual case.
Once termination notices have been served, one should expect there to be negotiation with the artist's current record company, and perhaps other record companies, band members and producers. Some artists may prefer to engage an attorney who specializes in negotiating record deals for artists to do that work, but one should be aware that record deal experience does not translate precisely to negotiation concerning termination rights. Negotiating points are different because the masters already have been recorded, and many issues relating to things such as recording costs, promotion, etc., are significantly different from the issues in the typical recording contract. Depending on the results of negotiations, or if either side is unwilling to negotiate, there could be litigation concerning whether the artist is entitled to recover the masters.
May 30, 2012
In order to obtain an injunction prohibiting a competitor from violating your IP rights, one of the things you must prove is that his actions are causing you irreparable injury, as opposed to injury that can be remedied by paying money. When considering possible ways in which your competitor is causing you irreparable injury, it may be worthwhile to consider two concepts proposed by Apple in the Apple v. Samsung case.
The first is a dilution argument. Apple argued that Samsung’s use of a smartphone design in violation of Apple’s design patent eroded the distinctiveness of the iPhone design, causing Apple harm that would be impossible to quantify.
The second is that lost sales in the smartphone market would have repercussions for sales of other devices, primarily because of compatibility issues. Once one chooses a phone that operates on the Android platform, for example, one will be more likely to purchase other Android/Samsung products rather than Apple products.
At the preliminary injunction stage, Apple did not succeed on either theory. The Federal Circuit pointed out, however, that Apple lost not because its logic was flawed, but because there was not sufficient proof to support it. It seems likely that Apple will be pursuing such proof with renewed vigor as the case goes forward. Apple’s strategies of proof, whether they are based on surveys, statistics or other measures, and Apple’s success or failure, may provide IP owners with further insight regarding the effectiveness of these theories going forward.
April 20, 2012
In reaction to recent stories of destruction of bridal gowns and other clothing that could have gone to the needy, people are asking why brand owners don’t donate seized counterfeit goods. Four reasons.
First, U.S. trademark law provides for the destruction of counterfeit goods; it does not permit donation. Second, counterfeit goods are by their very nature inferior. A trademark owner has a responsibility to insure that inferior goods bearing its brand do not circulate. This principle is known as the duty to maintain quality control. One can lose trademark rights for failing to exercise quality control. Third, once goods leave the hands of the brand owner or retailer, even with the best of intentions, it is difficult to ensure that donated goods do not end up being resold. Fourth, for many brands, the cold, hard fact is that the brand may suffer if consumers see it worn by the needy because the selling point is exclusivity.
So, before you point the finger at a brand-owner for failing to donate counterfeits or even legitimate goods to the needy, ask yourself: would consumers want the product as much, at the same price, if he did?