Archive for the ‘Business Law’ Category

Jun
28

Understanding a Trademark Licensor’s Obligations: Avoiding a “Naked License” Finding

This blog describes an area of trademark law that is often given short shrift.  The licensor of a registered trademark has important obligations during the term of the licensing agreement.  Failure to follow these obligations could result in loss of registered trademark rights.

Background on Trademark Law

A trademark or service mark is a distinctive word, phrase, logo, or graphic symbol that allows consumers to identify the manufacturer, merchant, or service provider responsible for the goods or services.  Basically, a trademark or services mark is a brand.   In contrast to inventions and creative works, both of which have an express basis in the U.S. Constitution, trademarks are not specifically referred to within the Constitution.  Instead, trademark law derives from the Constitution’s commerce clause which provides Congress with the power to regulate interstate commerce

The Lanham Act is the federal statute governing federal trademark registration.  It pertains to marks used in interstate commerce which Congress has the right to regulate under the Constitution.  The United States Trademark and Patent Office (USPTO) is the administrative agency in charge of determining whether an applied-for mark is eligible for federal trademark registration. States, including Florida, also provide for registration of trademarks & service marks. Marks used within only one state are limited to relying on state law protections. Marks which are registered simultaneously in both a state and the USPTO may rely on both federal and state law protections.

Trademark law’s focus is on the protection of the consumer. The objective is to prevent consumer confusion as to the source of the goods and to prevent “palming off” where one producer attempts to pass of its goods as originating from another producer.   That is, the consumer has the right to know that what they are buying is actually from the owner of the mark.  A registered trademark is given to the business/individual to signify to consumers the origin of the product or service bearing the registered mark symbol (the circled R).   Hence the reason why trademark law is encompassed by U.S. commerce law. The other three types of IP are instead focused on protecting the rights of the inventor, creative works creator, and trade secret developer.

Once a registered trademark is granted by the USPTO, the continuation of registration status is dependent upon periodic proof filed with the USPTO that the mark is still in interstate commerce and the payment of a maintenance fee.  Registered TM protection can go on indefinitely as long as the fees are paid and the mark is indeed being used in commerce.

 Trademark Licensing Considerations

As with patents and copyrights, trademarks can be licensed.  Patent and copyright licensors generally stay out of the licensee’s “commercialization” endeavors unless the licensee’s involvement is required to get the invention or work to market.  Trade secret licensing is a really tricky proposition and not something often recommended.   Trademark licensors, on the other hand, have on-going obligations!  Failure to follow these obligations can result in a loss of registered trademark rights if the license is viewed as a naked license by courts or the USPTO.

Example

Mary has developed an organic spice mixture as a seasoning which she has been selling through a website.  She has been featured on HSN and developed a loyal following.  She specifically developed the spice rub for individuals having a histamine intolerance like herself so they too could enjoy tasty food.  She secured a catchy registered trademark under which the spice mixture is sold.  She has been approached by Spiced Right, a national spice manufacturing and distribution company to sell her product on a nationwide scale under her brand name.   They have promised her that her product’s quality will be maintained with large scale manufacturing processes.  The royalty payment is attractive and will allow her to put money away for retirement.  She entered into a detailed exclusive licensing agreement which was devoid of any role on her part.  The agreement also failed to clearly specify component sourcing – specifically organic components from specified suppliers all certified by an independent organic certification authority.

A couple of years later, Spiced Rights started substituting non-organic spices to increase profits.   A substantial number of Mary’s previous customers started complaining on social media that her brand’s quality had declined.  Almost immediately thereafter Spiced Right stopped paying royalties.

Mary sued Spiced Right under 15 U.S.C. §§ 1117, 1125(a) for violation of her rights as a trademark owner (right to receive royalties in this case).  The case was dismissed on the ground that Mary abandoned her mark by engaging in naked licensing – that is, by allowing Spiced Right to use the mark without exercising “reasonable control over the nature and quality of the goods, services, or business on which the mark is used by the licensee.” Restatement Third of Unfair Competition §33 (1995).

Naked licensing issues may also come up during application opposition and registered mark cancellation proceedings before the Trademark Trial & Appeal Board.   See e.g., Barcamerica International USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002)(finding that the trademark should be cancelled).

What Happened?

  1. Mary relinquished control over the quality of her spice. For trademark licensing purposes, quality does not mean “high end” goods and services. The sort of supervision required for a trademark license (REMEMBER FOCUS ON THE CONSUMER) is the sort that produces consistent quality and expectations in the mind of the consumer.
  2. Mary’s licensing agreement should have specified, g., that she would be policing Spiced Right’s product and the specific quality assurance steps she would take. For example, by regularly buying and sampling the products and receiving reports of the suppliers being used by Spiced Right to formulate her product.  Contingencies for addressing product deficiencies should also have been delineated.
  3. As an aside, generally, the licensor, as the owner of the registered mark, is responsible for filing the necessary documentation for establishing that the mark is in commerce at the Lanham Act’s specified renewal time frames.

 KEY TAKEAWAYS

  1. Trademarks are indicators of consistent and predictable quality assured through the trademark owner’s control over the use of the designation.” Restatement Third of Unfair Competition 33, comment b.
  2. A trademark’s function is to tell shoppers what to expect. Mary’s customers had come to expect a certain taste/quality and it was her reputation that was at stake.   Similarly, a franchise restaurant licensee is expected to provide food/cleanliness/service (the experience) consistent with the franchisor’s requirements as detailed in lengthy franchise agreements.  The licensor’s reputation is at stake in every restaurant outlet so it invests to the extent required to keep the customer satisfied by ensuring a repeatable experience and overseeing the activities of its licensees.
  3. The failure to monitor one’s trademark is seen as an effective relinquishment of a trademark owner’s responsibility under the law.
  4. All IP licensing agreement should be reviewed by an experienced IP attorney who is well-versed in IP licensing nuances. This is especially true for trademark licensing agreements where the licensor/trademark owner has important obligations.  Failure to comply with these obligations may result in loss of valuable registered trademark rights.

 

THANK YOU FOR YOUR INTEREST IN THIS BLOG.   THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.  WE SUGGEST YOU CONSULT WITH AN ATTORNEY IF YOU ARE CONSIDERING AN ACTION WHICH COULD HAVE LEGAL CONSEQUENCES.

©2020

Troy & Schwartz, LLC

Where Legal Meets Entrepreneurship™

(305) 279-4740

 

Apr
30

New Guidance by the Patent Trial & Appeal Board on Overcoming Obviousness Rejections: Part I – Lectrosonics, Inc. v. Zaxcom, Inc.

Patent Law Alert from the Law Offices of Troy & Schwartz, LLC

April 30, 2020

New Guidance by the Patent Trial & Appeal Board on Overcoming Obviousness Rejections:  Part I  – Lectrosonics, Inc. v. Zaxcom, Inc

One way for the patent applicant to try and overcome an obvious rejection is to prove nonobviousness through secondary considerations (also known as “objective indicia of nonobviousness”). Yet, proving nonobviousness through secondary considerations to the satisfaction of the Patent Trial & Appeal Board (“Board”) has always been challenging even before Supreme Court’s KSR decision.  On April 14, 2020, the Board issued guidance in arguing secondary considerations by designating its most recent decision as precedential (Lectrosonics, Inc. v. Zaxcom, Inc., Case IPR 2018-00129 (P.T.A.B. Jan. 24, 2020)) and two earlier decisions as informative (Ex parte Thompson, Appeal 2011-011620 (P.T.A.B. March 21, 2014) and Ex parte Whirlpool Corp., Appeal 2013-008232 (P.T.A.B. Oct. 30, 2013)).

This blog discusses the precedential decision in Lectrosonics, Inc. v. Zaxcom, Inc., Case IPR 2018-00129 (P.T.A.B. Jan. 24, 2020). Given the importance of this topic, the two other decisions will be summarized in a forthcoming blog. The three decisions address nonobviousness issues in three different proceedings before the Board: an applicant’s exparte appeal, an AIA trial, and a reexamination proceeding.

Secondary considerations involve evidence “outside” the four corners of the application with a caveat: the applicant must demonstrate a nexus between the proffered evidence and the claimed invention.  If established, the Board will consider the strength of the objective-indicia evidence itself.

The Board’s Discussion of the Threshold for Establishing “Nexus”

Secondary considerations are generally related to the invention’s commercialized product. For objective indicia of nonobviousness to be accorded substantial weight, its proponent (the applicant or patent owner) must establish a nexus between the evidence and the merits of the claimed invention.  This means that the proponent must show that the asserted objective evidence is actually tied to a specific product and that product indeed “embodies the claimed features and is coextensive with them.”

Courts have considered the following secondary considerations in determining obviousness; (1) the invention’s commercial success, (2) long felt but unresolved needs, (3) the failure of others, (4) skepticism by experts, (5) praise by others, (6) teaching away by others, (7) recognition of a problem, (8) copying of the invention by competitors, and (9) other relevant factors.

The product for which objective evidence is presented must be claimed in its entirety within the patent or application.  CAFC precedent, which the Board must follow, requires that a nexus between the invention and evidence of secondary considerations is only presumed “when the product is the invention as fully disclosed and claimed – that the product embodies the claimed features and is coextensive with them.”  See Fox Factory, Inc. v. SRAM, LLC, 944 F.3d 1366 (Fed. Cir.  2019). 

Nevertheless, all is not lost if an “automatic” nexus presumption is deemed inappropriate.  The patent owner is still afforded an opportunity to prove nexus by showing that the proffered evidence of secondary considerations is the “direct result of the unique characteristics of the claimed invention.”   The ultimate decision depends on the fact finder who “must weigh the secondary considerations evidence presented in the context of whether the claimed invention as a whole would have been obvious….”

Secondary Considerations as to the Original Claims

The Board considered the nexus requirements twice  – first with respect to the patent’s original claims and again with the patent owner’s proposed substitute claims as discussed below.  Relying on Fox, the Lectrosonics Board found that the patent owner had not demonstrated a nexus between the evidence presented and the merits of the invention as originally claimed because the evidence presented was directed to an unclaimed feature of the invention.  Secondary evidence is inapplicable if it does not apply to the patent’s actual claims.

Secondary Considerations as to the Substitute Claims

The patent owner filed a contingent motion to amend the patent to replace the six problematic patent claims with six substitute claims; the written description had disclosed features that had not been claimed and the patent owner now sought to claim these features.    The Board first held that the Motion to Amend complied with the statutory and regulatory requirements for amending found in a previous precedential order for assessing the merits of a Contingent Motion to Amend in Feb. 2019.

The Board then considered whether the proposed substitute claims were obvious, finding that the Petitioner’s (the party seeking claims invalidation of the patent) proposed prior-art combination (the combining of references in an obviousness rejection) “at best only weigh slightly weigh in favor of a conclusion of obviousness.”

The Board then turned to the patent owner’s secondary consideration case but now focusing on the substitute claims.  Had the inquiry only involved the original claims, the patent owner would have been out of luck.  The Board found, however, that the substitute claims shared a nexus with the patent owner’s proffered secondary consideration evidence: the affidavit of two declarants tying long-felt need directly to the newly added claim limitations and an industry award.

After finding a nexus, the Board then considered the secondary consideration evidence itself.  As to long-felt need as a secondary consideration, the Board was convinced that the two declarations demonstrated “a persistent need, recognized by those of ordinary skill in the art.”

Next, the Board considered the evidence of industry praise, citing the testimony of one of the patent owner’s declarants who stated that he “can’t emphasize enough the revolution these recording radios brought on.” The Board recognized that the award also “specifically praises features of the proposed substitute claims including the digital recording of microphone signals in the wireless transmitter.” Although some of the industry praise the patent owner supplied was “directed to features not explicitly recited by [the proposed substitute claims],” the patent owner’s evidence of industry praise ultimately weighed in favor of nonobviousness.

Lastly, the Board considered the evidence of the failure of others. Here, the Board determined that the patent owner’s testimony submitted in support of this factor was “conclusory and without adequate [evidentiary] support for the proposition that others failed.” This factor thus weighed in favor of the Petitioner’s obviousness arguments.

The Board ultimately concluded that, although the failure of others weighed in favor of the Petitioner because of lack of evidentiary support favoring the patent owner, the long-felt need and industry praise weighed heavily in favor of nonobviousness.  The Board concluded that the substitute claims were nonobvious, thereby saving the day for the patent owner.

Take Home Points

It has been historically very difficult to win on a secondary consideration argument before the Board and appellate courts. The following lessons can be drawn from the Lectrosonics decision:

  • In presenting an objective-indicia case, practitioners during patent prosecution or the patent owner in a post-patent proceeding must present solid evidentiary support (e.g., long-felt need, failure of others, industry praise, copying, etc.).
  • Conclusory statements are not evidence. Additionally, the nexus between that evidence and the claimed invention must be proven in those cases where the Board or a court determines that the patent applicant or patent owner are not entitled to a nexus presumption.  Such a nexus will be found lacking if the evidence does not relate to the patent’s claims.   Here, the patent owner’s win is because the Board agreed that the patent could be amended to include substitute claims after finding that the original claims had no nexus with the proffered objective evidence.
  • The Lectrosonics decision is also a good reminder for practitioners to claim everything the applicant is entitled to claim based on the written disclosure to help ensure that the required nexus between the claims and secondary considerations will be found in any “obviousness” contest. Here the patent owner won because the Board first granted its contingent motion to amend the claims to include substitute claims which then were found to be “covered” by objective secondary consideration evidence.  If a patent owner plans to file such a motion during a patent claim contest, it would be well advised to review the Board’s requirements for granting this type of motion as set forth in the decision available here. The outcome would have been far different absent the Board’s approval of the motion to amend.

©Troy & Schwartz, LLC

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.

Apr
13

Color as a Trademark – A Discussion of the CAFC’s Decision in In re Forney Industries, Inc.

 Susan Dierenfeldt-Troy, Esq.

Troy & Schwartz, LLC

Where Legal Meets Entrepreneurship™

A color mark is one where one or more colors are used to perform the trademark function of identifying the source of the good or service.  These marks may be registered as a trademark on the Principal Register under U.S. law if: 1) at the time the color mark is applied for, it is intrinsically distinctive or has become inherently distinctive in the minds of consumers as being associated with the supplier.  If not, the color mark may be registered on the Supplemental Register (which provides some limited benefits to the registrant) providing it meets the other requirements for registration.  If the color mark is later shown to have acquired secondary meaning, it then may be eligible for registration on the Principal Register.  This blog provides background information on color trademark law and discusses the April 8, 2020 decision of the Federal Circuit Court of Appeals in In re Forney Industries, Inc.

Quick Take-Home Points

Color marks may be registrable either on the Principal Register or the Supplemental Register.  Generally, color marks associated with packaging stand a much greater chance of being approved for registration relative to color marks associated with goods themselves for reasons discussed below providing the “package” color mark meets the many other requirements of trademark registration (e.g., the color serves no function and color is clearly a unique indicator of the source of the goods or services in consumers’ minds).  Three well-known color marks are UPS’s brown mark as applied to its delivery trucks, Tiffany’s egg shell blue mark as applied to its packaging, and John Deere’s green and yellow mark as applied to its various farm and industrial equipment.  Nevertheless, registration of color marks is no easy task as this blog demonstrates.

 Detailed Discussion

Color marks have been deemed by the courts as akin to trade dress.  Trade dress is the commercial look and feel of a product or service that identifies and distinguishes the source of the product or service.  It includes the various elements (such as the design and shape of materials) used to package a product or services.  For example, the Coca Cola Company has a registered trademark for the shape of its glass bottle.

Under 15 U.S.C. 1052 of the Lanham Act, applicants may file for trademark registration of merely descriptive marks which may not otherwise qualify for trademark protection by providing evidence that consumers have come to identify the mark with the applicant.  Trade dress that is not inherently distinctive to start with or has not acquired distinctiveness under §2(f) of the Lanham Act will be refused registration on the Principal Register.  For color marks, whether or not a color “trade dress” mark can be registered on the Principal Register is also largely dependent upon whether the mark involves a product design or packaging both of which may be viewed as a type of trade dress as will be discussed below.

Demonstrating that an applied-for color mark is or has become inherently distinctive to the satisfaction of the United States Patent & Trademark Office is a tough burden to meet as General Mills found out in a 2017 appeal to the Trademark Trial & Appeal Board (“Board”) when it tried to register the color yellow for its Cheerios’ brand boxes.  Even though the yellow box was a “package” trade dress, the Board found that the color yellow was in such common use for other cereal brands, that General Mills claim of acquired distinctiveness under 2(f) lacked merit.

According to the Supreme Court, a mark that consists of product design trade dress is never inherently distinctive and is not registrable on the Principal Register unless the applicant establishes that the mark has acquired distinctiveness under §2(f). Wal-Mart Stores, Inc. v. Samara Bros., 529 U.S. 205, 213-216, 54 USPQ2d 1065, 1069-70 (2000).  Features of a product’s design can never be inherently distinctive and are registrable only upon a showing of secondary meaning. Id. at 213–14, 54 USPQ2d at 1069.  The commentator notes that the Court’s rationale is consistent with the purpose of trademark law:  to allow the consumer to readily identify the source (e.g., the manufacturer) of the goods/services being sold under the mark.  Indeed the Wal-Mart court noted that product design almost invariably serves purposes other than source identification, and that “[c]onsumers are aware . . . that, almost invariably, even the most unusual of product designs — such as a cocktail shaker shaped like a penguin — is intended not to identify the source, but to render the product itself more useful or appealing.” Wal-Mart at 213-2014.

In contrast to product design trade dress, trade dress constituting product packaging may be inherently distinctive for goods or services and registrable on the Principal Register even without a showing of acquired distinctiveness.  “[A] mark is inherently distinctive if ‘[its] intrinsic nature serves to identify a particular source.’” Id. at 210 (citing Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 768 (1992)).

This brings to the discussion of the April 8, 2020 decision on the registration of a color mark where the Federal Circuit Court of Appeals (“CAFC”) reversed the Board’s decision against registration of a package color In re Forney Industries, Inc., Appeal No. 20191-1073.  This precedential decision is noteworthy because it distinguishes instances when an arrangement or blending of colors into a distinctive scheme for packaging may qualify for protection as already having intrinsic distinctiveness without a showing of acquired distinctiveness under §2f.  Forney’s trademark application was not made under 2(f) but under 1(a) of the Lanham Act, the usual route for applicants who believe their mark is beyond being merely descriptive.

In Forney, the applicant sought to register a mark comprising the colors “red into yellow with a black banner located near the top as applied to packaging” for metal hardware, welding equipment, safety goods and marking products. The Board had relied on the High Court’s decision in Wal-Mart Stores in concluding that this color combination was not registrable because the applicant could not establish inherent distinctiveness.

The CAFC took a different approach and found that the Board, by relying on Wal-Mart Stores had “erred in two ways: (1) by concluding that a color-based trade dress mark can never be inherently distinctive without first differentiating between product design and product packaging color marks; and (2) that product packaging marks that employ color cannot be inherently distinctive in the absence of an association with a well-defined peripheral shape or border.”  In other words, the CAFC concluded that under either scenario, the Board’s logic was faulty.

With regard to the first point, the CAFC disagreed that the Supreme Court had made it clear that color, when on a product or its packaging, can never be inherently distinctive without establishing inherent distinctiveness. The CAFC observed that the Supreme Court has not gone that far because it has not so ruled as to product packaging. The CAFC then held that “color marks can be inherently distinctive when used on product packaging, depending upon the character of the color design.”  The CAFC reasoned that, although “color is usually perceived as ornamentation,” In re Owens-Corning Fiberglas Corp., 774 F.2d 1116, 1124 (Fed. Cir. 1985), “a distinct color-based product packaging can indicate the source of the goods to a consumer, and, therefore, can be inherently distinctive.”

The CAFC also took a different tact from the Board by applying the Supreme Court’s precedent in trade dress case law to Forney’s package mark.  In the seminal case of Two Pesos, the Supreme Court assumed that the trade dress related to the interior décor of a Mexican restaurant was inherently distinctive.  Accordingly, Two Pesos stands for the proposition that trade dress can be inherently distinctive. [Emphasis by CAFC].

In Wal-Mart, the Supreme Court, in discussing a product design mark, stated that, “with respect to at least one category of mark—colors—we have held that no mark can never be inherently distinctive.” 529 U.S. at 211–212.  As the CAFC emphasized in Forney, product design and product packaging involve different trademark considerations.   In Wal-Mart, the Supreme Court “considered the fact that ‘product design almost invariably serves purposes other than source identification.'” Id. at 213. As to product packaging, however, the Court noted, “[t]he attribution of inherent distinctiveness to certain categories of . . . product packaging derives from the fact that the very purpose of . . . encasing [a product] in a distinctive packaging, is most often to identify the source of the product.”   The commentator emphasizes that trademark law is indeed focused on ensuring that a consumer will know the true source of purchased goods and services and distinct packaging can be a factor in building “memory muscle.”

Turning then to Forney’s proposed mark, the CAFC opined that multi-color packaging is “more akin to the mark at issue in Two Pesos than those Wal-Mart.” As such, Forney’s unique color combination falls firmly within the category of marks the Court described as potential source identifiers.  The CAFC’s opinion is instructive because it demonstrates that precedent can be interpreted as much for what it does state as for what it does not state. In Forney, the CAFC concluded that the Supreme Court’s Qualitex and Wal-Mart decisions when combined with its Two Pesos decision demonstrate that a color mark when used for packaging (i.e. as trade dress) can be inherently distinctive.  See also Wal-Mart (stating “[a] mark is inherently distinctive if ‘[its] intrinsic nature serves to identify a particular source.’” (Wal-Mart at 210 citing Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 768 (1992).

In considering the Board’s alternative conclusion, the CAFC found that the Board’s decision had again not comported with prior CAFC case law. “Without explaining why it was doing so, the Board found that a color may only be inherently distinctive when used in conjunction with a distinctive peripheral shape or border.”  In other words, the Board had made a conclusory argument without providing evidence to back up its assertions.             The Board agreed with Forney that the proposed mark “is not just a ‘color mark’ but also a ‘symbol.’ ”  A public policy consideration in granting color marks is whether the registered mark would preempt use of a color that is commonly used in a particular field of commerce.  According to the CAFC, Forney was not attempting to preempt the use of any particular color, but only to protect the particular colors arranged in a particular design.  According to the CAFC, the question for the Board is whether the proposed mark is “sufficiently indicative of the source of the goods contained in that packaging.” That assessment must be made “based on the overall impression created by both the colors employed and the pattern created by those colors.”

The CAFC further criticized the Board for its failure to determine inherent distinctiveness using the Seabrook factors.  These factors are referenced in the TMEP which states: “The test for determining inherent distinctiveness set forth in Seabrook Foods, Inc. v. Bar-Well Foods, Ltd., 568 F.2d 1342, 1344, 196 USPQ 289, 291 (C.C.P.A. 1977), although not applicable to product design trade dress, is still viable in the examination of product packaging trade dress. The examining attorney should consider the following Seabrook factors – whether the proposed mark is:

  • (1) a “common” basic shape or design;
  • (2) unique or unusual in a particular field;
  • (3) a mere refinement of a commonly adopted and well-known form of ornamentation for a particular class of goods viewed by the public as a dress or ornamentation for the goods; or
  • (4) capable of creating a commercial impression distinct from the accompanying words.”

Not surprisingly after its detailed analysis, the CAFC vacated and remanded the case to the Board to determine if Forney’s proposed mark is inherently distinctive under the Seabrook factors and therefore entitled to registration on the Principal Register.

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.  WE SUGGEST YOU CONSULT WITH AN ATTORNEY IF YOU ARE CONSIDERING AN ACTION WHICH COULD HAVE LEGAL CONSEQUENCES.

© 2020 by Troy & Schwartz, LLC

 

Mar
13

Patent Licensing Agreements: Ensuring They Won’t Thwart the Patentee’s Rights to Damages in a Later Patent Infringement Lawsuit

Attorneys often categorize themselves as either only transactional or only litigation attorneys. The fact is that legal documents, whether drafted by a transactional attorney specifically retained to draft an agreement or “grabbed off” the Internet, may become the subject matter” of a lawsuit, either directly as in a breach of contract claim or indirectly as where an agreement fails to properly address statutory requirements pertinent to the contact.   The latter situation is discussed in the Federal Circuit Court of Appeal’s Feb. 19, 2020 decision in Arctic Cat, Inc., v. Bombardier Recreational Products, Inc.

Arctic Cat is the owner of two patents directed towards thrust steering systems for personal watercraft (“PWCs”). Although it initially sold the inventions before the patents had issued, Arctic Cat later entered into a license agreement with Honda for several patents including the PWC patents.  Somewhere along the licensing negotiating process, the provision requiring Honda, as the licensee, to mark all licensed patented products with the applicable patent numbers was deleted.  The final version even expressly stated that Honda had no marking obligations.  This provision was contrary to the requirements of 35 U.S.C. § 287 and case law involving the interpretation of that statute.

Section 287(a) provides in pertinent part:

Patentees, and persons making, offering for sale, or selling within the United States any patented article for or under them, or importing any patented article into United States, may give notice to the public that the same is patented . . . by fixing thereon the word “patent” . . . . In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice. Filing of an action for infringement shall constitute such notice.

The notice provision of § 287 does not apply to patents directed to processes or methods. Nor does it apply if a patentee never makes or sells a patented article; such a patentee may recover damages even absent notice to an alleged infringer.  On the other hand, the patentee who either directly sells the patented article or indirectly introduces into the market through a licensee, cannot collect damages until it either begins providing notice or sues the alleged infringer.  Any resultant damages are limited to the period after notification.  A patentee can cure the marking dilemma by beginning to mark (or have the licensee mark) its products in accordance with § 287.

The public policy behind § 287 is threefold: to (1) help avoid innocent infringement; (2) encourage patentees to give public notice that the article is patented; and (3) aid the public to identify whether an article is patented.   Arctic Cat at 8 citing Nike, Inc. v. Wal-Mart Stores, Inc., 138 F.3d 1437, 1443 (Fed. Cir. 1998).   Failure of a patentee to inform the public that an article is patented is deemed problematic because of its potential to mislead others into believing they are free to make and sell an article that is actually patented and then finding themselves on the receiving end of a patent infringement lawsuit.

The statute also actually provides incentive to the patentee to sell marked products so as to maximize its damages in any subsequent patent infringement lawsuit by a “knowing” infringer. That is, the marking statute imposes notice obligations on the patentee.  Whether or not the alleged infringer may have had mere knowledge that unmarked patented articles were actually patented is irrelevant.  A patentee who does not comply with the marking statue cannot later claim entitlement to “willful infringement” damages without establishing that the alleged infringement had been put on proper notice.

The duty to mark is not limited to the patentee but is also imposed on any licensee or assignee. Arctic Cat at 6.   The licensing/assigning patentee has to demonstrate that it made reasonable efforts to ensure any third parties’ compliance with § 287 to the satisfaction of the court.  Inexplicably, the licensing agreement between Arctic Cat and Honda expressly stated that Honda had no obligation to mark the patented PWCs.   As such, in its later filed infringement lawsuit, Arctic Cat was in no position to argue that it had made reasonable efforts to ensure labeling.  The “wrong” provision included within the patent licensing agreement with Honda executed years before proved fatal from a damages maximization perspective.

And this begs the question:  Who drafted that licensing agreement and why was the original provision referencing marking deleted?  Did Arctic Cat’s authorized representative understand the implications of what he was signing?  Did its transactional attorney explain the consequences?

From our perspective, the Arctic Cat decision drives home the point that a faulty transactional agreement may well mess up a party’s rights in a future lawsuit.  Faulty agreements can range from unartful, overly verbose, and ambiguous wording to provisions that are inexplicably contrary to federal and/or state statutory requirements and public policy.  The latter should never happen at least when a transactional attorney is involved.  Any such attorney must have a thorough understanding of the legal area the agreement involves to determine how much latitude may be incorporated into the agreement without running afoul of governing law.  Failure to do so denotes sloppy work.

The commentator handles both legal disputes involving intellectual property rights including patents and drafts and negotiates complex licensing and assignment agreements.  In my opinion the preferred approach to drafting these and other types of agreements is to draft with an eye toward future litigation whether between the parties to the agreement or a third party as in the Arctic Cat case.  Such agreements should also be drafted by an attorney with experience in the subject matter.

Considering licensing your intellectual property? Contact us to see how we can provide value to you or your company from drafting the licensing agreement from scratch through negotiating the draft (or a previously existing draft) with the other party to the agreement.  Our services including taking care to explain the agreement in detail to our clients and providing a summary of the agreement’s provision to provide for ready reference.  

WE HOPE YOU FIND THE ARTICLE INSTRUCTIVE.  HOWEVER, THE INFORMATION PRESENTED IS NOT LEGAL ADVICE AND IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY.

© Troy & Schwartz, LLC 2020

Where Legal Meets Entrepreneurship™

 

 

 

Jul
21

A REGISTERED TRADEMARK APPLICANT MUST BE THE OWNER OF THE MARK UNDER SECTION 5 OF THE LANHAM ACT.

On July 2, 2019, the Trademark Trial and Appeal Board (“TTAB”) sustained the opposition to the mark HOLLYWOOD HOTEL by finding that the mark was void ab initio because the Applicant was not the owner of the mark.   Hollywood Casino, LLC v. Chateau Celeste, Inc., Opposition No. 91203686.

An application is void if it is filed by a person or entity that is not the owner of the mark.  By definition, the owner of the mark is the one that controls the nature and quality of the goods and services under the mark.  This requirement is consistent with trademark law’s focus on preventing consumer confusion over who is providing the goods/services under the mark.

Here, the opposer had the burden to prove that the Applicant was not the owner at the time of filing of the opposed application.  HOLLYWOOD HOTEL was owned as a common law mark starting in 1994 by Zarco Hotels.   Applicant Chateau Celeste, Inc. filed the application for the HOLLYWOOD HOTEL mark in 2011.  The application was subsequently opposed by Hollywood Casino, LLC on likelihood of confusion grounds.  During the course of discovery, the opposer ascertained from the testimony of the Applicant’s president that Chateau Celeste was not the actual owner of the HOLLYWOOD HOTEL mark under the law.  The TTAB granted the opposer the right to amend the complaint to include a count that the mark was not registerable because the Applicant was not the true owner of the mark.

The opinion is instructive because it emphasizes the importance of ensuring that the applicant and the mark owner are one and the same.  First, as the Hollywood Casino decision establishes, an application filed by a non-owner is void from the start.  Second, even if the application somehow makes it through the registration process without an opposition proceeding, ownership issues may arise in any future trademark infringement litigation proceedings; it is the owner of the mark who generally has standing to bring such lawsuits.  Third, ownership issues may also arise in a later cancellation proceeding brought by another party before the TTAB.

The ownership in a mark, whether registered or common law, may pass to another through a formal assignment of rights.  The USPTO encourages recordation of “registered mark” assignments to establish a public chain of title.  Trademark assignments often arise when a business is purchased where registered or common law or state trademark rights are acquired as part of an asset purchase or stock purchase. Additionally, ownership may pass without a formal assignment if one company becomes the owner of mark by controlling its use by a related company, e.g., by a subsidiary.

Importantly, licensees are not the owners of trademarks.  Indeed, any licensor of trademarks has the obligation to ensure that the licensee is maintaining the nature and the quality of the goods and services associated with the licensed mark.

At the time the HOLLYWOOD HOTEL mark was filed, there were two separate companies in existence where one individual was an officer and controlling shareholder in both and both of the companies had the same address.  This is the same individual whose deposition resulted in the opposer’s amended complaint.   The TTAB deemed this commonality as being insufficient to make the companies related for ownership purposes under Section 5 of the Lanham Act.  The Applicant, Chateau Celeste, Inc., would have to establish that it, not the individual officer/shareholder, controlled the nature and quality of the services rendered by Zarco Hotels, the corporation actually using the mark.  Because Zarco Hotels and Chateau Celeste constituted separate legal entities and Zarco Hotels was the owner of the physical property itself, the TTAB concluded the application was filed by the wrong legal entity and hence void.

Take Home Points

  1. It is important to ensure that applicant in any trademark application is the owner of the mark – i.e., the one who is using or will be using the proposed mark in commerce.
  2. Assignments of marks should be memorialized in a formal writing. Assignments involving registered marks should be recorded with the USPTO.
  3. Assignment during the prosecution of a trademark application may be allowed but only under certain circumstances.
  4. Acquiring licensing rights in a trademark is not equal to ownership of the licensed mark.   A licensor has an on-going obligation to monitor the licensee’s usage of the mark.

 

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