SCOTUS: Trademark Licensees Retain Their Rights To Use Debtors’ Trademarks Despite Rejection Of The License

            On May 20, 2019, the Supreme Court handed down an 8 -1 opinion in MissionProduct Holdings, Inc. v. Tempnology, LLC, holding that a debtor’s rejection of a trademark license under Bankruptcy Code § 365 does not revoke the licensee’s trademark license or deprive the licensee of its rights to use the trademark.  Instead, the Court concluded that the debtor’s rejection has the same effect as a breach of contract outside bankruptcy; it does not rescind the contract and all rights that would ordinarily survive a breach of contract remain in place. 

            This case arises from a licensing agreement between a debtor/licensor, Mission Product Holdings, Inc. (Mission) and Tempnology, LLC (Tempnology), for the use of Tempnology’s trademarks (logos and labels for “Coolcore”) on manufactured clothing and accessories.  The agreement provided Mission with an exclusive license to distribute Coolcore products in the United States and a non-exclusive license to use the trademarks in the United States and around the world.  The agreement was set to expire in July, 2016.  In September 2015, Tempnology filed for Chapter 11 bankruptcy and asked the court to allow it to reject the Mission licensing agreement under Section 365. 

            Section 365 of the Bankruptcy Code enables a debtor to “reject any executory contract” – meaning a contract that neither party has finished performing, thus allowing a debtor to decide whether a particular contract is a good deal for the estate going forward.  This is especially important when a debtor is reorganizing under Chapter 11.  Rejecting the contract constitutes a breach of contract, giving the licensee a pre-petition claim against the estate for damages as a result of the nonperformance. 

In this case, the Bankruptcy Court held that even though Section 365 allows, for example, a tenant to stay and pay rent for the duration of a property lease despite a bankrupt landlord rejecting the lease, or allows certain intellectual property (e.g. patent) licenses to remain in place despite rejection, Section 365 does not reference trademark licenses and, therefore, does not apply to the facts of this case.  The Bankruptcy Appellate Panel (BAP) reversed, noting that while a rejection can convert a debtor’s unfilled obligations to a pre-petition claim, it does not vaporize the counterparty’s rights.  The First Circuit Court of Appeals rejected the BAP’s reasoning and reinstated the Bankruptcy Court’s decision to terminate the license, finding that because special features of trademark law include licensors monitoring and exercising quality control over goods associated with their trademark, if a licensor is forced to carry on these monitoring activities, it would frustrate “Congress’s principal aim in providing for rejection,” which is to release the debtor’s estate from burdensome obligations. 

            Interestingly, the Supreme Court disagreed with the First Circuit and agreed with the BAP, concluding that Congress intended, except in very limited cases, for parties to retain rights after rejection of an executory contract, and trademark licenses should not be any different.  Thus, rejection of a trademark license in bankruptcy is treated as a breach, not a rescission.  As to the concerns about ongoing monitoring, the Supreme Court found that while Congress considered the burdens on the debtors when certain contracts are rejected, it also weighed the “legitimate interests and expectations of the debtor’s counterparties.” In the case of trademark licenses, the ruling clarifies that the legitimate interests and expectations of the trademark licensee outweigh the burdens on the debtor, and the licensees rights remain in place after rejection. 

Authored by:

Jennifer T. Poochigian

Q&A: How to use trademark to protect against cybersquatting

Cybersquatting is when a third party registers a domain name that really should be yours.  For example, if my company's name is "Fresno Widgets" and I register fresnowidgets.com, I would be very unhappy to learn that a competitor or a prankster (or, most likely, somebody who wants to sell the names back to you at 100 times their cost) has registered fresnowidgets.org and fresnowidgets.net.

This used to be a substantial problem.  However, two things have mitigated this problem, and they both require that you obtain a trademark on your company's name.

The first is 15 U.S.C. § 1125(d), which provides that in cases of bad faith cybersquatting on a trademarked name, damages can be obtained (up to $100,000 in statutory damages is available in the event that you cannot prove that much in actual damages).  Of course, the United States had strong free speech protection, and to the extent that the First Amendment continues to hold judicial sway, there is a free speech defense to such cases.  For example, if I register "NRApoliciesKILL.com" or "NRApoliciesRULE.com", and proceed to post a bunch of my opinions on gun control, no amount of trademark protection will overrule my right to express my opinions.  So fresnowidgetssucks.com is unlikely to trigger liability under the statute.

The second is the Uniform Domain Name Dispute Resolution Policy.   Under this policy, the owner of a trademark can strike back at cybersquatters without going to court.  There is an expedited administrative procedure that can give ownership of  domain names to a trademark holder in months.

Coleman & Horowitt attorneys have experience with domain name issues, and would be happy to help.  Perhaps more importantly, Coleman & Horowitt can help you get a registered trademark for your company's name, dramatically improving your chances of recovering domain name variants.  This way, if you own fresnowidgets.com, you can gain control of fresnowidgets.org and fresnowidgets.net from your non-trademark-protected competitor.
 

If a patent is expired, can it be used freely by everybody?

It is important to remember that a patent does not give anybody the right to do what the patent covers. For example, if I had a patent on a more effective delivery system for MDMA or LSD, having a patent doesn't change the fact that those drugs are considered Schedule 1 and illegal under almost every circumstance -- meaning that my delivery system couldn't be used even though I had a patent on it.

While a patent doesn't give the patentee the right to practice the invention, it does give them the right to sue people to stop them from using the invention (or to recover financial damages). The expiration of a patent simply means that the owner of that patent can no longer sue anybody for using the inventions claimed in the patent.

Those things together mean that the impact of expiration of a patent on the ability to freely copy what was patented is limited. Taking the game "monopoly" as an example, the game was initially covered by a patent, by copyright, and by trademark law (though it does seem likely that recent Supreme Court decisions may have rendered that game not patentable today). When the patent expired, the copyright and trademark in the game remained in place. So while a company could sell a game with the same game-play mechanics that were claimed in the patent without fear of being sued for infringing the patent, that company could still be sued if they violate the copyright to the game or call it "Monopoly".

The bottom line is that the expiration of a patent simply means that the patent is no longer in play (sometimes subject to revival for unintentional or unavoidable delay in paying maintenance fees). However, there are other intellectual property rights (copyright, trade secret, trademark, trade dress, state-level trademarks, rights of publicity, etc.) that can give rise to significant liability. The expiration of the patent will not impact those other rights. The mere expiration of a patent does not mean that anybody can freely practice everything in the patent until they are satisfied (preferably by a lawyer's opinion letter) that what they intend to do is (a) legal, and (b) does not violate any other IP rights.

The other thing about patents is that it is common for a single patent application to result in numerous patents. There is even a thing called a "terminal disclaimer" that is used when a second patent claims something not significantly different than the first patent. Because patent maintenance fees are expensive, infrequently a patent owner will allow one patent to go expired for non-payment of fees, counting on other patents in the family to cover the same material. You'll want to go to https://portal.uspto.gov/pair/PublicPair and look up the expired patent. First, make sure it is really expired. Second, check the "continuity" tab and see if there are other patents still in force (or pending applications) in that patent family.

Perhaps most importantly, you need to seek proper legal advice. A good IP lawyer should be able to walk you through it. It is tough to provide a firm answer in the abstract, and the facts specific to what you want to do will be critical in having a lawyer give you the right answer.

U.S. Supreme Court holds that a copyright claimant may not file infringement suit until the Copyright Office registers a copyright

Although an author automatically gains copyright protection for her work immediately upon the work’s creation, an author may not file an infringement action in court until “registration of the copyright has been made” in accordance with the Copyright Act. The Supreme Court was recently called upon to resolve a split amongst the circuit courts regarding when registration of a copyright is deemed made.

Some circuits held that a registration of a copyright is made as soon as the claimant delivers the required application, copies of the work, and fee to the Copyright Office; other circuits held that registration is made only after the Copyright Office reviews and registers the copyright. The Supreme Court in Fourth Estate v. Wall-Street.com,LLC resolved the split by holding that registration occurs, and a copyright claimant may commence an infringement suit, when the Copyright Office registers a copyright. The Court further held that, upon registration of the copyright, however, a copyright owner can recover for infringement that occurred both before and after registration.

Fourth Estate Public Benefit Corporation is an online news producer that licensed articles to Wall-Street.com, LLC, a news website. The license agreement required Wall-Street to remove from its website all content produced by Fourth Estate before canceling the agreement. Wall-Street canceled, but continued to display articles produced by Fourth Estate. Fourth Estate sued Wall-Street and its owner for copyright infringement. Because the Copyright Office had not yet acted on Fourth Estate’s registration applications, the District Court, on Wall-Street’s motion, dismissed the complaint. The Eleventh Circuit affirmed the dismissal.

The Supreme Court’s ruling of course has no effect on the statutory scheme that allows for preregistration infringement suits to be filed in limited circumstances. Claimants are still allowed to bring suits under those statutes, provided that they eventually make registration as required to maintain their suits.

The Court’s ruling in Fourth Street means that many copyright suits currently in progress are not ripe for adjudication and can likely be dismissed on motion. It is also important to note that, while the Court’s ruling allows claimants to sue for infringement occurring prior to registration, nothing provides for the tolling of the statute of limitations while the Copyright Office processes registration. With a three-year statute of limitations for copyright infringement, and an average application processing time of seven months, parties should not delay in getting their applications on file. 

Authored by:
Brandon Hamparzoomian

SCOTUS Finds An Inventor's Sale of Product to Third Party can Qualify as Prior Art 35 U.S.C. § 102(a)

In Helsinn Healthcare v. Teva Pharmaceuticals USA, the Court affirmed a Federal Circuit decision invalidating the patent for Helsinn=s nausea drug Aloxi, based on patent law=s Aon sale@ bar.  In short, the Court found that the sale of an invention to a third party who is obligated to keep the invention confidential by agreement may place the invention “on sale” for purposes of the Leahy‑Smith America Invents Act (AAIA@), which bars a person from obtaining a patent on an invention that was Ain public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.@  An exception to the on sale bar is made if a sale or offer to sell is made 1 year or less before the effective filing date of a claimed invention, and certain other conditions are met.  

The facts of the case are as follows.  While Helsinn was in development of a drug, which uses the active ingredient palonosetron to treat chemotherapy‑induced nausea and vomiting, it entered into two agreements with a third party, MGI Pharma, Inc., a license and supply and purchase agreement.  These agreements gave MGI the right to distribute, promote, market and sell two specific dosages of the palonosetron in the United States.  In exchange, MGI made up-front payments to Helsinn and agreed to future royalties on distribution.  Most importantly, the agreements required MGI to keep confidential any proprietary information regarding palonosetron.  The agreements were disclosed to the public in a joint press release and related filings with the SEC, but the specific dosage formulations covered by the agreements were not included in the disclosure.

On January 30, 2003, nearly two years later, Helsinn filed a patent application covering the two doses of palonosetron.  Over the next 10 years, it filed additional patent applications, all claiming priority to the January 30, 2003 date.  Years later, Teva Pharmaceuticals sought FDA approval to market a generic palonosetron at one of Helsinn=s dosages.  Helsinn brought suit claiming the product infringed its patent.  Teva argued that the fourth patent was invalid because the specific dose was Aon sale@ more than one year before Helsinn filed its initial patent application in 2003.  The District Court held that the “on sale” provision did not apply because the public disclosure of the agreements did not disclose the specific dosages.  The Federal Circuit court, however, reversed, and concluded that the sale was publicly disclosed, regardless of whether the details of the invention were publicly disclosed in the terms of the agreements.

            In a unanimous ruling, SCOTUS found that an inventor=s commercial sale of an invention to a third party invalidates the patent, even if the third party is obligated to keep the invention confidential due to the “on sale” bar.  The Court recognized that the pre-AIA statute included the “on sale” bar and noted the precedent that secret sales could invalidate a parent.  It then applied the presumption that Congress intended the same with the AIA, which includes the same “on sale” language.  Further, the Court found that the addition of the catchall phrase “or otherwise available to the public” is not enough of a change from the pre-AIA statute to conclude that Congress intended to alter the meaning of “on sale.”

The practical application and effect of this ruling is interesting to note.  On the one hand, a modest inventor can argue that upholding the Federal Circuit=s decision would discourage innovation in the biotech sector, particularly among small or start-up companies who lack resources to have their drugs developed and distributed in-house, as they frequently rely on third party investment and partnerships which can help with costs of further research and development. Third party investments and partnerships, however, subjects them to the “on sale” bar and can discourage them from engaging in time-consuming and costly research, because it causes them to lose the ability to receive patent protection.  Also, being forced to file costly patent applications for the sole purpose of avoiding future patentability issues will further discourage small businesses from entering the industry, especially when their invention has not been tested to be commercially viable.

On the other side, competitors can argue that the Aon sale@ bar is triggered only when the invention is at a stage when it is ready for patenting and sale, or when the inventor is ready to start making profits before patenting it, and thus, the Aon sale@ restriction is appropriate.  Further, a one-year grace period provided in the AIA is sufficient in which to assess commercial viability.

In any event, all inventors should be aware of the fact that this decision has vast implications for patent-holders in the United States as well as for investors intending to sell their invention pre-patent application.

Authored by:

Jennifer T. Poochigian

8 Mistakes Inventors Make With Patent Attorneys

Coleman & Horowitt is a proud sponsor of Valley Innovators, a company dedicated to the advancement of knowledge, mentorship and development of capital for startups.  As part of our sponsorship, attorneys from Coleman & Horowitt participate in podcasts, to provide useful information to entrepreneurs and start-up companies.  Gary Shuster, an inventor and Coleman & Horowitt attorney who offers consulting services to entrepreneurs and start-up companies, was recently featured on a Valley Innovators Podcast where he discussed common mistakes inventors make with their patent attorneys. 

The podcast may be found at:

https://soundcloud.com/valleyinnovators/8-mistakes-inventors-make-with-patent-attorneys-podcast-episode-4 

Practical Tips on Protecting Your Business from a Copyright Lawsuit

Have you ever uploaded an image from the internet and used it in your promotional brochure or found a perfect blog post and incorporated it into your own blog theme?  If the answer is yes, you may have inadvertently violated copyright law.

Copyright law, in a nutshell, protects any original creation, such as pictures, writings, creative efforts (dramatic, musical or choreographic works), computer software, architecture, etc., as well as any derivative work based on the original creation, by allowing the holder of the copyright exclusive control over who can reproduce, sell, disseminate or perform the protected work.  Names, phrases or slogans, facts, ideas, procedures and processes, etc., cannot receive copyright protection.

A copyright can be registered with the U.S. Copyright Office (which allows the holder certain advantages under the U.S. Copyright Act) but it is not required, as copyright automatically attaches once the work is created and fixed in a tangible form. In addition, copyright owners are not required to use the “©” symbol, even if there work is registered.  For these reasons, when you see an image or view a written work that has no distinguishing copyright marks, do not be fooled into thinking it is in the public domain and thus, free for any use.

Below are some tips that can help protect your start-up or existing business from the hassle and expense of a copyright infringement lawsuit:

1.  Do not take pictures or videos directly from the internet and use them for any purpose.  Just because a colorful, geometric design found through an internet search that would be perfect for your website lacks distinguishing copyright marks, does not mean it is in the public domain.  In fact, most images, pictures and/or videos on the internet are copyright protected.

2.  If you find a photo, art or video that you want to use on your website or printed materials, consider contacting the author and inquire whether you can use the work.  Many authors will permit you to post their picture or work with the stipulation that you reference the work’s origination.

3.  If you find something written on the internet that would be of good use in your promotional material, make sure to only take the general idea of the post and make sure you put the writing into your own words.

4.  Using someone’s work and providing a link back to the originator without express permission is still copyright infringement.  Implied permission is not sufficient so never assume permission has been given.

5.  Unless the work or image is expressly dedicated to the public domain, do not use it unless you obtain the owner’s permission.

Some electronic images may contain electronic “tags” that allow owners to track use of their copyright images. The owners of the images (or their attorneys) may then send a “cease and desist” letter to unauthorized users, demanding past and future licensing fees, and threatening litigation if the fees are not paid.  Unsuspecting small business owners who have downloaded images, believing them to be for public use, are often caught off-guard and incur expenses for which they have not budgeted and which may significantly impact their businesses.  Therefore, the guiding principal is, when in doubt, do not download.

If you receive a cease and desist letter for using an image or work that is purported to be copyright protected, contact an IP attorney to help you understand how best to proceed.  This will help you avoid costly litigation fees in defending the lawsuit from an overzealous plaintiff.

Authored by:

Jennifer T. Poochigian

Addendum added April 24, 2019: Be aware that even materials that can be used without paying may have licensing requirements.  The most common appears to be "attribution", meaning you use an image and credit the photographer. Failure to strictly comply with the licensing requirements can create liability or at least invite litigation that you will need to pay to defend.  Law professor Eric Goldman's blog discusses this further: https://blog.ericgoldman.org/archives/2019/04/photographer-sues-for-failure-to-provide-creative-commons-required-attribution-philpot-v-wos.htm

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