Passage of Defend Trade Secrets Act Provides Silicon Valley Companies New Trade Secret Enforcement Tools
When Congress passed the Defend Trade Secrets Act last week, legislators significantly expanded the tools available to Silicon Valley companies for addressing acts of trade secret misappropriation. Previously, trade secrets law had been largely a matter of state law, and U.S. companies seeking to file a claim for trade secrets misappropriation had been limited to initiating a claim under the Uniform Trade Secrets Act, a uniform law adopted in all but two states. With the passage of the new federal law, U. S. companies will not have the right to file trade secret misappropriation claims under federal law in federal court, provided that the trade secret was related to a product or service used in or intended for use in interstate or foreign commerce. A copy of the text of the new law is available at the following link: https://www.congress.gov/bill/114th-congress/senate-bill/1890/text.
Obviously, the enactment of a federal trade secrets law alongside existing federal copyright, trademark and patent laws is a significant development that stands to broadly impact all Silicon valley companies. However, what will the specific impact of the law be, beyond just the fact that companies will now be able to file trade secret cases in federal court?
According to The National Law Review, a key impact that will arise as a result of the enactment of the new law is that that litigants will now have more certainty as to the potential outcome of a case brought under the federal law, whereas previously litigants had to deal with the uncertainty of potentially divergent rulings pursuant to fifty (50) state jurisdictions. The National Law Review also identified another benefit: the definition of what constitutes a trade secret under the federal law may be broader than the definition adopted by the Uniform Trade Secrets Act, so the federal law may provide protection to a wider range of information.
In addition, a new feature of the federal law enables courts to issue orders for the seize of property in extraordinary circumstances “to prevent the propagation or dissemination of the trade secret that is the subject of the action.” According to The National Law Review, this new tool goes beyond what state trade secret laws provided previously. The law provides that the test to grant such an order will be as follows:
(I) an order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure or another form of equitable relief would be inadequate. . . . because the party to which the order would be issued would evade, avoid, or otherwise not comply with such an order;
(II) an immediate and irreparable injury will occur if such seizure is not ordered;
(III) the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered of granting the application and substantially outweighs the harm to any third parties who may be harmed by such seizure;
(IV) the applicant is likely to succeed in showing that–
(aa) the information is a trade secret; and
(bb) the person against whom seizure would be ordered–
(AA) misappropriated the trade secret of the applicant by improper means; or
(BB) conspired to use improper means to misappropriate the trade secret of the applicant;
(V) the person against whom seizure would be ordered has actual possession of —
(aa) the trade secret; and
(bb) any property to be seize;
(VI) the application describes with reasonable particularity the matter to be seized and, to the extent reasonable under the circumstances, identifies the location where the matter is to be seized;
(VII) the person against whom seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person; and
(VIII) the applicant has not publicized the requested seizure.
Also unique to the federal law is a provision which protects whistleblowers and provides immunity from criminal or civil liability for confidential disclosure of a trade secret to the government or in a court filing if made “solely for the purpose of reporting or investigating a suspected violation of the law” or if “made in a complaint or other document filed in a lawsuit other other proceeding, if such filing is made under seal.” The federal law also specifically provides that an employee who files a lawsuit claiming retaliation by his or her employer for reporting a suspected violation of law may disclose the trade secret to his or her attorney and use the trade secret information in the court proceeding, providing the disclosure is made under seal and is not otherwise disclosed except pursuant to court order.
Employers should take note that they are now required to provide notice of this immunity in any contract or agreement with an employee that governs the use of a trade secret or other confidential information. Failure to comply with this requirement will preclude an employer from being awarded exemplary damages or attorneys fees against an employee to whom notice was not provided. Thus, employers should review employee agreements and make appropriate changes to address this new notice requirement.
The Defend Trade Secrets Act does not preempt state trade secret laws, so plaintiffs now have the choice of whether to pursue relief under a state or federal law. So, a key change arising from the passage of the legislation is that plaintiffs now have options.
How significant is this legislation? According to Professor Eric Goldman of Santa Clara University in his column for Forbes, it is the “single most important intellectual property development since Congress enacted the America Invents Act in 2011.” I suspect that many patent attorneys might disagree with his assertion, as there is a prevailing view among most Silicon Valley patent attorneys I know that the Supreme Court’s Alice Decision should be afforded that distinction. However, I would concur with Professor Goldman that this is at least the most significant intellectual property legislation enacted by Congress since the American Invents Act.
Certainly, Silicon Valley companies should be pleased that Congress has seen fit to enhance the previously existing tools in their arsenal to protect their sensitive corporate trade secrets from misappropriation. Trade secret misappropriation has always been perhaps the single biggest legal concern of all Silicon Valley companies, given the innovation coming out of Silicon Valley at any given time and the “migration” of employees from one Silicon Valley company to the next. The enactment of a federal law to address these concerns makes a powerful statement about the protection of trade secrets that was never before achieved to quite the same degree. That change alone is of huge significance to Silicon Valley.
Silicon Valley IP Licensing Law Blog Author Kristie Prinz to Speak at Upcoming Webinar on “Negotiating Software as a Service Contracts”
Silicon Valley IP Licensing Law Blog author Kristie Prinz has been invited to present a webinar on “Negotiating Software as a Service Contracts” for Clear Law Institute on May 6, 2016 at 10 a.m. PST/1 p.m. EST. For more information on the event or to register, please visit the Clear Law Institute website at http://clearlawinstitute.com/.
The Prinz Law Office has just launched a new meetup group on copyright law issues in conjunction with the High Tech Section of the Santa Clara County Bar Association. The new meetup group will be called: Copyright, Software, Internet & Social Media and the Law. The firm anticipates having in-person as well as remote access meetups, so if you have an interest in the subject, you are welcome to join wherever you are. The firm invites as well anyone who would live to contribute in any way to the group to communicate your interest: the firm will be seeking potential speakers, hosts, other involvement from the group, so please communicate any interest that you have in participating.
The link to the meetup is here: http://www.meetup.com/Copyright-Software-Internet-Social-Media-and-the-Law/.
Supreme Court Rules Patent Invalidity is Not a Defense to Induced Patent Infringement Claim in Commil USA Case Against Cisco Systems
The U.S. Supreme Court has issued an opinion today in the case of Commil USA v. Cisco Systems finding that patent invalidity is no defense to a claim of induced infringement.
In making its determination, the Court determined that infringement and invalidity appeared in two distinct parts of the Patent Act: the right to be free from infringement appeared in Part III of the Patent Act which addresses “Patents and Protection of Patent Rights” and what constitutes a valid patent appears in Part II of the Patent Act which addresses “Patentability of Inventions and Grants of Patents.” The Court also noted that noninfringement and invalidity are two separate defenses that can be raised independently of one another or together.
Also relevant to the Court’s decision was its determination that allowing the defense of patent invalidity would undermine the longstanding presumption that patents are “presumed valid,” since a defendant would be able to win an induced infringement case simply by proving that he or she held a reasonable belief that patent at issue was invalid.
The Court also cited “practical reasons not to create a defense based on a good-faith belief in invalidity,” noting that a defendant who believed that a patent that a patent holder was attempting to enforce against him was invalid was not left without recourse, and had the option of filing a declaratory judgment, seeking inter partes review of the patent at the Patent Trial and Appeal Board, seeking ex parte reexamination of the patent by the Patent and Trademark Office (the “PTO”), and even of raising the affirmative defense of patent invalidity. The majority deemed it relevant that a defendant would not be found liable for infringing an invalid patent.
Although acknowledging the truths that “an invalid patent cannot be infringed” and that “someone cannot be induced to infringe an invalid patent”, the majority still opined that the distinction is that “invalidity is not a defense to infringement; it is a defense to liability.”
In his dissenting opinion, Justice Scalia rejected the rationale of the majority, asserting that “Only valid patents confer this right to exclusivity. . . . It follows, as night the day, only valid patents can be infringed. To talk of infringing an invalid patent is to talk nonsense.”
Justice Scalia also dismissed the arguments of the majority as “unpersuasive.” Regarding the majority’s argument that the Patent Act treats infringement and validity as distinct issues, Justice Scalia asserted that this was “true” but “irrelevant.” Justice Scalia similarly dismissed the argument that the statutory presumption of validity would be diminished by finding a good faith belief in invalidity to be a defense to induced infringement, distinguishing avoidance of liability for a third party’s infringement of a valid patent from presumed validity of a valid patent. As to the Court’s assertion that “invalidity is not a defense to infringement, it is a defense to liability,” Justice Scalia opined that the statement itself is “an assertion, not an argument” and asked “How is it possible to interfere with rights that do not exist?” Finally, as to what Justice Scalia regards as the majority’s “weakest” argument–the practicality argument–Justice Scalia dismissed this majority argument on the strict interpretation grounds, asserting that the Court’s job is “to interpret the Patent Act” and to decide what it provides, obviously implying that this this is not what the majority did in this particular case.
What does this holding mean for Silicon Valley companies?
Well, I would argue that the ruling may have the effect of motivating more companies to challenge the validity of patents they believe to be invalid at an earlier stage than they’ve previously done, if there is any possibility that they could be deemed to be infringing. Also, the decision may prompt more companies to develop around weak but potentially problematic patents, where the companies might have not found a workaround previously. Finally, the ruling may have the effect of simply making the possibility of licensing a weak patent more attractive than it has been to date in cases where a company believes that a patent that it will potentially infringe is invalid.
In light of the very procedural “in the weeds” nature of the ruling, though, its most significant impact may be simply on how patent infringement litigation defense is conducted going forward, as the corporate calculations on how to deal with weak third party patents that could be enforced against them may not really change that much as a result of this ruling from what they were previously. Companies have long had to decide how to proceed with product development when a weak third party patent is identified that they potentially could be deemed to infringe, and the calculations of whether or not the patent invalidity defense will be available in light of an induced infringement claim may not have a significant impact on a company’s overall decisionmaking processes.
Lately many of my technology clients have been negotiating deals involving the purchase or sale intellectual property, so this Forbes story on choosing the right acquisition partner caught my attention. The author carried an interesting analogy about dating through the piece, and listed a number of considerations that a business should have before pursuing either side of an acquisition. I am in complete agreement with the author that parties should be cautious in pursuing these kinds of transactions before they decide to seriously engage in talks to close an IP deal. It has been my experience that parties are always extremely eager to close a deal while it is still “hot,” and they aren’t necessarily prepared for the issues that arise in the negotiation itself–and even less prepared for what comes afterwards.
Taking the marriage analogy one step further, one issue I have seen come up multiple times is simply the issue of cold feet. When you talk to the proposed partner, how committed does that party really seem to be about doing the deal? In the software/internet/technology space, it’s not unusual to see deals on the table with a company that is still being managed entirely by the original founder, where that founder has spent years of his life developing and growing precisely what the prospective partner is looking to acquire. While this founder may want at some level to “cash out,” is he or she really ready to give up control over what he or she has built? If the prospective partner starts calling the negotiations off, making take it or leave it demands, and engaging in other behavior suggesting that he or she might not be easy to close a deal with, you may very well have a situation where the party on the other side of the table is simply experiencing cold feet. Contrary to what many clients think, we attorneys cannot force anyone to close a transaction, or to be cooperative after the deal is closed. If your prospective partner is not ready to take the next step, it may be time to move on to the next candidate.
Another issue to consider is the quality of the intellectual property that is under consideration for purchase and the quality of the extent that the seller was truly prepared to do the deal. Is the seller truly prepared to do the transaction? It’s not unusual for clients to tell me as IP transactions counsel that they want to “keep it simple” and do minimal due diligence, but it’s not unusual at all to find if appropriate due diligence is conducted that the intellectual property at the heart of the deal being considered has not been properly protected–or even acquired. The copyrights may very well still be owned by the original developer rather than the company you are buying them from, the trademarks may never have been registered or a search even conducted, the patents may not have been filed by competent patent counsel, and the past agreements relating to the IP may have been drafted and negotiated by someone with minimal IP transactions legal expertise. So, it’s important to fully consider whether or not the IP is truly ready to be acquired, or if the seller needs to have some time to do some clean-up with the help of one or more IP lawyers? Is the buyer okay with purchasing assets that require significant clean-up and may have enforcement issues? Or is the buyer looking for a partner whose assets are in perfect shape?
Another issue: the financial considerations that go along with walking down the aisle, so to speak. You may have agreed to the price of the wedding, but are you really and truly in agreement on when and how the price will be paid? More often than not, serious disagreement arises over the structuring of whatever consideration has been agreed on. Sometimes this is because the prospective “suitor” really doesn’t have the cash necessary to pay the consideration agreed on, sometimes this is because the acquirer has particular tax requirements for the deal, and sometimes this is because the acquirer wants to procure certain services or other performance out of the founder before paying the bulk of the consideration. In a recent deal, there was even an issue with the non-cash consideration actually being transferable as agreed upon. Obviously, for both parties to walk away happy, they need to be walking away with what they are expecting to get out of the deal.
In my Silicon Valley industry niche, there is generally an expectation that the key IP developers are going to continue on with the acquirer after the big wedding date. In my experience, while the parties are almost always adamant before the deal closes that this type of ongoing relationship will go smoothly, it rarely does. In fact, in many cases the ink on the paper barely dries before the fighting and legal threats start. These problems are often foreseeable. If your visions for the business diverge and are in no way compatible, or if you have a strong aversion to one another or problems communicating before the deal closes, is it really going to work so smoothly after the money has been exchanged? Or are bigger headaches, stress, and tension in the partners’ future? Partners are rarely honest about their plans and expectations in the negotiation stage, which doesn’t do much to head off problems after the deal is closed.
The bottom line is that before you rush into closing an IP deal with a potential partner, it does make sense to conduct your due diligence on the partner just like you would do before rushing into making any other major life decision, so that you can make sure that it is really going to be the right fit, and to seriously consider the red flags that your IP deal counsel communicates to you before the deal is closed. I have seen my share of clients who regretted the “marriage” almost immediately after they walked down the aisle, which is never a good point from which to start a new “life” with a partner. The dating and marriage analogy are absolutely good frameworks by which to consider the compatibility of any two parties for moving forward.
Should You Follow the Advice of this Start-up if Approached with a Demand Letter by a So-Called ‘Patent Troll’?
Tech Crunch published an interesting commentary today written by Chris Hulls, Chief Executive Officer of Life360, in which Mr. Hulls shares his story of taking on a patent troll and urges other start-ups to do the same.
For those of you who are unfamiliar with the Life360 patent case, Ars Technica recently published an article on the case, which provided some additional background on Life360’s patent infringement fight against Advanced Ground Information Systems (“AGIS”). Apparently Life360 received a demand letter after closing a third round of funding for $50 million demanding that Life360 license the AGIS patents, and issued a rather colorful response to the demand letter, which fast-tracked the matter into court.
Mr. Hulls’ commentary is striking on a variety of levels. His story itself is unusual, as it is not everyday that you hear of start-ups making the gutsy move to fight a patent infringement case. Of course, even rarer is the occasion when a start-up makes such a decision and achieves a good outcome as a result of the fight. But beyond the facts themselves, Mr. Hull’s colorful language and editorializing of the case after the fact is noteworthy.
The advice itself that Mr. Hulls offers to start-ups can be summarized in three points: (a) publicly call out the “troll or predatory law firm”; (b) pool resources with other start-ups as a defensive strategy; and (c) commit to the fight without backing down.
While I think this particular story, as well as the takeaway advice provided by Mr. Hulls, merits discussion, and certainly should be viewed by patent holders who might fall in the category of constituting a ‘patent troll’ with concern, I would urge start-ups in Silicon Valley and elsewhere to be cautious in following in Mr. Hulls’ footsteps and adopting his advice in its entirety.
First of all, I will state the obvious: if you take on a fight like this, you need to have the money to finance it. While as a start-up, you may find it challenging to pay your attorney bill in normal circumstances, but if you decide to take on any litigation rather than resolving it via settlement, you will most likely incur far more significant legal bills than you will ever incur for any other type of legal matter. In the discussion after the Hulls’ editorial, Chris Hulls conceded that his legal bill in this matter exceeded $1 million. Many, if not most, start-ups simply do not have the resources to be able to finance $1 million or more in legal fees. Of course, even when they do, the investors may not be happy about their burning so much cash–and human resources–on a patent infringement battle that could have been settled.
Second of all, start-ups need to independently evaluate the facts and the legal risks of their particular dispute independently from what happened in Mr. Hulls’ case. Not every start-up who takes on this type of patent infringement battle will see a favorable outcome to their case, and start-ups should not automatically assume that they will get the same result if they take the same approach. Seek the counsel of an attorney you trust to advise you on the merits of your particular case, and make an educated decision as to how to proceed only after considering the advice you receive from your trusted counsel.
Third, I would urge start-ups to be cautious about launching a public campaign against a law firm or other third party, as you could easily create new legal problems for your company and yourself by what you say and do in that campaign. If you are going to take on any third party in the media as a start-up, you want to make sure that you are seeking both legal and public relations advice in conjunction with your strategy. You definitely are not going to win any friends by taking a campaign against a third party public, so it would be wise to think through your strategy with advisors who are in a position to guide you away from making major missteps in how you approach the campaign.
Having said all this, I agree that the pooling of resources can at times can be a very effective defensive strategy. Information is power, which is why larger companies have been known to pool resources with other companies in particular situations. There is no reason why start-ups should not take the same approach when appropriate. Of course, if your start-up shares information against its own interests, that could backfire, so some caution should be taken before adverse information is shared with any third party, even a fellow start-up. Also, being prepared to take a strong legal position when the facts are in your favor or the negotiation power is in your hands should be applauded, as start-ups traditionally have a hard time drawing lines in the sand not only against legal bullies but also just in deal negotiation generally.
So, my advice to start-ups reading about this case: be cautious in following in Mr. Hulls and Life360’s example. This case proves that the little guy can win a patent fight; however, this is a unique story with a highly unusual outcome, and start-ups would likely be wise to view this story in just that light.
Copyright Reform on the Table in Congress: Songwriter Equity Act of 2015 Introduced in the House of Representatives
Copyright reform is on the table again in Congress. A bill to amend the Copyright Act has just been introduced: the Songwriter Equity Act of 2015. The text of the bill is available at the attached link.
Surprisingly, the bill was introduced by Rep. Doug Collins from the 9th District of Georgia. While the Atlanta area is the home to a number of rap musicians, as an attorney who once practiced in Georgia before relocating to the Silicon Valley, I can say with some authority that Georgia is generally not a state in which you would expect to see copyright-focused legislation to protect songwriters introduced. However, what is perhaps far less surprising is that there is significant bipartisan support for the bill in the neighboring state of Tennessee, which of course is the home to the country music industry as well as a fairly significant part of the lesser known Christian music industry. The Tennessean reports that Senators Lamar Alexander and Bob Corker and Representatives Jim Cooper and Marsha Blackburn, both from the Nashville area but from opposite sides of the aisle, are all supporting the bill. Additionally, according to The Tennessean, the bill has the support of music industry associations such as ASCAP, BMI, and the National Music Publishers Association.
So, if you are wondering what argument bill supporters are making for copyright reform in this case, the argument is that the compensation paid to songwriters and music publishers for digital royalty payments as set by the copyright royalty board is too low and that they should be paid fair market value for the music they write. The argument is that performance artists are getting paid significantly higher royalties, but that the copyright royalty board is not currently permitted to take into account privately negotiated royalty deals for performance of the music when it sets royalty rates for digital distribution of the music, so the law needs to be changed to enable the copyright royalty board to set royalty rates based on what the music is actually worth in the marketplace.
While the principles behind the bill seem reasonable enough, the argument against bill is that reforming copyright law to address this issue will drive up the costs of doing business for online radio companies. The Tennessean addresses this issue in its recent article on the bill. But in my opinion, this argument is weak: if copyright law as written is establishing an artificially low cap on royalty rates that is not in line with the market value of the music, then the artificially low cap should be removed to allow the market to determine the rates. While Rep. Collins has argued in a recent interview with Billboard.com that this is a fairness issue, I would argue that it is really more of a free market issue, where one particular segment of our intellectual property system is not being permitted to commercialize its intellectual property rights to the same extent that other intellectual property holders are being able to do so.
Obviously, this issue is not getting much attention in the Silicon Valley, since our tech-focused community does not generally follow music industry issues, but with copyright reform on the table in the current Congress, perhaps Silicon Valley should be asking itself what other reforms should be introduced. I can certainly identify a few areas where the copyright system in existence seems out of sync with the realities of the market. What do you think? Is a broader overhaul of the U.S. copyright system needed?
A verdict was reached earlier this week in the copyright infringement case between Robin Thicke and Pharrell Williams and the children of Marvin Gaye, finding that the 2013 song “Blurred Lines” infringed on the copyright in Marvin Gaye’s 1977 song “Got to Give it Up.” Tech Times reported that Gaye’s children have been awarded $4 million in actual damages and $3.4 million in profits, and also provided links to postings of both songs on YouTube.com. According to The New York Times, the decision is one of the largest damage awards in a music copyright case, recalling the 1994 jury verdict for $5.4 million against Michael Bolton and Sony for infringing a 1960s song by the Isley Brothers.
If you have followed the commentary this week in the news on this case, much has been made of the detrimental precedent that this ruling is anticipated to set for the music industry. The fear articulated is that this will discourage artists in the future from creating music that recalls earlier musical eras. Joe Caramanica editorialized for The New York Times that the jury instructions in this case ordering the jury to base its decision on the copyrighted sheet music ” reflects how inadequate copyright law is when it comes to contemporary songwriting and production practices.” Hardeep Phull opined for The New York Post that “So it’s decided. Marvin Gaye owns a certain type of “feel”” and argued that ” [the] vast majority of pop music is based on the same chords, played much the same way, and at a similar speed.” The online publication Quartz warned that “the true cost” will be when an “unknown musical genius tries to create a new song that evokes a particular era, and is sued into oblivion” due to the fact that the new song “kind of sounds the same” as a song that was previously written.
The commentary following this ruling is not unlike the commentary voiced after rulings in copyright infringement cases where technology rather than music was at the heart of the debate, and commentators have warned about how a particular decision would hurt innovation and stifle creativity. The only distinction here is that we are dealing with music and not technology.
I would argue, however, there is a lesson to be learned in this case: when you are “lifting” the creative works of others, you should take the time and make the effort to procure a copyright license authorizing the planned use rather than attempting to circumvent the unlicensed use. L.A Now reported that ‘Blurred Lines’ generated $5.6 million for Thicke, $5.2 million for Williams, and $5-6 million for the record company. It seems to me that all three parties made quite enough off of the song in question to have been able to afford to pay copyright royalties on the infringing lines taken from the Marvin Gaye song. So, the question I have: why not negotiate the license? If they were truly ‘evoking an era’, doesn’t that mean that they had some idea in advance of the music which had inspired them?
Now, if you were to assert that the copyright office database is not as search-friendly as the USPTO databases are, then I would have to agree with you that there are definitely short-comings with the Copyright Office that make searching for prior registered works more challenging than you would ideally like it to be. The copyright search functionality currently available is minimal at best. However, I think that artists who are “inspired” by a particular genre or era of music should know enough about the genre or era that they are evoking to be able to identify potential infringement issues that need to be further researched, and that they–like all creators of creative works–should be held accountable when they use third party creative works without permission. The bottom line is that works appropriated from other works are merely derivative works of the original creative work, and only the author of the original creative work has the right to authorize the creation of the derivative
But even if the Marvin Gaye song was never the original work from which the new song derived, it seems to me that the smart play here would have been to immediately negotiate a backdated copyright license or settlement once Williams and Thicke were notified of the potential infringement. While a license or settlement would have cut into their profit margins, it is unlikely that it would have been for such a high amount as the damage award, and that the attorneys fees incurred would have been much lower. So, why make the decision not to pursue this strategy?
It seems clear to me that the take-away lesson from this case is that when creative works are similar enough to existing works to potentially be deemed to be infringing, creators should pursue copyright license agreements with the owners of the original works. The procurement of a copyright license can save creators a lot of headaches–and potentially money–down the road. I would argue that the cost should be viewed–not as an unnecessary expense to be avoided–but as a form of insurance against potential legal claims from the original work holder. Commercialization of older works through licensing can easily be a win-win for all sides of a negotiation. The fact that this matter was played out in a courtroom rather than over a negotiating table was a real oversight by Williams and Thicke.
Pitfalls in Negotiating and Drafting Exclusive Licensing Deals: Lessons from Macy’s Dispute with JcPenney’s Over its Martha Stewart Product Line
When a new client contacts me for assistance in negotiating a licensing deal, the client almost always informs me that the deal is going to be an exclusive licensing arrangement. However, when I engage the client further to tell me more about the proposed exclusivity deal, in most cases the proposed terms on the table are extremely murky and so convoluted that the exclusivity being extended is entirely subject to interpretation and often looks more like a nonexclusive relationship than the exclusive relationship that is supposedly intended.
A Forbes report on the latest developments in Macy’s ongoing case against JcPenney’s is a good reminder of why parties should exercise caution in entering into murky exclusive licensing contracts. In that case, Martha Stewart had entered into an exclusive licensing agreement in 2006 with Macy’s and then entered into a second exclusive licensing agreement in 2011 with JcPenney’s that attempted to work around the prior agreement with Macy’s. As might be expected. a dispute ensued and ended up in litigation, which continues four years later.
In general, I always encourage clients not to jump head-first into exclusive licensing deals because they will inevitably tie their hands with respect to limiting their ability to capitalize on future licensing opportunities, as clearly happened with Martha Stewart in its contract with Macy’s. However, clients tend to disregard this advice when they have a potential licensing deal on the table and proceed anyway, typically opting to limit the scope of exclusivity to the extent possible. Thus, I tend to see creative drafting proposed in such agreements with terms that are only understood by the two parties in discussions and not by anyone who is not directly involved in the negotiations. Obviously the danger in such arrangements is that the other side may conveniently decide at some point to “forget” the agreed upon interpretation and no one else will apply the same interpretation to the language previously agreed upon by the parties.
So, what are some lessons to take away from this dispute about licensing negotiations?
First of all, if you are looking to maximize the commercial licensing value of intellectual property that you own, stick to nonexclusive license negotiations and refrain from entertaining exclusive licensing offers. Exclusive licensing offers should have a higher price tag attached to them, but just because a potential licensee is pressuring you to make your licensing offer “exclusive” does not mean that you have to cave in to its demands.
Second of all, if you agree to offer an exclusive license, refrain from offering a worldwide license and limit the scope of the license by clearly defined geographic territories such as states or regions. Worldwide territories obviously leave open very little room for negotiation with third parties for other licensing rights. Besides, it may make more sense to test out the commercial success of a limited territory first with the licensee before expanding the licensee’s territory further.
Third of all, if you try to carve down the scope of exclusivity by something other than a geographic territory, define the scope by a clearly defined “field of use” such as an industry or specialty field. If whatever field you limit exclusivity to is not defined so clearly that any third party could pick up the contract and understand what is intended, then your field is not sufficiently clear. A well-drafted field of use clause will only have one easily understood interpretation and will not require further explanation by either you or the licensee to be understood.
Fourth, build in parameters to the license so that if the licensee is not meeting your revenue requirements, you can either terminate the agreement, or eliminate the exclusivity. If you are not making the money you expected to off the business arrangement, why be stuck in a long-term, unprofitable relationship? You are more likely to make bad decisions that get you into trouble if you are stuck in bad relationship that you cannot get out of than you would be if you had a limited arrangement that proved not to work out, since you will then have the ability to walk away from the unprofitable deal.
Fifth, consider limiting the period of exclusivity so that you can re-evaluate the scope of the relationship from time to time, and move on from a relationship that is not generating the revenues you were anticipating. If you have a fixed time when you can terminate an unprofitable relationship, this will allow you to jump ship and make you less inclined to try to circumvent an existing unprofitable licensing agreement.
Sixth, do not hesitate to buy a third party out of an agreement that is not working for you so that you can move on to an arrangement that is. When you enter into a bad deal, sometimes asking for a “divorce” is the best option. Indeed, putting some money on the table to buy your way out of the arrangement may make more sense than attempting to circumvent the existing deal, creating bad feelings with the existing licensee, and ultimately stumbling into an expensive litigation. If the relationship is not profitable for you, it is unlikely to be profitable for the licensee either, and a mutual agreement to part ways with a buy out attached may make more sense than continuing on in a relationship that is no longer beneficial for either party.
All in all, I think that the Macy’s dispute provides a good example of why intellectual property owners should proceed with caution when presented with exclusive licensing opportunities. While exclusive offers can be very tempting, the party receiving exclusivity generally has to pay dearly for that right and is going to be commercially inclined to defend its rights to preserve the exclusivity. The inclination to propose creative wording to carve out the scope of exclusivity is likely a good sign that you have reservations about the relationship that should probably prompt you to step back and reconsider whether a nonexclusive relationship is a better fit for your commercial needs than the exclusive relationship that has been proposed.
Given my Silicon Valley location, I often am consulted by entrepreneurs and start-ups who have just started a business and are seeking advice on how to protect their trademarks. However, more often than not, I quickly determine that the name that the entrepreneur or start-up has selected is a poor mark and my advice ends up being to think about changing the trademark immediately before the company gets further established and changing the mark becomes more difficult.
Why is it that this issue comes up so often? In all likelihood, it arises on a recurring basis because entrepreneurs starting a new business are so focused on other aspects of starting their company when they launch that they don’t give the choice of name the attention it merits.
To be honest, I am guilty of this as well. When I started my law firm after the collapse of my prior firm, I barely gave the issue of naming my law firm any consideration. As a result, I did what many lawyers do and just began using my last name as the name of the firm. More than a decade later, I am still in private practice and continue to build my Silicon Valley firm, have become somewhat marketing-savvy, and I frequently find myself wishing I could rebrand. However, in today’s world, the practical consequences of rebranding an established business are huge, since such a name change will affect your web presence, and in the case of a small firm that relies on its web presence to generate business, rebranding is a huge business risk that could have a tremendous upside or a huge downside. Also, there is the expense you will deal with in such a case of reprinting marketing materials, which can be very costly, depending on the extent of marketing materials, which have been printed for you. In my case, I made a significant investment early on in marketing materials which I might have reconsidered in retrospect. So, to date, I’ve done nothing but I continue having recurring thoughts of wishing I could easily facilitate a smart rebranding move. If only I could have been as business-savvy when I started my law firm as I now am more than a decade later. . . . but, as the familiar saying goes, hindsight is 20/20.
However, some entrepreneurs and start-ups end up selecting such a bad name initially that they have no choice but to rebrand, simply because at some point they retain a trademark attorney and realize that the mark they selected could be determined to be infringing another mark, or else because the owner of other mark holder sends them a cease and desist letter and actually threatens them with a lawsuit, and they realize that the most cost-effective and prudent manner of handling the situation is to simply rebrand and stop using the disputed trademark. While these entrepreneurs and start-ups have a different reason to rebrand, they often find themselves in the very same dilemma I find myself in: they realize that they will be essentially starting over with a clean slate on the web and they will lose whatever marketing foothold they’ve previously achieved on the Internet by erasing their existing web presence, which can often be very detrimental to an established business.
A perhaps even more common scenario for entrepreneurs and start-ups to find themselves in is to realize–not that they are using an infringing mark but that they are using a completely unprotectable mark. Generally, the entrepreneurs and start-ups in this situation will discover that their mark is descriptive or has some other deficiency which will render in unprotectable with the USPTO.
So, what can a savvy entrepreneur or start-up do to proactively avoid finding themselves in a trademark dilemma down the road?
First and foremost, when you choose a name for a new business you need to determine if there is any possible way that the name you have chosen could be deemed to infringe on another company’s business. While having a trademark attorney run some searches for you is ideal, you don’t need a trademark lawyer to make this determination. You can visit the USPTO.gov website yourself and search for your proposed business name and any possible variations of your business name to see what comes up. If your name is so unique that your search generates no similar names, then you can move on to searching any possible variations or other spellings of your name to see if anything comes up. If something does come up in the search then you want to look for names that are similar to yours that are in the same industry as you will be or offer products and services similar to yours. If you find any similar marks, then you may want to give some consideration to changing your name. Obviously unique names are generally a safer choice than a common name.
Second of all, when you choose a name for a new business you need to avoid descriptive names. By descriptive I mean names that are based in any way on what your business will be doing. The USPTO will generally not grant a trademark on a descriptive name. There is a natural tendency for many entrepreneurs or start-ups to adopt clever, descriptive names, but those names will generally not be protected as trademarks by the USPTO. While being descriptive is not the only reason a trademark can be refused, it is probably the most common reason for refusal after being confusingly similar to another mark.
Third, as soon as you have the resources to do it, you should probably file an intent to use application with the USPTO to reserve your name. If you can file before you actually launch, this is ideal, since you will then know if your mark can be granted before you actually start using the mark in interstate commerce. Intent to use applications are usually fairly easy to file, but you will need to set aside enough funds to cover the USPTO filing fee and any legal expenses you incur.
The USPTO has published some information intended for public viewing about choosing a strong mark, which may be helpful to you in selecting your name at the following website: http://www.uspto.gov/trademarks-getting-started/trademark-basics.
All in all, I would encourage anyone starting a business to give serious thought to the choice of name very early in the process of launching a business and not postpone all such name related issues to a later date, as the investment of time and money early on can save you from having to throw out thousands of dollars in marketing materials or re-establish an established web presence down the road. It is far easier to choose the right name when you launch than it is to rebrand years later, which will inevitably be a risky proposition, even if handled in an optimal marketing fashion.
I recently gave a webinar on Negotiating License Agreements with Start-Ups, and wanted to follow up on that program with some comments for Silicon Valley IP Licensing Law Blog readers on some of the challenges that companies may face when negotiating an IP licensing deal with a start-up.
In the years that I have worked as a tech transactions attorney in Silicon Valley, I have represented a large number of start-ups in negotiating deals with large companies, and I have found that there is a tendency of large companies to approach deals with start-ups with the expectation that the deal is going to be really easy to close due to the perceived imbalance of negotiating power between the two companies. While there is no question that this imbalance of power clearly exists in this type of negotiation, companies who approach these types of deals with the expectation that the negotiation is going to be a cakewalk may be setting themselves up for failure. The very act of entering into a negotiation with a start-up brings to the table a set of unique complications that must be dealt with by the company on the other side of the table.
One of the first issues that a company negotiating with a start-up must contend with is the fact that the start-up on the other side of the table is likely to have a very low tolerance for negotiation. While large companies enter into negotiations as a normal course of business, start-ups often have absolutely no experience with negotiation, which may even rise to the level of outright aversion to negotiation. In some cases this is because they are relying on friends and family with law degrees to advise them who have absolutely no experience in deal negotiation themselves. In other cases, they may have skilled counsel that they rely on but just are unwilling to allocate the necessary financial resources to procure the assistance. It may also be simply due to a lack of comfort with the negotiating process generally.
A second issue that a company negotiating with a start-up will have to overcome is the inexperience factor, which can have a huge impact on the negotiation process. In my role as IP transactions counsel, I often find that an important aspect of my job in working with a start-up involves educating the business on the business model and even the standard terms that would be found in the type of transaction they are negotiating. More often than not, I find that start-up clients have never been involved in a negotiation of the type of deal they are engaged in and that they have never even seen a well-written contract for such a transaction. The lack of familiarity with deal terms may prompt start-ups to negotiate deal terms that are not even appropriate for the type of deal they are doing, and to even remove deal terms from drafts that are essential to the type of transaction they are negotiating. For example, I ran into a situation recently where a client removed a license grant clause from a draft being negotiated in a licensing deal on the grounds that the other side would never agree to it. The inexperience factor often results in start-ups being unable to make decisions in a negotiating context, or reversing their position on critical negotiating points mid-way during the negotiation. It also is not unusual for them to be unsure about where they want to involve outside counsel in the negotiation, including him or her in non-essential conference calls with the other side and excluding outside counsel altogether on calls at key points in the negotiation.
A third issue that a company negotiating with a start-up will often have to address is its confusion over how to manage the negotiation process. It has been my experience that a start-up may put all its energy and focus in lining up the prospective deal partner to do the deal but then find itself unclear on how to proceed and get the deal closed. This uncertainty can put the party on the other side of the negotiating table in a bind, prompting the more sophisticated larger company to take charge of driving the negotiation if it serious about pursuing the deal. However, taking over the deal management role for a start-up you are negotiating with will not necessarily move the deal forward either, since critical negotiation steps may be trampled over in the interest of deal management, and the larger company may put a standard template on the table that has no semblance to the deal that the start-up was proposing to the larger company. To make matters worse, the start-up may then be advised by friends, family, or trusted advisors with no deal negotiating experience that they should just sign whatever the larger company puts in front of them, which often leaves the start-up even more confused and the deal at a complete stand-still.
Of course, there are a number of other issues that may come up in the start-up licensing deal negotiation, but the bottom-line is that they are far from “easy” deals to close and they inevitably present their own unique challenges. Does that mean that as a larger company you should shy away from these types of deals? Absolutely not. Most of the innovation in this country–and even the world–is coming out of start-ups who are uniquely able to nurture and develop new technologies and business models. The level of innovation that I see among the entrepreneurs I have the privilege of working with consistently amazes and inspires me. So, as a large company, it makes a tremendous amount of sense to look to start-ups for innovation and corporate growth. Having said this, in pursuing deals with start-ups, successful companies should approach negotiations with their eyes wide-open about some of the challenges they are likely to face in moving forward with the deals. Appreciating the considerations of the start-up can go a long way to getting your deals closed with early stage companies.
TechCrunch posted an article this afternoon written by attorney David Soofian, which caught my attention, addressing the issue of what to do as a young start-up if you are sued for patent infringement. In particular, the article addressed the challenges posed by so-called patent trolls, who use “weak patents to go after young tech startups” seeking licensing deals.
In the article, Soofian recommended that start-ups consider two key strategies to addressing patent suits.
First of all, if the patent at issue is on software, Soofian urged start-ups to challenge the eligibility of the patent, looking to recent court decisions in Ultramercial v. Hulu and Alice v. CLS Bank International for guidance.
Second of all, Soofian advised start-ups to pursue an Inter Partes Review at the Patent Office and to challenge the patent on grounds that it is not innovative and that it is obvious. Soofian explains that while this type of review was not traditionally available until a significant amount of expense had already been incurred in litigation proceedings, recent legislation has now made the proceeding more readily available to a start-up company with limited resources. Soofian identifies a number of advantages to pursuing this type of proceeding as a start-up over federal court proceedings such as the speed of the proceeding, the limited discovery required in such a proceeding, the fact that the burden of proof is lower, and most importantly, the fact that the court proceeding is stayed while the review occurs.
While Soofian’s article suggests that start-ups need not throw in the towel on their business efforts when they find themselves faced with the prospect of patent infringement litigation looming over them, as a transactional attorney who advises entrepreneurs and start-ups, I would caution businesses who receive demand letters–whether patent or otherwise–not to respond to those letters in a way that invites litigation. The mistake I often see many young start-ups and entrepreneurs make is that they either ignore demand letters altogether or they respond without the assistance of legal counsel and do it in such a way that is unhelpful to their position. In most cases, what is really in the best interests of the start-up is to make the claim go away as quickly as possible–not instigating a fight with the claimant.
As Soofian acknowledges in his article, most infringement demand letters are sent with the objective of procuring a license fee from the recipient, and in many cases, it is going to be far cheaper for the entrepreneur or start-up to settle the claim, whether legitimate or not, than to run up legal fees in litigation. While there is no question that so-called patent trolls and other bad actors may take advantage of this reality, the savvy demand letter recipient will conduct his or her due diligence of the available options and respond accordingly with the information in hand.
The bottom line: Soofian’s article should give hope to start-ups facing patent infringement disputes that will not necessarily run out of money and have to shut down simply because they have found themselves in a legal dispute. However, the savvy start-up will still deal with an intellectual property dispute in a timely fashion when it arises and try to resolve the problem long before it gets to the point of a filed complaint.
Trademark Commissioner Deborah Cohn was reported by The Washington Times to have announced her resignation today after allegations were reportedly made against her that she had violated nepotism laws. A Federal Times article from July provides some additional background on the reported scandal.
This particular Washington scandal has received virtually no coverage outside of the Beltway, so it was a little surprising to receive notices today that the Trademark Commissioner had resigned over a nepotism scandal.
If you are unfamiliar with the departing Trademark Commissioner, IP Watchdog published an interview of Commissioner Cohn in February, 2012, in which she indicated that her career with the Patent and Trademark Office began in 1983 as a trademark examiner, so she will have been with the agency for some 31 years when she steps down. (The second part of the interview is attached here). Commissioner Cohn was apparently not an appointee from the private sector but rather a career Patent and Trademark Office employee.
It is unfortunate to see yet another federal government agency affected by scandal, particularly the Patent and Trademark Office. With so many Washington scandals in the news right now, is it any wonder that many Americans have such a negative perception of the federal government? With all the tax dollars and fees that we Americans are sending to our government each year, wouldn’t it be nice if we could run our federal government a little more transparently and feel like so much of the money that we are sending them out of our pockets was not being misused? Washington D.C. sometimes seems a world away from Silicon Valley, and frequent scandals only increase that perception.
But the underlying story here is still just how very hard it is to land employment for many Americans–even lawyers. For those of us working, we sometimes forget. Perhaps this story would never have developed but for that reality. Who among us hasn’t been asked to do a favor for someone struggling to find work–or even perhaps asked for a favor ourselves?
All in all, this is not the kind of news you want to see come out of the Patent and Trademark Office. Or Washington.
Getty Images made news in the copyright world this week by filing a complaint against Microsoft Corporation in the Southern District of New York for “infringing and facilitating the massive infringement of [its] copyrights” through its release of the new Bing Image Widget service. To review the full complaint, click here.
The case is significant because Getty Images, one of the premiere content companies in the nation, has directly challenged Microsoft, which runs one of handful of web browser companies, over tools that it is making available to web developers to embed images in websites. In taking on one of the key players in the technology world, Getty Images obviously stands not only to potentially enjoin Microsoft from continuing to make this technology available but also to potentially create precedent that it no doubt hopes will discourage the continued development and adoption of similar digital technologies.
As anyone who works in the digital media and content industry today knows, embedding and framing third party content has increasingly become a very widely adopted practice on the Internet, and in many cases the content being embedded and framed has not been procured through any sort of license from the third party–it has simply been “captured” through a developer tool. I definitely have been receiving an increased number of client inquiries regarding various adaptions of this practice and where the lines are on permissible and impermissible uses of these technologies. Evidently, Getty Images is also watching how the industry is evolving and believes that it makes sense from a business standpoint to invest the legal resources into procuring further clarification on where the lines are as well.
While it’s too early to predict what will ultimately happen with this case, any precedent that comes out of the case could have an impact on how the digital media industry goes forward. So, it will definitely be a dispute to watch in the coming weeks.
Twitpic announced in a blog posting today that it will be shutting down on Sept. 25th over a trademark dispute with Twitter regarding the use of the name “twitpic.” Various media outlets have also covered the announcement such as Wall Street Journal and Time.
The reporting on this story has thus far not raised many questions over the rationale provided, but as an IP lawyer, it’s hard to believe that this was the real reason to close down the business. Twitpic has apparently existed for a number of years: it is hard to believe that the company would not have been advised years ago that it was never going to secure a trademark on the name “Twitpic” and that it would not have been warned that a trademark dispute with Twitter was in its future if it went forward with this particular trademark without working out a prior agreement with Twitter. Yet, according to the Wall Street Journal, the company had attempted to register this trademark three times. Really?
A quick search of the most recent trademark registration filing for “Twitpic” reveals that the examiner issued an office action on October 23, 2013, refusing the trademark registration for “likelihood of confusion.” In response, Twitpic filed a response to the office action, arguing that the trademark should be granted due to the execution of a coexistence agreement with Telly, Inc., which was executed by the parties April 22, 2014. The examiner then approved the registration for publication. At that point, Twitter filed the foreseeable opposition to the registration being granted.
Interestingly enough, the USPTO database reveals that in the prior two filings, the application never made it past the office action stage and thus never went to publication.
But it is hard to believe that the company never anticipated that Twitter would oppose the granting of the trademark if an application ever made it to the publication stage. Moreover, even if a trademark application had never been filed, it was almost inevitable that “Twitpic” would have to change its name sooner or later if the company survived long enough to generate revenue and get on Twitter’s radar screen.
So, one can’t help but wonder if the real story behind all the media buzz was more about money and less about Twitter itself. Could it be that the start-up had yet to come up with a successful revenue model and has thus just run out of money and was looking for a convenient excuse to close down? Neither the media reporting nor Twitpic itself has released any information about any trademark infringement litigation being initiated against the company. Thus, in all likelihood, simply dropping the trademark application and changing its name would have been sufficient to resolve its current legal issues with Twitter. I would imagine any outstanding issues with Twitter could then have been easily settled. But obviously, settling the issues with Twitter would not have resolved any underlying financial problems that existed with the company. Those would have remained. And perhaps the company would have been a little harder to find rebranded under a different name that was not so closely tied to Twitter. However, I would assume its customer base would still have been intact.
The bottom line: I think there is reason to suspect that the public explanation being reported on by the media is a convenient excuse for closing down rather than the full story. What do you think?
In case you missed the headlines late last year, freelance photographer Daniel Morel was awarded a $1.2 million damage verdict against Agence France-Presse (“AFP”) and Getty Images after it was found that they willfully infringed Mr. Morel’s photos of the 2010 earthquake in Haiti. The verdict caught my attention given the fact so many clients have received demand letters from Getty in recent years alleging copyright infringement of a Getty photo.
The case is noteworthy primarily because the maximum statutory penalty available under the Copyright Act was awarded by the jury. Also noteworthy were the facts of the case, which involved an initial Twitter posting of the photos and subsequent commercial media distribution of the same photos. See a report by Law 360 of the verdict here; and a report by Reuters of the verdict here. To see Daniel Morel’s website, where a transcript from the trial is posted, click here.
Several news outlets reportedly settled with the photographer for undisclosed amounts, but AFP and Getty went to the jury with the damages question, which in hindsight was probably not the best tactical move, given the outcome.
As you might expect, AFP and Getty have already filed an appeal in the case, arguing that the verdict “constitutes a miscarriage of justice.” See the appeal filing here.
It is hard not to see the irony in the circumstances of a company, who in my opinion, is an aggressive enforcer of copyrights in photos, now finding itself on the wrong side of a verdict against a photographer also enforcing his copyrights in photos. Moreover, it is ironic to see Getty raising outrage over the calculation of damages made by the jury, given the fact I often hear the same outrage voiced over the damage calculation Getty uses in its demand letters.
Clearly, this case serves as a cautionary tale to all who have ever taken photos off social media or the Internet and distributed them to third parties, or been tempted to do so. Also, it serves as a good reminder to respect the rights of photographers in their photos, as they perform a valuable service in getting the news and images out to the world in a crisis, and they deserve to be able to make a living for their work. Apparently even big media companies need to be reminded of this from time to time. I think the jury verdict in this case probably gave them quite the wake up-call.
The U.S. Supreme Court recently issued a decision in the licensing dispute case of Medtronic Inc. v. Mirowski Family Ventures, LLC, where the Court held that the patent owner had the burden of proving infringement when the licensee files a declaratory judgment action in a patent licensing dispute.
What are the facts in this case?
Medtronic was a sublicensee of a patent license between Mirowski and Eli Lilly. The original sublicense agreement provided that, upon receipt of a notice from Mirowski that a new Medtronic product infringed a Mirowski patent, Medtronic would have the choice of either accepting Mirowski’s claims and curing the nonpayment of royalties or challenging Mirowski’s claims by filing a declaratory judgment action while still paying the disputed royalties. A subsequent agreement amended this procedure, enabling Medtronic to accumulate disputed royalties in an escrow account in the event that it decided to challenge Mirowski’s claims and file a declaratory judgment action.
In 2007, Mirowski notified Medtronic that seven of its products violated two of its patents. Medtronic disputed the claims and filed for declaratory judgment in the Federal District Court in Delaware while continuing to pay the disputed royalties in an escrow account in accordance with the terms of the sublicense agreement.
The District Court found that Mirowski had not proved infringement but had the burden of proof to prove infringement. The case was appealed to the Court of Appeals for the Federal Circuit, which concluded that a different rule applied, and that the party seeking the declaratory judgment of noninfringement bore the burden of persuasion.
The Supreme Court held that the same rule applied whether the patent owner filed an infringement suit against the sublicensee or the sublicensee seeks a declaratory judgment after being accused of patent infringement by the patent owner: the patent owner must prove that the infringement exists.
From my perspective, the Supreme Court reached the right conclusion: the declaratory judgment procedure and escrow option was put in place to allow the sublicensee to challenge the patent owner’s claims while continuing to otherwise meet the terms of the license. The fact that the sublicensee disputed the patent owner’s claims should not have shifted the burden to the sublicensee to prove that it had not infringed–it is logical to expect that the patent owner should have to prove its claims of infringement.
What is the significance of this case? The Supreme Court has now resolved the uncertainty that existed over who bears the burden of proof in a declaratory judgment action in a patent licensing dispute. The elimination of uncertainty on this issue may prompt more patent licensees and sublicensees to take the step of challenging licensors’ interpretation of their patent licenses in lieu of paying the royalties demanded of them. In light of this development, licensors who become aware of royalty dispute with a patent licensee or sublicensee should consider the merits of taking a more proactive approach to seeking a commercial resolution of such a dispute with their licensee before the licensee decides to escalate the issue to filing for declaratory judgment. Moreover, this decision may impact the negotiating dynamic in situations where a patent owners seek to enforce its patent rights on a less than enthusiastic licensee, since a heavy-handed negotiating approach by the patent owner may be more likely now to prompt the licensee to file for declaratory judgment after the ink dries on a newly executed license agreement. Patent owners engaging in such licensing negotiations should perhaps give more consideration to reaching an agreement with the reluctant licensee that is not so one-sided that the licensee will feel compelled to challenge the agreement after its execution.
If you are in the marketing/advertising business, your success depends largely on coming up with innovative new ways to promote a customer’s product or event offering. Thus, when a milestone event arises in the sports, music, or film worlds, you may be inspired to try to capitalize on those events by tying your marketing efforts to the milestone event.
There is only one problem: the names and marks associated with those milestone events are likely protected trademarks. Thus, if you launch a marketing campaign without first procuring the necessary license from the trademark owner to use the trademarks, you will likely be the recipient of a stern cease and desist letter. . . .or worse.
What kinds of marks am I talking about? Marks surrounding awards events and sport events are just some of the major events that come to mind that likely have a number of registered trademarks protecting the use of the names. I recall, for example, not too long ago that a client came to me with a cease and desist letter regarding the alleged use of the word “Grammy” in conjunction with a publicized party. According to attorney Gonzalo Mon who recently wrote an article on this issue, he has clients contemplating the use of ring-based marks and reference-based marks to the Olympics right now, any of which could be problematic if the client is not an official sponsor of such event specifically authorized to use the marks in question. While I know from my own practice that marketing professionals have a tendency to grab and use third party marks without giving much consideration to whether or not they have the right to do so, and they often fly under the radar screen in engaging in such actions, it is not an advisable practice and it may catch a third party’s attention, particularly where the third party is charging a premium rate for the use of that mark.
So, as we come up on milestone events, if you are inspired with a great marketing or advertising idea, you should always assume that the marks surrounding such an event are going to be protected and engage in some research before making use of a event-related mark or mark that might be confusingly similar to an event-related mark. How do you confirm that this is the case? Well, a simple search of the USPTO database for the name of the event in question would be a good starting point for your research. While you can absolutely run a question like this by a trademark attorney, searching the USPTO database does not require legal credentials, and I encourage all my clients to learn how to run searches themselves, as it is an easy skill to learn as a non-lawyer. Typing in the word “Olympics” for example, brings up a long list of marks, and should alert you fairly quickly to the fact that there are in fact registered trademarks surrounding the event in question that you need to be aware of. The same type of search should work for other events.
Of course, even if there are no federal trademarks in place surrounding a particular event mark, there still may be common law rights in a trademark that you might be infringing on if you use the mark without first obtaining a license, so just because your search of the database is clear, does not mean that you are free to use a particular mark. Also, you should remember that the database only searches U.S. trademarks, so there are trademarks all around the world that potentially could be a problem if the mark in question may have a worldwide platform.
The bottom line is that you should be cautious in marketing around events to ensure that you stay clear of legal problems in conjunction with those events. The success you achieve with such a marketing campaign could easily backfire and result in legal woes that far outweigh any benefits you received from your marketing efforts.
Like many cable and satellite TV consumers these days, I have been closely following the new options on the market for streaming TV service and hoping that the day will soon come when I can significantly reduce my monthly subscription costs without cutting off my access to live TV. With the cost of living and working in Silicon Valley running so high already, expensive TV service is one of those expenses I just can’t help but resent each month, especially in light of the fact I have so little time to spend watching television programming anyway. So, when I happened to come across the start-up Aereo, their business model caught my attention, as you could access a number of channels with their service for a very low monthly price. I remember thinking to myself that it was only a matter of time before there would be litigation challenging the Aereo model. I did not have to wait long before that in fact happened. As you might expect, a group of broadcasters quickly filed for injunctions. They lost in cases filed against Aereo in New York and Boston, as well as in an appeal to the Second Circuit. However, they had more success in an injunction filed against an Aereo competitor, FilmOn, in the D.C. Circuit. Due to the split circuit decisions, the dispute has already made its way to the Supreme Court and will be heard later this year.
At issue is the question of whether or not Aereo’s service publicly performs copyrighted television programs Petitioners argue that the Aereo model “would seem to be an obvious copyright violation–an entire business model premised on a massive for-profit unauthorized exploitation of copyrights where competitors’ prices are undercut because they seek authorization and pay fees” and that “Aereo offers precisely the kind of service Congress sought to prohibit when it revised the Copyright Act to define public performance to include retransmissions of over-the-air broadcasts to the public.” The other side of the argument, which the Second Circuit Court of Appeals found compelling, is the argument that the Aereo model does not infringe Petitioners’ public performance right since the transmission under the Aereo model is to a single subscriber and therefore is not a public performance. In reaching this decision, the Second Circuit looked to prior precedent interpreting the public performance right and the transmit clause of the Copyright Act in Cartoon Network LP, LLLP v. CSC Holdings, Inc., 5369F.3d 121 (2d Cir. 2008), stating that in that case the same Court had found that “in determining whether a transmission is to the public, it is important to discern who is capable of receiving the performance being transmitted” and held that a transmission of a recorded program to an individual subscriber was not a public performance.
I don’t have much of a track record in predicting how the Supreme Court will rule on a particular case, but as a technology attorney, I am more persuaded by the Aereo argument than the broadcasters’ position. I think that given all the other relevant copyright decisions in this space over the years, there is reason to anticipate that the Supreme Court should decide in Aereo’s favor. Whether they will or not, however, is another question entirely.
Obviously, the Aereo model has the major networks concerned. It has been reported that CBS and Fox are already threatening to turn their broadcast channels into cable channels, asserting that they cannot afford to provide the type of content that they are currently providing from an advertiser-supported-only business model. Professional sports leagues such as the National Football League and Major League Baseball have been reported to have also threatened to move their high-profile broadcasts such as the Super Bowl and World Series to cable, and certain cable and satellite TV companies are already exploring building services to compete with Aereo.
With all the ways to view and consume content now on the market, it was almost inevitable that we would be seeing streaming TV companies emerge on the market and that there would be litigation in an attempt to put any of the more successful models out of business. I personally have been eager to see some changes in the marketplace on how I can access live TV programming, and I’ve been frustrated at the snail’s pace that such change has seemed to occur, as so many other new technologies flooded the marketplace. Without question, a decision in this case has the potential to disrupt and transform the broadcasting landscape as it now exists. Whether or not any such disruption will be beneficial to consumers remains to be seen. As an interested consumer, I am hopeful that any change in the television marketplace that arises because of Aereo will be for the better.
As an attorney who largely represents small businesses and entrepreneurs, I have often found myself in the tough position of explaining to someone with limited resources just how difficult it was going to be to go after an infringer. Either it is simply too cost-prohibitive to go after an infringer, or the client has the resources to pursue litigation, but the damage amount makes litigation difficult to justify.
Apparently the issue is getting some new consideration by Congress and the Copyright Office, as the Copyright Office has been asked by Congress to conduct a study to:
(1) assess the extent to which authors and other copyright owners are effectively prevented from seeking relief from infringements due to constraints in the current system; and
2) furnish specific recommendations, as appropriate, for changes in administrative, regulatory and statutory authority that will improve the adjudication of small copyright claims and thereby enable all copyright owners to more fully realize the promise of exclusive rights enshrined in our Constitution.
If you are a small business or an individual who has been faced with a small copyright claim matter and has any feedback on obstacles that you encountered in dealing with the matter, or if you have any thoughts on how the current system might be changed to better address copyright small claims matters, then the Copyright Office wants to hear from you. You should submit your comments to the Copyright Office by October 19th at the submission link.
I personally would like to see changes made to better address small copyright claims matters, because I think that most copyright infringement at this point in time goes unaddressed because so little can be done about it. I feel confident that many of you feel the same. If you have any thoughts to share on this issue, please take the time to write the Copyright Office and share those thoughts, and make certain you do it in time to meet the deadline.
Google has reached a settlement with several major American publishing companies, including but not limited to McGraw-Hill, Pearson Education and Penguin, John Wiley & Sons and Simon & Schuster in a copyright infringement case challenging Google’s decision to scan the book collections of many major universities. The Los Angeles Times is reporting that the settlement affirms the rights of copyright owners, who will now have the right to decide whether or not their books are scanned by Google. According to the Los Angeles Times, up to 20% of the content of any book included in the project will be viewable on the Internet. All other terms of the agreement are confidential. Attached is a copy of the press release issued by The Association of American Publishers.
The Authors Guild has also been involved with litigation against Google over the same issue, and the terms of that settlement may shed some light onto what might have been agreed to in the new settlement. A copy of original settlement agreement reached in that case is posted at the Author’s Guild website, as well as a full description of the litigation history. The current amended settlement terms from 2010 in that case are posted here, which as in the new decision, allowed for the removal of books from the scanning project but also provided revenue sharing terms for sales made by Google on the scanned content to third parties.
Google has just made a controversial announcement that it will now be factoring the number of “valid” DMCA notices that it receives on a particular website into how it ranks that website in its search results.
The Wall Street Journal reported:
Google’s move comes as Google itself is attempting to become a major seller and distributor of professional video and music content through a variety of services, from its YouTube video site to the Google Play online-media store to its pay-TV service in Kansas City, which required deals with cable-channel networks. It is pursuing such initiatives partly in a bid to compete with Apple Inc. and Amazon Inc. among other tech companies that distribute media.
As you might expect, the announcement has been met with controversy. Some observers are accusing Google of censorship, and others are accusing Google of caving into pressure exerted by the powerful recording industry and motion picture industry lobbies.
Those accusations are not exactly baseless, given the fact that Google itself reports that a high percentage of the removal requests each month are received from the recording industry and various media corporations, and certainly those groups are looking for removal results. Moreover, it is clear with Google’s purchase of YouTube and its development of Google Play that Google is looking to build a better media platform, and obviously the company is likely to meet less resistance in this space if it is seen as working with these companies rather than against them. Anyone who follows copyright legal developments knows that these lobbies are powerful and aggressive in going after alleged infringers, regardless of their size or financial resources, and it doesn’t require much of a leap to imagine how those same lobbies could utilize those resources to cause the “censorship” of such companies on the Internet.
I would argue, however, that Google’s new policy may be beneficial to many companies in Silicon Valley who simply do not have the resources to pursue infringers in a court of law but want to do something about the fact that their copyright is being infringed. I’ve represented many companies in recent years who have fallen into this category, and they are always very frustrated when I explain to them the limitations of a DMCA notice. They always want to more but just can’t afford it, and they usually hang up in disbelief that the U.S. system doesn’t better protect copyright owners.
Now, I’ll be able to suggest to those clients that they file a DMCA notice directly with Google before they throw in the towel on taking action against the infringer. Since what irritates such clients the most is having those infringers competing with them on the Internet, I think most clients will be very pleased with having a new tool in their arsenal against infringers.
So, all in all, while I agree with the concerns voiced by Internet observers and agree that the potential exists for abuse, I am on the whole pleased with this new Google policy development.
PayPal Launches New Internet Controversy over Decision to Censor Erotica Content Sold through Platform
PayPal has set off a new controversy on the Internet by advising e-book sellers that they must remove all erotica content off their websites or PayPal will stop doing business with them. In particular, PayPal is apparently concerned with content dealing with erotica fiction containing rape, incest, and bestiality, reported Technolog on MSNBC’s website.
According to a report by Tech Crunch, e-book publisher Smashwords received a notice from PayPal on Feb. 18th giving the publisher only a few days to achieve compliance with the “ultimatum.” In response to the Paypal demands, Smashwords has posted this press release on its website advising authors, publishers, and literary agents of the new Smashwords position.
Zdnet is reporting that AllRomance, Excessica and Bookstrand received similar notices.
As you might expect, the uproar over the Internet is on the fact that a payment processor is trying to “censor” obscene content sold over the Internet by third parties. The concern is over the slippery slope of censorship and how dangerous this is for society as a whole.
On the other hand, PayPal is definitely not the only payment processing option available over the Internet, so these e-book publishers do have other options besides working with Paypal. Moreover, PayPal is a privately owned company, and despite recent acts by the President and Congress to force particular behavior on privately owned companies, as far as I know, there are still laws in this country recognizing the right of privately owned companies to make their own decisions about how to run their businesses, including what customers to work with and what terms and conditions to operate under. We may be on a slippery slope of private companies losing their autonomy to make their own business decisions, but at the moment, we still live in a country where private companies have some autonomy to make their own individual decisions.
Furthermore, we still have obscenity laws in this country, which are local in nature. Can’t an international company like PayPal take the position that running payments to purchase obscenity would be a violation of the laws somewhere in this country?
According to many of dissenter voices over the Internet, the answer is a clear “no.” Constitutional rights to free speech are at risk when censorship is involved, say these dissenters.
In considering this issue, I must say that I am a strong proponent of free speech; however, at the same time, I personally see no value in this type of content, other than to law enforcement who might want to know who is reading it. I would contrast this type of content with pure adult pornography in the sense that it is actually depicting criminal activity against a non-consenting third party or a third party who is not capable of consenting, whereas pornography does not by its very nature depict something that is of a criminal nature. That puts this type of content, in my opinion, in a different category from mere obscene content.
I would also argue that companies like PayPal have the right to make business decisions based on their own conscience and morals, provided that those decisions do not violate any laws themselves. I worry about the direction our society is going in, if private companies are no longer the afforded the opportunity to make business decisions for themselves and the public good starts dictating private business behavior motivated by morality and conscience. Isn’t that how our society and other societies have gotten themselves in trouble in the past?
It will be interesting to see how this controversy develops. The Silicon Valley IP Licensing Law Blog will continue to follow the story and keep you posted on any new developments.
Apple’s trademark dispute with Proview is now being fought on two fronts: at the local level in China and here in Silicon Valley.
The Wall Street Journal is reporting that Proview has filed a lawsuit in Santa Clara County Superior Court claiming that Apple committed fraud when it used a company called IP Application Development Ltd., to purchase the iPad trademark from Proview on Dec. 23, 2009. According to The Wall Street Journal, there are emails in which a representative of IP Application Development told Proview “that it wanted to acquire the iPad name because it was an abbreviation of its company’s title, and that its future products wouldn’t compete with Proview’s products.”
Reuters is reporting that the strategy of filing now in the U.S. increases the likelihood that the dispute will disrupt Apple’s supply of iPads to China, and puts additional pressure on Apple to settle the matter quickly.
At the same time, Proview also likely needs this dispute resolved quickly, given its current financial situation. According to Reuters, Proview will be de-listed by the Hong Kong stock exchange this summer unless it comes up with a viable plan to deal with its debt. Going after Apple would appear to be its strategy for dealing with its current debt load.
As an outsider looking in on this dispute, it seems highly likely to me that a settlement in this matter will be reached at some point this year, since Apple stands to lose a significant amount of money in sales if its supply chain is disrupted and Proview is reported to be desperate for cash. The primary impediment to settlement is likely to be emerely the amount of money on the table, since Proview requires a certain amount of money as a business necessity to get out of its current financial problems and a settlement for less than that amount will not resolve its problems. Of course, if Proview is in such dire straits, Apple may be able to just drag out the dispute until Proview runs out of money; however, whether or not that makes sense as a legal strategy depends on how much money Apple is losing by not resolving the dispute. Thus, as with most things in business, reaching an agreement is all about the bottom-line.
What can be taken away from these recent developments in this dispute? Well, this story is full of lessons for Silicon Valley businesses, some of which I’ve raised in my prior blog posting regarding this matter. I think you can add to the list, though, tying up loose ends with your business before they cost you money. In my practice, I regularly work with start-ups who often neglect a long list of legal matters in their early years in order to keep expenses at a minimum, and they often what I would call “loose ends” that I identify for them as matters that might need to be “tied up” in order to avoid a dispute down the road. This is a good example of what can happen when a “loose end” for a business is left unaddressed–the other side can get into financial trouble and then the “loose end” may become a big headache for your business. When you identify loose ends, the temptation is always to let them slide because they aren’t a problem for you at the moment, but you have to weigh that preference against the cost that the price of tying up the loose end goes up down the road. It is unclear at the moment on the outside as to what extent this dispute developed out of a “loose end” or what the exact facts are in this dispute, but in my role in advising clients, many disputes often do evolve this way and this is certainly an example of what can happen when the stakes go up for the other side.