When Can You Go To Court Naked?

Apparently, if you are a trademark licensee it is okay to be naked in the Third Circuit Court of Appeals, but only if you've gone bankrupt. Not physically naked, but legally naked ... no problem. :-> I'm being sarcastic, of course, but I was rereading In re Exide, 607 F.3d 975 (June 1, 2010) the other day (yeah, I know, I should get out more) and I notice something that I hadn't before and thought I'd share it.

Exide was decided a couple of months ago and made a minor splash in the trademark licensing world for being one of a few cases to prevent a trademark licensor from rejecting a trademark license as an executory contract in a bankruptcy proceeding. In short, Exide Technologies sold its battery business to Enersys Delaware, Inc. back in 1991. As part of the deal, instead of selling the trademark, Exide granted a perpetual license to the trademark to Enersys. Here is what the trademark looks like:


In 2002, Exide went bankrupt. In the bankruptcy, Exide sought to reject the license as an executory contract to get the trademark back. In bankruptcy, a contract is considered "executory" (and therefore rejectable or "cancellable" by the debtor) if either party has substantial unperformed material obligations at the time the bankruptcy is filed. Exide argued that the license was executory because in contained three material unperformed obligations:

1) Use Restriction - Under the license, Enersys could not use the trademark outside the battery industry.

2) Quality Standards Requirements - Under the license, Enersys was apparently obligated to meet certain standards for battery products provided by Exide.

3) Indemnity & Further Assurances - Under the asset sale documents, Enersys had some indemnity obligations to Exide (which had expired in 1994) and had some "further assurances" obligations. "Further assurances" generally refers to savings clauses in a contract that, essentially requires the parties to do anything additional (that the parties may have overlooked or find out later that they need) in order to transfer the assets or otherwise complete the deal.

The court found that none of these were material and did not allow Exide to reject the license. But what got my attention was the quality standards requirement.

According to Enersys, under the license, Enersys was obligated to abide by the quality requirements set by Exide before the closing. Yet, no such standards were ever provided by Exide either before or after the closing and Exide never requested and Enersys never supplied samples. In its brief, Enersys argued that the this meant that Exide had waived the quality control requirement.

So here's the rub. Why didn't the court find that the license by Exide to Enersys was a naked license and deem the trademark abandoned? There is plenty of law on this point. The failure of a licensor to impose quality control requirements under a trademark license will result in a forfeiture of the trademark. Clearly, in this case, no such quality standards were actually imposed, either under the written agreement or in practice.

My guess is that the court did not deem the license "naked" and the trademark forfeited merely because that issue had not been presented by the litigants. Rather, the issue before the court was whether the license was executory, not whether it was naked. Nonetheless, with this ruling, it seems to me that Enersys could possibly cancel Exide's registration due to the naked license by asserting that Exide had thereby abandoned its rights in the mark altogether, not merely waived its quality control rights.

Although I'm sure its not that simple, and there are probably other facts, however, if I were Enersys, I'd be thinking about filing a cancellation action and a trademark application right about now.

Keyword Advertising Still at Issue in EU

The European Court of Justice (EJC) decided a new keyword advertising case last Thursday involving two competitors use of Google's Adword advertising. As it seems with all keyword cases, the result will seem shocking to some and perfectly appropriate to others.

The case (Portakabin vs. Primakabin) involved two sellers of mobile buildings. Make sure you read closely. The plaintiff's corporate name is PORTAkabin and the defendant's name is PRIMAkabin. Got it?

Now, when I read "mobile buildings," I think "trailers." While Portakabin does sell some trailer-like buildings, they also sell some fairly impressive modular buildings, like this:

As you may guess, Portakabin is a registered Benelux trademark of Portakabin, Ltd.

Primakabin, on the other hand, sells new and used mobile buildings as well, although, from their website, it does not appear that the buildings they sell are generally as elaborate as the one above. However, Primakabin does sell used PORTAKABIN brand buildings. Here is a screen shot from Primakabin's website showing used PORTAKABIN brand buildings for sale.



The trouble started when Primakabin started using the PORTAKABIN trademark as a Google Adword to drive traffic to Primakabin's website. When an end user searched on the word "Portakabin," Primakabin's ad was displayed. The header of the ad read "used portakabins."

The Amsterdam trial court judge found that Primakabin's use of the PORTAKABIN mark was not infringement. The Amsterdam appellate judge found just the opposite and held that Primakabin had to stop using PORTAKABIN in advertising and, it could not use PORTAKABIN as a keyword if the ad had a link to a website that offered competing products. As you can see, this is clearly an issue about which reasonable, well informed and educated people can disagree.

On appeal, the ECJ found that it was not trademark infringement. Here are some interesting things to note about the case.

First, Primakabin was not using the PORTAKABIN adword merely to drive traffic to Primakabin's website. Primakabin was (and does) in fact sell used PORTAKABIN brand products.

Second, Primakabin was using the PORTAKABIN word solely to describe and identify the source of origin of the used PORTAKABIN brand buildings that were for sale.

From these first two observations, in the US, we might have said that, in the absence of the use as a keyword, this looks like a fair use. While the ECJ court didn't use the phrase "fair use" it is clear that this was part of the rationale for their holding.

Third, from the trademark owners perspective, clearly the use of the PORTAKABIN trademark as a Google Adword was likely to trade off of the goodwill associated with the PORTAKABIN trademark and result in the use of the trademark to drive traffic to the competitor's website where other brands of competing products were sold. This issue clearly caught the attention of the Amsterdam appeals court judge. The ECJ, however, ruled that the fact that competing goods were being sold on the same website was not enough to stop Primakabin from being able to use the PORTAKABIN trademark as a keyword, unless the volume or quantity of such other competing goods could lead to tarnishment of the PORTAKABIN mark.

On the one hand, this seems reasonably fair for resellers of branded goods. On the other hand, however, it is hardly satisfying compensation to trademark owners who see their brand being used as bait to draw potential customers to buy competing products (even if some of their own products are included in the mix).

Finally, the ECJ evaluated whether there was a likelihood of confusion by referring to the hypothetical "normally informed and reasonably attentive Internet user." However, the court did not indicate that there was any empirical evidence as to the actual end user experience of such users with respect to this particular case. Rather, they seemed to simply intuit what such a user's experience would be. So there you have it. The standard for likelihood of confusion in keyword advertising cases in the EU is now whether the use of the keyword makes it difficult for the "normally informed and reasonably attentive Internet user" to distinguish the trademark owner's goods from other goods.

Somehow, I don't think we've heard the end of this issue in the EU.

Viva La Business Method Patent (sort of)?

While I know I don't usually write about patent issues, this one is too big to pass up. Today, the United States Supreme Court issued a long awaited patent decision on which the viability of business method patents hung in the balance. While there was technically no dissenting opinion, the decision was far from unanimous. In fact, the only thing that they all agreed on was that Mr. Bilski's invention was not patentable. Bilski v. Kapos, 561 U.S. ____ (2010).

Here are a few key holdings from the "opinion of the court:"

1. The term "process" under the Patent Act may include some methods of doing business.

2. The "machine-or-transformation" test is not the sole test for patentability. In other words, a process is patentable even if it is not tied to a machine and even it if doesn't transform something into something else.

3. Computer programs are not categorically unpatentable.

4. Abstract ideas are not patentable. Certain whole categories or classes of instructions on how to conduct business may be merely abstract ideas and not patentable.

Items 3 and 4 come from a portion of the opinion in which Justice Scalia did not join. So the weight of these portions of the opinion is on much less solid footing.

The absolutely key question raised by the case going forward is; "how do we determine what is an unpatentable abstract idea and what is a patentable process?" I suspect that this is a topic about which myriad scholars and pundits will write volumes for years to come. To some degree, the majority seems to have taken the "we know it when we see it" approach to determining whether the claimed invention in this case was merely an unpatentable abstract idea. In fact, they expressly declined to provide guide lines that would be helpful in distinguishing unpatentable abstract ideas from patentable processes. They simply said that based on three prior cases, the claimed invention looked like an abstract idea to them (apparently each and every member of the court agreed on this point) and so, therefore, it was not patentable. And there you have it.

So ... what we have for guidance are the three prior cases (referred to as Benson, Flook and Diehrand) and now, the Bilski case. According to the majority, then, here is the guidance that the business world has to go on.

Benson - mathematical algorithms are most likely (if not categorically) not patentable.

Flook - a invention which would not be patentable otherwise, is not made patentable merely because the patentability claim is limited to use within a particular technological environment.

Diehr - the application of a law of nature or mathematical formula (or an abstract idea, perhaps?) to a known structure or process may be patentable.

Bilski - mathematical formulas for hedging risk are non-patentable abstract ideas and claims applying them to a particular industry or market do not make them patentable.

Got it? I hope this clears everything up for everybody. :-> (sarcastic smile).

It is interesting (one might even go so far as to say moderately "helpful") that the court seemed to go out of its way to expressly address computer programs (i.e., software). The "opinion of the court" expressly says that computer programs may be patentable processes. Unfortunately, this portion of the majority opinion was not joined in by Justice Scalia and so, may actually represent only a minority view on the issue.

Now here is where it gets dicey. So far, I've been careful to couch what I've said by referring to the "opinion of the court." This is a term of art. While it generally refers to the majority opinion (and thus, the law of the land), in this case it is hard to tell, especially when it comes to the viability of the business method patent. Here is why.

As everyone knows, there are 9 justice on the US Supreme Court. In this case, the "opinion of the court" was joined in by 5 justices (with Justice Scalia declining to join in two key parts). There are also two other "concurring" opinions the first of which is joined by the remaining 4 justices (Breyer wrote an additional concurring opinion although he joined in the first concurring opinion). The main reason why the concurring opinions are "concurring" is because they all agree that Mr. Bilski's invention is not patentable. Where the concurring justices deviate from the majority justices is on the very issue that makes this case so important. Namely, the concurring justices disagree with the majority on the patentability of business methods. In fact, the "concurring" opinion expressly finds that business methods are not patentable. So, here's what we've got.

Roberts, Thomas, Kennedy & Alito (the "opinion of the court") - business methods are not categorically unpatentable and, thus, are potentially patentable.

Stevens, Ginsburg, Breyer & Sotomayor (the "concurring" opinion) - business methods are categorically unpatentable.

Scalia - Agrees generally with the opinion of the court, but declines to join in the portions that contemplate that:

(1) the law on patentability of inventions must evolve with technology;
(2) categorically denying patentability to business methods because they were not historically contemplated by the statute is problematic; and
(3) the unpatentability of abstract ideas is a useful tool in determining patentability.

Essentially, while this is a unanimous decision on the unpatentability of Mr. Bilski's invention, it is, at best, a 5-4 decision on the patentability of business methods. Query whether Justice Scalia could have been (or could be in the future) swayed over to the side of the concurring justices. If so, the decision (and the patent world) could have been completely different.

Now, as the world knows, Justice Stevens has announced that he is retiring. It will be interesting to see if this issue finds its way into the confirmation hearings for Supreme Court nominee, Elena Kagan. If Kagan is confirmed and if she believes that business methods should not be patentable, then it is more likely that another case will be brought on the same issue to see if Justice Scalia can be swayed.

Stay tuned. It ain't over yet.

A New Defense for Brand Owners Against Unwanted Key-Word Advertising

Just came back from the International Trademark Association (INTA) annual meeting in Boston. Being on the Key-word Advertising Working Group of the Internet Committee, I spent quite a bit of time talking to colleagues from around the world about issues surrounding key-word advertising. From these discussions (and some recent developments in the law), it dawned on me that there may be a new way for brand owners to defend themselves against unwanted key-word advertising.

By way of reminder, key-word advertising (in its most traditional sense) is a dynamic form of advertising where search engine's selling (and advertisers buying) the ability to have the advertiser's advertisement displayed automatically when an end user enters that key-word into the search engine.

There are at least two primary things that frustrate brand owners about key-word advertising. First, companies can purchase the brands of their competitors as key-words and thereby use their competitors' trademark (and arguably their good will) to divert Internet traffic to the competitor's website and divert potential buyers to the competitor's products. Second, search engines are making money using the brand owner's trademark.

One of the significant legal developments in the last year in this area is that the majority of US courts seem to have reached a consensus that a search engine's sale of a trademark as a key-word constitutes a use of the trademark in commerce. The unsettled issue is whether and under what circumstances, that use gives rise to a likelihood of confusion so as to constitute infringement. Reflecting on this, it occurred to me; what if a brand owner used its brand not only as its trademark for its goods, but also used its brand for its own key-word advertising?

Bear with me here. Suppose Widgco, Inc. sells widgets under the brand SPARROW. (What's a widget?). Now, ordinarily, a search engine could then sell SPARROW as a key-word to the highest bidder (e.g., perhaps Widgco's competitor). But what if Widgco also had its own search engine and used the word SPARROW as a key-word to trigger its own advertisements on its own search engine. Under the majority of current cases, this should constitute "use in commerce." As such, Widgco would be using the brand SPARROW not only for widgets, but would also be using the word SPARROW for the advertising service of providing the key-word to trigger advertising displays. Now imagine that Widgco registers its SPARROW brand for "advertising services, namely, use as a key-word to trigger advertising displays." Okay, I admit, the description could use some refining, but you get the point. It would potentially be problematic for any search engine that wanted to use the SPARROW brand as a key-word.

Anyone else think this might work as a good defense against use of a trademark by search engines as a keyword? How long do you think it will be before someone tries this out and brings the first case like this? Just a thought ...

Anonymous Internet Defamation

If you have any presence on the Internet, sooner or later you will have to cope with anonymous defamation. So ... what can you do about it? The first thing that everyone wants to know, of course, is the identity of the person who posted or emailed the defamatory statement anonymously. However, the First Amendment to the U.S. Constitution generally protects anonymous speech. A recent New Jersey Appellate Division case (A.Z. (a minor) and B.Z. (on behalf of A.Z., as parent) v. John Doe and Jane Doe, Docket No. A-5060-08T3 (App. Div. March 8, 2010)) laid out two key elements that are required to force someone (typically an Internet Service Provider) to divulge the identity of the anonymous person. As lawyers like to do, let's call the anonymous person "John Doe."

In a nutshell, there are two key requirements you must satisfy if you want to force an ISP to tell you John Doe's identity. First, you need to prove to the court that you have all of the elements necessary to prove your case for defamation. Second, you need to persuade the court that your need for John Doe's identity outweighs John Doe's First Amendment right of anonymous speech.

If you are like me, its easy to quickly get bored reading lengthy articulations of intricate facts of legal cases. So, I'll try to keep it short, but this one is worth reading. The case arose when Jane Doe sent an email to a faculty advisor of a high school honors club. The email attached photos allegedly taken from posts on FaceBook showing various students holding beer cans and bottles and a beer funnel and inhaling what appeared to be an illicit drug. In one of the photos, A.Z. (the plaintiff in the case) is allegedly depicted poised to toss a ping pong ball on a table containing several plastic cups and beer cans. The email also alleged that the students depicted were "breaking their contracts [with the school] and breaking the law." The email was then forwarded to the principal, the school superintendent and the police. The police ultimately chose not to prosecute.

The trial court was persuaded that A.Z. had established a prima facie case for defamation (the first requirement), but did not feel that A.Z.'s need for John Doe's identity outweighed John Doe's First Amendment right of anonymous speech (the second requirement). The appeals court disagreed and found that A.Z. had not established a prima facie case for defamation.

In order to establish a case for defamation, one needs to prove that: (1) the defendant made a defamatory statement of fact about the plaintiff, (2) the statement was false, (3) the statement was communicated to a third party, and (4) the defendant knew the statement was false or faild to exercise due care in ascertaining its truth or falsity. In this case, the appeals court was not persuaded that the defendant's statements (i.e., that the students depicted were "breaking their contracts [with the school] and breaking the law") were false. Oddly enough, according to the appeals court decision, A.Z. never provided any evidence that the statements were false; not even a sworn affidavit. Having found this, the appellate court did not bother analyzing the other factors.

Long story short ... if you want to find out who is defaming you on the internet, you had better be prepared to swear under oath that the defamatory statements are false.

To Defense Contractors, Al Frankin Amendment is No Laughing Matter

Prime contractors who want to be eligible for Department of Defense government contract awards will have to comply with a new law banning arbitration with employees for claims. Compliance with the new law will likely require defense contractors to review, revise and renegotiating existing agreements with many of their independent contractors and subcontractors. On December 19, 2009, President Obama signed a new spending bill into law which implemented this requirement. The amendment to the bill providing for the arbitration ban was originally offerred by Sen. Al Frankin (D- Miss).

Under the new law (Sec. 8118 of HR 3326 ), prime contractors under DOD contracts will have to agree not to "enter into any agreement with any of its employees or independent contractors that requires, as a condition of employment, that the employee or independent contractor agree to resolve through arbitration any claim under title VII of the Civil Rights Act of 1964 (prohibiting employer descrimination on the basis of race, color, religion, sex or national origin) or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention." The new law goes further to require that such prime contractors will also have to agree not to take any action to enforce any provision of an existing agreement which would require such arbitration. This provision applies only to government contracts in excess of $1,000,000 awarded more than 60 days after the effective date of the Act.

It is not entirely clear what is intended to be covered by phrase "independent contractors." Perhaps it is intended to cover temporary help staffing who are not technically employees. However, does it apply to subcontractors?

A second provision of the new law expressly deals with and uses the word "subcontractors." The fact that the new law uses the phrase "independent contractors" in one section and "subcontractors" in another, might suggest that the phrases were intended to apply to different groups of non-employee workers.

The second provision dealing with subcontractors requires the prime contractor to certify that it requires each "covered subcontractor" (a subcontractor with a subcontract in excess of $1,000,000) to abide by the first provision applicable to prime contractors. This second provision applies to contracts awarded more than 180 days after the effective date.

Prime contractors and subcontractor who have agreements with their employees, independent contractors or subcontractors which contain these types of arbitration provisions may very well have to revise their contracts. Contracts which have general arbitration provisions, will have to be revised to exclude these particular types of claims. This provision has already been construed to apply to all employees, not merely those working on the government contract.