SCOTUS: For Patent Venue, Domestic Corporations ‘Reside’ Where Incorporated
By Charles A. Kertell, Counsel, Intellectual Property
Why it matters: On May 22, 2017, the Supreme Court issued its decision in TC Heartland LLC v. Kraft Foods Group Brands LLC—rejecting long-standing Federal Circuit precedent and re-establishing stricter venue requirements for patent infringement litigation involving a domestic corporate defendant. As a result, patent plaintiffs may now be precluded from filing suit against many domestic corporations in what are perceived to be “favorable” jurisdictions, most notably the Eastern District of Texas (where upward of 40% of patent cases have recently been filed).
Detailed discussion: On May 22, 2017, the Supreme Court held that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute, 28 U.S.C. §1400(b). As a result, many domestic corporations will no longer be subject to suit for patent infringement in remote jurisdictions (where they are not incorporated and do not have a “regular and established place of business”). Many patent plaintiffs, especially those that still want to file suit in the Eastern District of Texas and/or that want to avoid certain jurisdictions due to cost or other considerations, may also significantly alter their litigation strategy—including their choice of which defendant(s) to sue.
Statutory scheme and prior case law: The patent venue statute, 28 U.S.C. §1400(b), provides that a civil action for patent infringement may be brought: (1) in a judicial district where the defendant resides, or (2) where the defendant has committed acts of infringement and has a regular and established place of business.
In Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), the Supreme Court held that 28 U.S.C. §1400(b) was: (1) the sole and exclusive provision controlling venue in patent infringement actions, and (2) not supplemented or modified by any general venue provision. It therefore concluded that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute. In doing so, the Fourco court rejected the argument that 28 U.S.C. §1400(b) incorporated the broader definition of corporate “residence” contained in the general venue statute, 28 U.S.C. §1391(c).
Congress thereafter amended the general venue statute in 1988 to provide that “[f]or purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.” The Federal Circuit, in VE Holding Corp. v. Johnson Gas Appliance Co., 917 F.2d 1574 (Fed. Cir. 1990), found this amendment to contain “exact and classic language of incorporation.” It therefore determined that 28 U.S.C. §1391(c), as amended, redefined the meaning of the term “resides” in 28 U.S.C. §1400(b) (i.e., venue would be proper against a corporate defendant in any judicial district in which the defendant was subject to personal jurisdiction), as both provisions fell within the same chapter.
Following VE Holding, no new developments occurred until Congress adopted the current version of 28 U.S.C. §1391 in 2011. Section 1391(a) now provides that “[e]xcept as otherwise provided by law…this section shall govern the venue of all civil actions brought in district courts of the United States…” And 28 U.S.C. §1391(c)(2), in turn, provides that “[f]or all venue purposes,” certain entities, “whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question…”
Procedural History: TC Heartland LLC, an entity organized under Indiana law, was sued by Kraft Foods Group Brands LLC for patent infringement in the U.S. District Court for the District of Delaware. While TC Heartland shipped allegedly infringing products into Delaware (and was therefore subject to personal jurisdiction in Delaware), it was not registered to conduct business in Delaware. Nor did it have any meaningful local presence.
TC Heartland moved to dismiss the case or transfer venue to the Southern District of Indiana, arguing that venue was improper in Delaware. Citing Fourco’s holding that a corporation resides only in its state of incorporation for patent infringement suits, TC Heartland argued that it did not “reside” in Delaware under the first clause of the patent venue statute. It further argued that it had no “regular and established place of business” in Delaware under the second clause of 28 U.S.C. §1400(b).
The district court disagreed, finding that the 2011 amendments to 28 U.S.C. §1391 did not undo the Federal Circuit’s decision in VE Holding (i.e., venue was proper in Delaware, as TC Holding was subject to personal jurisdiction in Delaware). The Federal Circuit also subsequently denied TC Heartland’s petition for a writ of mandamus, concluding that the version of the patent venue statute construed in Fourco had effectively been amended…so that 28 U.S.C. §1391(c) now supplies the definition of “resides” in 28 U.S.C. §1400(b).
The Supreme Court decision: The Supreme Court reversed, holding that a domestic corporation “resides” only in its state of incorporation for purposes of the patent venue statute. The Court largely based its decision on two findings: (1) that Fourco was still controlling law (i.e., the patent venue statute had not been amended since that decision, and neither party had requested the Court to reconsider its earlier holding in that case), and (2) that Congress had not changed the meaning of 28 U.S.C. §1400(b) when it amended 28 U.S.C. §1391.
With respect to the latter, the Court specifically relied on the general proposition that Congress ordinarily provides a relatively clear indication of its intent to change the meaning of a statute in the text of the amended provision, as well as its observation that no such indication existed in 28 U.S.C. §1391. It also mentioned that there is now even less reason to read the provisions of the general venue statute into the patent venue statute than existed at the time of Fourco, as the current version of 28 U.S.C. §1391(a) expressly states that it does not apply when “otherwise provided by law.” Finally, the Court noted the lack of any indication that Congress, in 2011, had ratified the Federal Circuit’s decision in VE Holding (as Congress had, in fact, deleted the “under this chapter” language in 28 U.S.C. §1391(c) cited by the VE Holding court).
Limitations: Importantly, the Supreme Court expressly declined to address the effect, if any, of its decision on venue for: (1) foreign corporations, and (2) unincorporated entities. It also avoided any discussion concerning the scope of the second clause of the patent venue statute (i.e., a “regular and established place of business”)—a topic that has not been explored in detail since the Federal Circuit’s decision in VE Holding (and which many believe will become a source of intense litigation over the coming months and years).
Anticipated effects: As a result of TC Heartland, it is widely expected that the number of patent cases filed in certain judicial districts perceived to be “plaintiff-friendly” (most notably, the Eastern District of Texas) will likely decline, perhaps significantly, and that the number of patent cases filed in Delaware (a jurisdiction where many domestic entities are incorporated) will increase. A similar increase is also expected in jurisdictions where many domestic corporations have a “regular and established place of business” (e.g., California, New York, Illinois). Moreover, several commentators have suggested, given certain patent plaintiffs’ continued desire to sue in jurisdictions such as the Eastern District of Texas, that the number of cases filed against foreign corporations (which are not subject to TC Heartland) and domestic retailers (which have regular and established places of business throughout the country) will almost certainly increase—especially when the foreign corporation’s domestic subsidiary and/or the retailer’s supplier are not subject to suit in the plaintiff’s preferred jurisdiction.
Observations: While it is still early, lower courts appear to be applying TC Heartland retroactively, with several district courts requesting briefing on dismissal/transfer sua sponte. However, others have refused to dismiss/transfer pending cases (especially those filed months/years earlier), based on a finding that the defendant waived any objection to venue through its inaction. Also, as noted above, several district courts have already been asked to explore the outer boundaries of the second clause of the patent venue statute (i.e., a “regular and established place of business”).
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Supreme Court Embraces Doctrine of Patent Exhaustion
By Michelle A. Cooke, Co-Chair, Intellectual Property
Why it matters: On May 30, 2017, the Supreme Court in Impression Products, Inc. v. Lexmark International, Inc. again reversed the Federal Circuit and wholeheartedly embraced a mandatory doctrine of patent exhaustion for both domestic sales (even those subject to resale restrictions) and foreign sales of patented products because, as the Court said, “when an item passes into commerce, it should not be shaded by a legal cloud on title as it moves through the marketplace.”
Detailed discussion: On May 30, 2017, the Supreme Court again reversed the Federal Circuit and held in Impression Products, Inc. v. Lexmark International, Inc. that when a patent holder sells a patented product, the sale exhausts all of holder’s patent rights in that product, regardless of any resale restrictions that the patentee imposes or whether the sale is made domestically or abroad.
Factual and procedural background: Briefly, Lexmark International Inc. makes and sells patented toner cartridges for its laser printers. This case involved two groups of Lexmark patented cartridges: those sold by Lexmark outside the United States (i.e., in foreign markets) and those sold domestically within the United States at a discounted rate, which are subject to express single-use/no-resale restrictions through Lexmark’s “Return Program.”
Impression Products Inc. acquired Lexmark patented cartridges from both groups and (1) with respect to those purchased domestically that were subject to the resale restrictions, had a third party physically modify them and then resold them in the United States, and (2) with respect to those purchased abroad, imported them and resold them in the United States. Lexmark sued Impression in federal district court for patent infringement. The district court granted Impression’s motion to dismiss with respect to the Lexmark cartridges purchased domestically, but found in favor of Lexmark with respect to the cartridges purchased in the foreign markets.
Both parties appealed to the Federal Circuit, which, sua sponte, requested en banc review of the doctrine of patent exhaustion. After briefing and oral argument, the Federal Circuit found for Lexmark with respect to both groups of cartridges. As to the cartridges that were sold domestically subject to the resale restrictions, the Federal Circuit held that a patentee can sell a product and still retain the right to sue for patent infringement (that is, its patent rights would not be exhausted) if, as in this case, the post-sale restrictions are clearly communicated and lawful. As to the cartridges that Lexmark sold in the foreign markets, the Federal Circuit held that foreign sales do not exhaust patent rights (see our detailed discussion of the Federal Circuit’s en banc opinion in our April 2016 newsletter under “The Federal Circuit Rules, En Banc, That Patents Are Not ‘Exhausted’ by Foreign or Single-Use Sales”). Impression filed a petition for writ of certiorari with the Supreme Court, which agreed to review the issues and heard oral argument on March 21, 2017.
The Supreme Court decision: In the majority opinion written by Chief Justice John Roberts, the Court reversed the Federal Circuit and held that “a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.” Justice Ruth Bader Ginsburg concurred in part and dissented in part.
At the outset of its opinion, the Court said that the case “presents two questions about the scope of the patent exhaustion doctrine: First, whether a patentee that sells an item under an express restriction on the purchaser’s right to reuse or resell the product may enforce that restriction through an infringement lawsuit. And second, whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply.”
The Court answered both questions in the negative. With respect to the Lexmark cartridges sold domestically that were subject to the resale restrictions, the Court held that “Lexmark exhausted its patent rights in these cartridges the moment it sold them. The single-use/no-resale restrictions in Lexmark’s contracts with customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.” The Court said that the “Federal Circuit reached a different result largely because it got off on the wrong foot” in its analysis. After reviewing the “long” line of Supreme Court precedent interpreting the “well-established” common-law doctrine of patent exhaustion, the Court concluded that:
“this well-settled line of precedent allows for only one answer: Lexmark cannot bring a patent infringement suit against Impression Products to enforce the single-use/no-resale provision accompanying its Return Program cartridges. Once sold, the Return Program cartridges passed outside of the patent monopoly, and whatever rights Lexmark retained are a matter of the contracts with its purchasers, not the patent law.”
With respect to the Lexmark cartridges that Impression purchased in the foreign markets and imported and resold in the United States, the Court held that “[a]n authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act.”
The Court roundly rejected Lexmark’s “territorial limits” argument that, as the Patent Act has no extraterrestrial reach, a patent holder gives up the “exclusionary premium” it is able to charge when selling in the United States and thus the exhaustion doctrine should not apply to foreign sales. In this context, the Court equated the patent exhaustion doctrine to the “first sale” doctrine in copyright law, noting that the Court held in the 2013 case of Kirtsaeng v. John Wiley & Sons, Inc. that the first sale doctrine applied equally to the authorized sale of copyrighted works made and sold abroad. The Court said that:
“[a]pplying patent exhaustion to foreign sales is just as straightforward. Patent exhaustion, too, has its roots in the antipathy toward restraints on alienation…and nothing in the text or history of the Patent Act shows that Congress intended to confine that borderless common law principle to domestic sales. In fact, Congress has not altered patent exhaustion at all; it remains an unwritten limit on the scope of the patentee’s monopoly.”
The Court concluded its opinion thusly:
“Exhaustion does not arise because of the parties’ expectations about how sales transfer patent rights. More is at stake when it comes to patents than simply the dealings between the parties, which can be addressed through contract law. Instead, exhaustion occurs because, in a sale, the patentee elects to give up title to an item in exchange for payment. Allowing patent rights to stick remora-like to that item as it flows through the market would violate the principle against restraints on alienation. Exhaustion does not depend on whether the patentee receives a premium for selling in the United States, or the type of rights that buyers expect to receive. As a result, restrictions and location are irrelevant; what matters is the patentee’s decision to make a sale.”
Justice Ginsburg concurred with the Court’s opinion regarding domestic exhaustion, but dissented from the Court’s opinion regarding international exhaustion, stating that:
“[a] foreign sale, I would hold, does not exhaust a U.S. inventor’s U.S. patent rights… Because a sale abroad operates independently of the U.S. patent system, it makes little sense to say that such a sale exhausts an inventor’s U.S. patent rights. U.S. patent protection accompanies none of a U.S. patentee’s sales abroad—a competitor could sell the same patented product abroad with no U.S.-patent-law consequence. Accordingly, the foreign sale should not diminish the protections of U.S. law in the United States.”
Justice Ginsburg noted that to the extent the majority relied on the Court’s decision in Kirtsaeng regarding the “first sale” doctrine applying to copyrighted works made and sold abroad, she had dissented from that opinion too, based on the same reasoning.
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Supreme Court: Trademark Disparagement Clause Violates First Amendment
By Michelle A. Cooke, Co-Chair, Intellectual Property
Why it matters: On June 19, 2017, the Supreme Court held in Matal v. Tam that Section 2(a) of the Lanham (Trademark) Act—commonly known as the “disparagement clause”—violates the First Amendment.
Detailed discussion: On June 19, 2017, the Supreme Court held in Matal v. Tam that Section 2(a) of the Lanham (Trademark) Act violates the First Amendment. Section 2(a), commonly known as the “disparagement clause,” reads in relevant part that “[n]o trademark shall be refused registration…on account of its nature unless it…[c]onsists of…matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.”
Factual background and procedural history: We last discussed the Tam case in depth in our June 2016 newsletter under “Supreme Court Asked to Weigh-In on ‘Disparaging’ Trademarks Issue.” Briefly, the underlying case involved an individual named Simon Shiao Tam (Tam), an activist and the frontman for an Oregon-based rock band, who had been attempting to register the trademark “The Slants” (the band’s proposed name) with the U.S. Patent and Trademark Office (PTO) since 2011. Tam’s stated reason in the trademark application for wanting to name his band “The Slants” was “to ‘reclaim’ and ‘take ownership’ of Asian stereotypes.” Citing Section 2(a) of the Lanham Act, the examiner refused to register the mark because he found it “disparaging to people of Asian descent” and felt that “a substantial composite” of Asians would find the mark offensive. The Trademark Trial and Appeal Board (TTAB) affirmed, and Tam appealed to the Federal Circuit.
The Federal Circuit also initially affirmed, but then sua sponte called for en banc review of the constitutionality issue. In December 2015, the en banc panel reversed, vacating and remanding the case back to the TTAB, holding that:
“[t]he government cannot refuse to register disparaging marks because it disapproves of the expressive messages conveyed by the marks. It cannot refuse to register marks because it concludes that such marks will be disparaging to others. The government regulation at issue amounts to viewpoint discrimination, and under the strict scrutiny review appropriate for government regulation of message or viewpoint, we conclude that the disparagement proscription of § 2(a) is unconstitutional.”
The PTO filed a petition for writ of certiorari with the Supreme Court in April 2016, which agreed to consider the issue and heard oral argument on Jan. 18, 2017.
Supreme Court opinion: In a unanimous opinion written by Justice Samuel Alito, the Court affirmed the Federal Circuit’s ruling and held that the Section 2(a) disparagement clause “violates the Free Speech Clause of the First Amendment” because it “offends a bedrock First Amendment principle: Speech may not be banned on the ground that it expresses ideas that offend.”
In reaching this holding, the Court considered and rejected arguments raised by the PTO “that would either eliminate any First Amendment protection or result in highly permissive rational-basis review.”
The first of these arguments was the PTO’s contention that “trademarks are government speech, not private speech,” and thus not subject to the restrictions that the First Amendment puts on private speech. The Court rejected this argument, stating that the PTO does not “dream up” the proposed trademarks, nor does it edit the ones that are submitted for registration. The PTO examiner only registers or, if a proposed trademark falls within one of the statutory exceptions, refuses to register the trademark, and it is thus “far-fetched to suggest that the content of a registered mark is government speech.” In addition, the Court said that the mere registration of a mark does not convert the mark into government speech (if it did, “the Federal Government is babbling prodigiously and incoherently”). Moreover, the Court said that “[t]he PTO has made it clear that registration does not constitute approval of a mark.” The Court concluded on this point that “[h]olding that the registration of a trademark converts the mark into government speech would constitute a huge and dangerous extension of the government-speech doctrine” and thus “[t]rademarks are private, not government, speech.”
The second argument put forth by the PTO was that “trademarks are a form of government subsidy,” pointing to Supreme Court precedent upholding the constitutionality of government programs that subsidized speech expressing a particular viewpoint. The Court rejected this argument as well, stating that it brought up a “notoriously tricky” question of constitutional law, but the Court had no difficulty distinguishing the cases cited by the PTO from the one before it.
The Court next considered and rejected the PTO’s third argument that “the constitutionality of the disparagement clause should be tested under a new ‘government-program’ doctrine” because “the disparagement clause cannot be saved by analyzing it as a type of government program in which some content- and speaker-based restrictions are permitted.”
Finally, the Court addressed the PTO’s argument that “trademarks are commercial speech and are thus subject to the relaxed scrutiny.” The Court rejected this argument, stating that, even if that were the case, the disparagement clause could not withstand the relaxed scrutiny afforded commercial speech because it is not “narrowly drawn” nor does it serve a “substantial interest.” The Court concluded, “If affixing the commercial label permits the suppression of any speech that may lead to political or social ‘volatility,’ free speech would be endangered.”
Justice Anthony Kennedy (joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan) authored a separate concurrence in which he explained “in greater detail why the First Amendment’s protections against viewpoint discrimination apply to the trademark here” and “render unnecessary any extended treatment” of the other arguments raised by the parties:
“A law that can be directed against speech found offensive to some portion of the public can be turned against minority and dissenting views to the detriment of all. The First Amendment does not entrust that power to the government’s benevolence. Instead, our reliance must be on the substantial safeguards of free and open discussion in a democratic society.”
All eyes presumably now turn to Pro-Football, Inc. v. Blackhorse, the long-running litigation involving the cancellation by the TTAB and lower court of the six REDSKINS marks in reliance on the disparagement clause, the latest iteration of which had been put on hold in the Fourth Circuit pending resolution of the Tam case by the Supreme Court. The owners of the REDSKINS marks have been claiming victory and are assuming that the Tam case ensures that the Fourth Circuit will reinstate their marks. We will keep an eye on this litigation and report back.
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Ninth Circuit: No ‘Genericide’ for Google Trademark
By Michelle A. Cooke, Co-Chair, Intellectual Property
Why it matters: On May 16, 2017, the Ninth Circuit in Elliott v. Google, Inc. shot down claims that the “GOOGLE” trademark should be canceled for “genericide” based on the argument that the public had appropriated it and generically used it to describe the act of searching the Internet (e.g., “I’ll google it”). The court found that a claim for trademark cancellation based on genericide must be made with respect to a specific type of good or service and not to “the act” of doing something. Furthermore, the court rejected the argument that the use of a trademark as a verb (as opposed to as an adjective) automatically constitutes generic use.
Detailed discussion: On May 16, 2017, the Ninth Circuit in Elliott v. Google, Inc. affirmed a district court ruling on summary judgment that the plaintiffs seeking to cancel the “GOOGLE” trademark for “genericide” had failed to create sufficient triable issues of fact to support their argument that the public had appropriated “google” and generically used it to describe the act of searching the Internet (e.g., “I’ll google it”). The court found that a claim for trademark cancellation based on genericide must be made with respect to a specific type of good or service and not to “the act” of doing something. Furthermore, the court rejected the argument that the use of a trademark as a verb (as opposed to as an adjective) automatically constitutes generic use.
Factual and procedural background: To briefly summarize the facts of the case, over the course of 10 days in early 2012, an individual named Chris Gillespie used a domain name registrar to acquire 763 domain names that paired the word “google” with another specific brand, person or product (such as“googledisney.com,” “googlebarackobama.net” and “googlenewtvs.com”). Google Inc. (Google) promptly objected and filed a complaint with the National Arbitration Forum (NAF), which has the authority to decide certain domain name disputes. Google argued that the use of its name constituted “domain name infringement” or “cybersquatting” in that the domain names were “confusingly similar” to the “GOOGLE” trademark and were registered in bad faith. NAF agreed and transferred the disputed domain names to Google in May 2012.
Shortly thereafter, another individual named David Elliott joined Gillespie (the two hereafter referred to as “Elliott”) in a lawsuit filed in Arizona district court that petitioned for cancellation of the “GOOGLE” trademark under the Lanham Act because it had become “generic”; specifically, Elliott argued that the public “primarily understood” the word “google” (as in “I googled it”) to “be a generic term universally used to describe the act[] of internet searching.” Both parties moved for summary judgment, and the district court ruled in favor of Google, finding that Elliott had failed to create a triable issue of fact that “GOOGLE” had passed into the realm of “genericness.” Elliott appealed to the Ninth Circuit.
Ninth Circuit’s opinion: The Ninth Circuit affirmed the district court’s ruling. The court began its analysis by stating that “[w]e recognize four categories of terms with regard to potential trademark protection: (1) generic, (2) descriptive, (3) suggestive, and (4) arbitrary or fanciful terms” and noted that the case before it related to the first and fourth categories that are on the “opposite ends of the spectrum with regard to protectability.” On one end of the spectrum, the court said, lie generic terms that are “‘common descriptive’ names which identify only the type of good ‘of which the particular product or service is a species.’” On the other end lie arbitrary or fanciful marks that “‘employ words and phrases with no commonly understood connection to the product,’” which are “‘automatically entitled to protection because they naturally serve to identify a particular source of a product.’”
The court acknowledged that, over time, a valid trademark may become the “victim of genericide,” giving as examples the marks “ASPIRIN,” “CELLOPHANE” and “THERMOS.” The court said that “[t]he question in any case alleging genericide is whether a trademark has taken the ‘fateful step’ along the path to genericness… The mere fact that the public sometimes uses a trademark as the name for a unique product does not immediately render the mark generic… Instead, a trademark only becomes generic when the ‘primary significance of the registered mark to the relevant public’ is as the name for a particular type of good or service irrespective of its source.”
The court said that it has often described the foregoing as the “who-are-you/what- are-you” test:
“If the relevant public primarily understands a mark as describing ‘who’ a particular good or service is, or where it comes from, then the mark is still valid. But if the relevant public primarily understands a mark as describing ‘what’ the particular good or service is, then the mark has become generic. In sum, we ask whether ‘the primary significance of the term in the minds of the consuming public is [now] the product [and not] the producer.’”
The court found that Elliott’s argument that “GOOGLE” had become generic had two fundamental flaws. First, the court said that “a claim of genericide or genericness must be made with regard to a particular type of good or service.” Here, the court said that Elliott’s flaw was claiming the word “google” was generic for “the act” of searching the Internet, not for any specific good or service.
Furthermore, the court said that requiring a claim of genericide to relate to a particular good or service was “necessary to maintain the viability of arbitrary marks as a protectable trademark category.” Defining an “arbitrary mark” as “an existing word that is used to identify the source of a good with which the word otherwise has no logical connection,” the court said that “[i]f there were no requirement that a claim of genericide relate to a particular type of good, then a mark like IVORY, which is ‘arbitrary as applied to soap,’ could be cancelled outright because it is ‘generic when used to describe a product made from the tusks of elephants.’”
The court found that Elliott’s second flaw was the erroneous assumption that “verb use automatically constitutes generic use.” The court rejected Elliott’s argument that “a word can only be used in a trademark sense when it is used as an adjective,” stating that “[o]nce again, Elliott’s semantic argument contradicts fundamental principles underlying the protectability of trademarks.” The court explained:
“the district court aptly coined the terms ‘discriminate verb’ and ‘indiscriminate verb’ in order to evaluate Elliott’s proffered examples of verb use and determine whether they were also examples of generic use. Although novel, these terms properly frame the relevant inquiry as whether a speaker has a particular source in mind. We have already acknowledged that a customer might use the noun ‘coke’ in an indiscriminate sense, with no particular cola beverage in mind; or in a discriminate sense, with a Coca-Cola beverage in mind. In the same way, we now recognize that an internet user might use the verb ‘google’ in an indiscriminate sense, with no particular search engine in mind; or in a discriminate sense, with the Google search engine in mind.”
The court next addressed Elliott’s argument that, given the “sheer quantity of evidence” Elliott produced to support the genericide claim, the district court “impermissibly weighed the evidence” when it granted summary judgment in favor of Google. Here, the court found that the district court did not err because “Elliott’s admissible evidence is largely inapposite to the relevant inquiry under the primary significance test because Elliott ignores the fact that a claim of genericide must relate to a particular type of good or service.”
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Ninth Circuit: Federal Copyright Pre-empts California Publicity Right
By Michelle A. Cooke, Co-Chair, Intellectual Property
Why it matters: On April 5, 2017, the Ninth Circuit ruled in Maloney v. T3 Media Inc. that federal copyright law pre-empted the state law right of publicity claims of two former NCAA student athletes who had argued that the defendant website improperly exploited their likenesses by non-exclusively licensing their digital images to online consumers in violation of California’s right of publicity laws.
Detailed discussion: On April 5, 2017, the Ninth Circuit held in Maloney v. T3 Media Inc. that federal copyright law pre-empted the state law right of publicity claims of two former National Collegiate Athletic Association (NCAA) student athletes, Patrick Maloney and Tim Judge, who had sued the defendant T3Media Inc., d.b.a. Paya.com (T3Media) in the Central District of California for improperly exploiting their likenesses by selling non-exclusive licenses permitting consumers to download their photographs from the NCAA Photo Library for non-commercial art use.
Factual and procedural background: Briefly, Maloney and Judge (collectively, plaintiffs) were part of the Catholic University men’s basketball team that won a first-ever dramatic upset victory in a Division III national championship game in 2001. As such, there were numerous “action” photographs of the plaintiffs taken during game play, and the plaintiffs also posed with the team for an official championship team portrait. Those photographs were owned by the NCAA, which placed them into its official Photo Library collection. In 2012, the NCAA contracted with T3Media (a provider of storage, hosting and licensing services for digital content) to provide online licensing services for the images in the NCAA Photo Library via T3Media’s website Paya.com. Pursuant to this arrangement, consumers could view digital thumbnails of the images contained in the NCAA Photo Library on Paya.com, and obtain a non-exclusive, single “not for commercial use” license permitting them to download a copy of a chosen photograph for $20-$30.
The plaintiffs filed a putative class action lawsuit against T3Media in 2014 in the Central District of California primarily claiming that T3Media exploited their likenesses without their consent in violation of the California statutory and common-law right of publicity laws. T3Media moved to strike the complaint pursuant to California’s anti-strategic lawsuit against public participation (anti-SLAPP) statute (Cal. Civ. Proc. Code §425.16), which allows for early dismissal of “meritless first amendment cases aimed at chilling expression through litigation.” T3Media argued in its anti-SLAPP motion, among other things, that the federal Copyright Act pre-empted the plaintiffs’ claims. The district court agreed and granted the anti-SLAPP motion in 2015. The plaintiffs appealed to the Ninth Circuit, which affirmed.
Ninth Circuit opinion: The Ninth Circuit began its opinion by restating the two-part test that must be met before a court can grant an anti-SLAPP motion to strike: (1) the defendant filing the anti-SLAPP motion “must make a prima facie showing that the plaintiff’s suit arises from an act in furtherance of the defendant’s constitutional right to free speech,” and (2) assuming that showing has been made, the burden shifts to the plaintiff “to establish a reasonable probability that it will prevail on its claim[s].”
In this case, the court noted that the plaintiffs conceded the first step of the anti-SLAPP analysis because “their suit arises from acts in furtherance of T3Media’s right to free speech,” i.e., its right to publish and distribute “expressive” photographs it owns on the Internet.
Thus, the court said, under step two of the anti-SLAPP analysis, the burden shifted to the plaintiffs to present a reasonable probability of prevailing on their state law right of publicity claims. The court found that the plaintiffs failed this step because their state law claims were pre-empted by the federal Copyright Act.
The court pointed out that Section 301 of the Copyright Act “affords copyright owners the ‘exclusive rights’ to display, perform, reproduce, or distribute copies of a copyrighted work, to authorize others to do those things, and to prepare derivative works based upon the copyrighted work.” Section 301, the court said, pre-empts all state law copyright (or their equivalent) laws if the rights at issue fall within the scope of the federal Copyright Act. This pre-emption determination also requires a two-step analysis: (1) a court must first determine “whether the ‘subject matter’ of the state law claim falls within the subject matter of copyright as described in 17 U.S.C. §§ 102 and 103,” and (2) assuming it does, a court must determine “whether the rights asserted under state law are equivalent to the rights contained in 17 U.S.C. § 106, which articulates the exclusive rights of copyright holders.”
The court said that the parties were “jousting solely” with respect to the first step of the pre-emption analysis and were asserting “competing rules that seek to define the boundary between copyright pre-emption and state law rights of publicity.”After considering the merits of both sides’ arguments and looking to case law precedent, the court found that:
“[t]he right of publicity seeks to prevent commercial exploitation of an individual’s identity without that person’s consent… Maloney and Judge do not contend that their likenesses were ever used on merchandise or in advertising. They challenge instead the copyright holder’s decision to distribute the copyrighted images themselves by selling consumers a non-exclusive license to download a chosen photograph from the NCAA Photo Library for non-commercial art use. Under these circumstances, the publicity-right claims…challenge ‘control of the artistic work itself.’…Because plaintiffs seek to hold T3Media liable for exercising rights governed exclusively by copyright law, the claims are preempted by section 301 of the Copyright Act.”
The court then moved on to the second step of the pre-emption analysis, and found that the district court was correct in its finding that “the rights plaintiffs assert are no different than the rights contained within the general scope of the Copyright Act.”
Thus, the court concluded:
“Under the circumstances presented here, the ‘subject matter’ of the state law claim[s] falls within the subject matter of copyright and ‘the rights asserted under state law are equivalent to the rights contained in 17 U.S.C. § 106.’… The federal Copyright Act therefore preempts the plaintiffs’ publicity-right claims… In light of that holding, plaintiffs’ cannot demonstrate a reasonable probability of prevailing on their challenged claims. The district court did not err in granting T3Media’s special motion to strike.”
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Jammin Java to Pay IP Damages to Marley Family
By Michelle A. Cooke, Co-Chair, Intellectual Property
Why it matters: On May 30, 2017, a Central District of California judge ruled that coffee company Jammin Java Corporation—which marketed and sold “Marley-branded” coffee beans—must pay the family members of the late reggae artist Bob Marley approximately $2.8 million in trademark infringement damages and unpaid licensing royalties. This is just the latest development in a fraught relationship between the Marley family and the coffee company since the inception of their business dealings in 2012.
Detailed discussion: On May 30, 2017, a Central District of California judge in Fifty-Six Hope Road Music Limited and Hope Road Merchandising LLC v. Jammin Java Corporation ruled that publicly owned coffee company Jammin Java Corp. (JJC) must pay two companies controlled by the widow and children of the late reggae artist Bob Marley (Marley), Fifty-Six Hope Road Music Ltd. and Hope Road Merchandising LLC (collectively, Marley companies), approximately $2.8 million in trademark infringement damages and unpaid licensing royalties related to the use by JJC of Marley-related trademarks to sell “Marley-branded” coffee beans.
The Marley companies are the owners and successors-in-interest of all of Marley’s intellectual property and publicity rights worldwide. The court filings indicate that the idea for the Marley-branded coffee beans was the “brain child” of one of Marley’s sons, Rohan Marley (Rohan), who until recently was a shareholder in and on the board of directors of JJC and is described as a “non-managerial part-owner” in the Marley companies. The court documents detail a separate criminal investigation by the Securities and Exchange Commission (SEC) into an illegal “pump and dump” scheme involving JJC shares in which it was disclosed that the JJC venture was launched after a chance meeting between Rohan and JJC’s former CEO in Los Angeles. More on this later.
According to court filings, in 2012—at the behest of Rohan—the Marley companies entered into a long-term license agreement (first license agreement) with JJC, which granted JJC the exclusive right to use the “Marley Trademarks” (including “Marley Coffee,” “Marley Coffee Stir It Up,” “Bob Marley Coffee” and the Marley Coffee logo) to sell “Marley-branded” coffee beans worldwide. The first license agreement also granted JJC the worldwide non-exclusive right to use the Marley Trademarks in connection with the sale of coffee mugs, glasses and other related “Marley-branded” coffee paraphernalia and coffee production services. The first license agreement had an initial term of 15 years and could be renewed for two additional 15-year terms so long as JJC was not in breach of the agreement.
The court filings detail the royalty payment structure and reporting obligations under the license agreement, which the Marley companies alleged JJC was in breach of almost from the time the first license agreement was signed. The Marley companies terminated the long-term license agreement in June 2016 but “bent over backwards” to give JJC another chance by simultaneously entering into a short-term six-month license agreement (second license agreement) with JJC that required JJC to sign a promissory note for the approximately $300,000 JJC owed in unpaid royalty payments under the first license agreement. The Marley companies alleged that JJC quickly defaulted under the second license agreement as well and it was terminated. In addition, the Marley companies became aware that JJC had allegedly sublicensed the Marley Trademarks in violation of the second license agreement and continued to improperly use the Marley Trademarks after the second license agreement was terminated.
The Marley companies sued JJC in August 2016 in the Central District of California alleging, among other things, trademark infringement, non-payment of royalties and breach of contract, and much complicated legal wrangling ensued. Finally, on May 30, 2017, Judge Stephen V. Wilson ordered JJC to pay the Marley companies almost $2.8 million in damages, consisting of approximately $2.4 million in trademark infringement damages and $372,000 in unpaid royalties.
As a sad corollary to the story, there was a criminal element to JJC as well. As the court documents detail, in November 2015 the SEC announced charges against several “alleged perpetrators” of a $78 million “pump-and-dump” scheme involving JJC’s stock, which resulted in approximately $2.4 million in illicit profits to JJC.
According to the SEC’s allegations in a complaint filed in the Central District of California, JJC’s former CEO “orchestrated the scheme” after meeting and befriending Rohan in Los Angeles. Upon learning that Rohan owned a small coffee plantation in Jamaica, JJC’s former CEO allegedly proposed to Rohan that they create “a large-scale coffee distribution business built on the Marley name.” JJC’s former CEO then allegedly utilized a reverse merger to secretly gain control of millions of JJC shares, which he subsequently spread to the offshore entities controlled by the other individuals charged in the scheme. The SEC alleged that the shares were then “dumped” by the defendants on the public after the stock price soared following fraudulent promotional campaigns. In April 2016, a final judgment was entered in the SEC action, pursuant to which JJC agreed to pay disgorgement and interest of approximately $700,000, and in May 2017 the charged JJC individuals were ordered to pay $1.7 million in disgorgement and interest to settle the charges against them.
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