Posted onMay 20, 2019byHenry Sneath|Comments Off on SCOTUS Landmark Trademark Licensing Decision: Mission Product Holdings, Inc. v. Tempnology, LLC, NKA Old Cold LLC No. 17-1657
Has “the most significant unresolved legal issue in trademark licensing” finally found some closure? Circuit courts have long been split over whether bankrupt trademark owners could revoke a license and on what the effect is, generally, of a rejection of an executory contract. On Monday May 20th, 2019 the U.S. Supreme Court ruled that defunct brand owners (as debtors in Chapter 11) cannot use bankruptcy law to unilaterally revoke (reject) a trademark license agreement. The court held that bankruptcy “rejection” of an executory contract trademark license (a contract that neither party has finished performing) under Section 365 was akin to a breach of contract outside of bankruptcy. Per Justice Kagan: “A rejection (of any executory contract) breaches a contract but does not rescind it.” The licensee should not lose its right to use the debtor’s trademark under license. [Kagan] “Such an act cannot rescind rights that the contract previously granted.” Read here for the entire SCOTUS decision in Mission Product Holdings, Inc. vs. Tempnology, LLC. or here for a quick summary of the decision from Law360.
Posted by Henry M. Sneath, Esquire Co-Chair Litigation Practice Group and Chair of the IP Practice Group: Houston Harbaugh, P.C.401 Liberty Avenue, Pittsburgh, Pa. 15222. Sneath is also an Adjunct Professor of Law teaching two courses; Trade Secret Law and the Law of Trademarks and Unfair Competition at Duquesne University School of Law. Please contact Mr. Sneath at 412-288-4013 or firstname.lastname@example.org.
We are pleased to announce that the Pit IP Tech Blog has been named one of the Top 100 IP blogs on the net by Feedspot. The Pittsburgh law firm of Houston Harbaugh looks forward to continuing our coverage of IP and technology news and hope that you will continue to read our blog. Thanks for making us a Top 100 blog!
When someone mentions Play-Doh, what is the first thing you think of? Is it those flexible yellow containers? Perhaps it is the smooth and squishy texture of the putty? More likely though, you are probably thinking, nay, smelling, Play-Doh’s unmistakable scent. Play-Doh describes its scent best as “the combination of a sweet, slightly musky, vanilla-like fragrance, with slight overtones of cherry, and the natural smell of salted, wheat-based dough.” If you still can’t imagine its scent, put down your device, go find the closest toy store and pop open a tub of Play-Doh. We’ll wait.
In short, Play-Doh arguably has one of the most recognizable scents and n
ow Hasbro (Play-Doh’s owner), is seeking to trademark its distinct scent. Sound simple? Not quite.
The U.S. Patent and Trademark Office defines a trademark or service mark as “any word, name, symbol, device, or any combination, used or intended to be used to identify and distinguish the goods/services of one seller or provider from those of others, and to indicate the source of the goods/services.” Think Google’s logo or the golden arches of McDonalds. More often than not, trademarks are tangible words or symbols branding a product or service. It gets a bit more complicated when you attempt to protect something intangible, like a scent.
There are two types of registrations: Principal and Supplemental. A Principal Registration is what Play-Doh has applied for and affords the most protection for a mark, including presumption of ownership in the event of litigation and the right to exclusive use of the mark. To qualify for the Principal Register, the mark must have achieved “secondary meaning.” That is, consumers must associate the mark with the particular product or service. So, again, think about the McDonalds arches. However, it is hard to deny that Play-Doh’s scent achieves similar distinctive brand recognition.
A Supplemental Registration, on the other hand, functions more as a holding place for a mark while it gains distinctiveness. Although it does not provide the same security as Principal Registration, the Supplemental Register is helpful in preventing others from registering their mark on either the principal or supplemental registers and is inherently easier to accomplish because, unlike the Principal Register, there is no opposition phase for others to attempt to block the mark.
Only a handful of other scent-based registrations exist. The first scent-based trademark was issued in 1991 for the scent of a line of embroidery thread and yarn. That’s right – yarn. In 2013, Verizon Wireless attempted to trademark the perfume it s
prays in its stores; however, it was unsuccessful in achieving principal registration because many other companies similarly use scents to create a general ambiance in stores. Ultimately, Verizon was able to achieve a downgraded registration onto the Supplemental Register.
Others have attempted to trademark their scents with limited success, largely because it is difficult for scents to pass the “functionality test.” Put simply, a mark must not serve any practical function of the product or service other than to identify and distinguish it. That is why perfumes and air fresheners often fail to receive principal registration because the product is inherently designed for the functional purpose of smelling.
Whether Play-Doh will be successful in achieving its registration is to be determined. Nevertheless, as markets become increasingly more crowded, we will likely see more companies turning to scents as a method of branding and distinguishing their products.
Anna Wintour, the editor-in-chief of Vogue, has said, “You either know fashion or you don’t.” I think it is safe to say that the courts are still struggling to understand fashion—at least the extent to which fashion is afforded potentially 100 years or more of protection under the Copyright Act. Generally, “useful articles,” such as clothing are not eligible for copyright protection. However, Congress affords limited protection for artistic elements in useful articles by providing that “pictorial, graphic, or sculptural features” of the “design of a useful article” are eligible for copyright protection as artistic works if those features “can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article.” 17 U.S.C. § 101. Simple right?
Not so simple. The federal courts have struggled to create a uniform standard for applying this provision of the Copyright Act. At least nine different approaches have developed in the courts over the years, and the issue has challenged courts and scholars alike.
Last month, the U.S. Supreme Court tried to provide clarity as to when artistic elements in clothing are deemed to be separable and potentially protected by copyright law. In Star Athletica, L.L.C. v. Varsity Brands, Inc., Varsity Brands obtained or acquired more than 200 U.S. copyright registrations for two-dimensional designs appearing on the surface of their cheerleading uniforms and other garments. These designs are primarily “combinations, positionings, and arrangements of elements” that include “chevrons . . . , lines, curves, stripes, angles, diagonals, inverted [chevrons], coloring, and shapes.” Varsity Brands sued Star Athletica, a competitor, for infringing Varsity Brands’ copyrights for the following designs:
The U.S. Supreme Court granted certiorari to resolve the widespread disagreement over the proper test for implementing Section 101’s separate identification and independent-existence requirements. Justice Thomas, writing for the majority, held that a feature incorporated into the design of a useful article is eligible for copyright protection only if the feature (1) can be perceived as a two- or three-dimensional work of art separate from the useful article and (2) would qualify as a protectable pictorial, graphic, or sculptural work—either on its own or fixed in some other tangible medium of expression—if it were imagined separately from the useful article into which it is incorporated.
The court stated that the issue depends solely on statutory interpretation. For the first part of the test, the court need only be able to look at the useful article and spot some two or three-dimensional element that appears to have pictorial, graphic or sculptural qualities. For the second part of the test, the court must determine that the separately identified feature has the capacity to exist apart from the utilitarian aspects of the article. “The ultimate separability question, then, is whether the feature for which copyright protection is claimed would have been eligible for copyright protection as a pictorial, graphic, or sculptural work had it originally been fixed in some tangible medium other than a useful article before being applied to a useful article.”
While the court has set forth a new, national standard for separability, the application of that standard is not necessarily clear. In other words, while we know “The Devil Wears Prada,” it is also clear that “The Devil Is in the Details” when it comes to actually determining if the new standard is met. In this case, the majority of the court found that the arrangements of lines, chevrons, and colorful shapes appearing on the surface of Varsity Brands’ cheerleading uniforms were separable features of the design of those cheerleading uniforms. For the majority, the decorations were features having pictorial, graphic or sculptural qualities. Additionally, the court determined if the arrangement of colors, shapes, stripes, and chevrons on the surface of the cheerleading uniforms were separated from the uniform and applied in another medium—for example, on a painter’s canvas—they would qualify as “two-dimensional . . . works of . . . art.” The court further determined that imaginatively removing the surface decorations from the uniforms and applying them in another medium would not replicate the uniform itself. Accordingly, the court held that the decorations were separable from the uniforms.
However, presented with the same facts, the dissenting justices (Justice Bryer, with Justice Kennedy joining) disagreed, finding that in applying the new standard for separability, the Varsity Brands’ designs could not “be perceived as . . . two- or three-dimensional work[s] of art separate from the useful article.” The dissent found that the design features in the uniforms were not capable of existing independently of the utilitarian aspect of the object to which they relate. “Looking at all five of Varsity’s pictures, I donot see how one could conceptualize the design features in a way that does not picture, not just artistic designs, but dresses as well. . . . Varsity, then, seeks to do indirectly what it cannot do directly: bring along the design and cut of the dresses by seeking to protect surface decorations whose ‘treatment and arrangement’ are coextensive with that design and cut.” By way of contrasting example, Justice Bryer found the cat in each of the lamps below to be both physically and conceptually separate, meeting the test:
Thus, while the standard has been clarified, the lower courts will be tasked with applying the standard with little guidance on how to do so, which is likely to be challenging if the Star Athletica decision is any indication. Moreover, the Supreme Court did not decide if the Varsity Brands’ designs at issue in Star Athletica were copyrightable—just whether they were separable. The court explicitly stated that it expressed no opinion on whether the uniform designs were sufficiently original to qualify for copyright protection or whether any other prerequisite of a valid copyright had been satisfied. Therefore, the lower court, on remand, will have to determine if Varsity Brands’ designs are original enough to warrant copyright protection.
 “The Devil Wears Prada” is a book written by Lauren Weisberger, a former personal assistant to Anna Wintour. The character in the book and later in the successful movie based on the book, Miranda Priestly (played by Meryl Streep in the movie), is believed to be based upon Anna Wintour.
In a 6-3 decision authored by Justice Kagan, the United States Supreme Court in Kimble v. Marvel Entertainment, LLC (No. 13-720) upheld the long-standing rule previously announced in Brulotte v. Thys Co., 379 U. S. 29 (1964), that patentees cannot charge royalties for the use of an invention after the patent covering the invention has expired. Justice Alito, joined by Chief Justice Roberts and Justice Thomas, dissented and would have abolished the rule announced in Brulotte.
We previously discussed the Ninth Circuit’s decision in this case here.
In 1990, Kimble developed a web-shooting toy that allowed children to shoot foam strings from their hands like Spider-Man. He obtained a patent (U.S. Pat. No. 5,072,856) on his invention and offered it to Marvel Entertainment. Marvel declined, but soon afterwards came out with a similar toy. Kimble sued Marvel for patent infringement, and the parties ultimately settled the case. As part of the settlement, the parties entered into a license agreement that provided an up-front lump sum payment to Kimble along with a perpetual 3% royalty.
Some time later, Marvel discovered the Brulotte decision, which neither side was aware of during the settlement discussions, and moved for a declaration that its obligation to pay royalties expired when the patent expired. The district court, citing Brulotte, sided with Marvel, as did the Ninth Circuit. The Ninth Circuit, however, criticized the rationale of Brulotte, and the Supreme Court took up the case.
The patent statute provides that patent owners have exclusive rights to the use and sale of their inventions for a limited period of time. Once that time expires, the invention falls into the public domain and can be used freely by anyone in this country.
The rule in Brulotte was announced as a way of preventing patent owners from extending their exclusive rights beyond the lifetime of the patent. The concern was that patent owners could use license agreements to force others to pay royalties long after the patent expired, which would artificially extent the lifetime of the patent.
Recently, economists have challenged the anti-competitive basis for the Brulotte ruling and noted that in some instances, allowing post-expiration royalties allows the user to obtain lower royalty rates (albeit spread out of a longer time), which can be pro-competitive behavior.
Justice Kagan, writing for the majority, ultimately decided that the principle of stare decisis controlled the outcome of the case. Brulotte was decided back in 1964 and represented the Court’s interpretation of the patent statute. In the case of statutory construction issues, the Court is disinclined to reverse itself without a significant reason for doing so. She noted that in the more than 50 years since the decision, Congress has not chosen to use its legislative powers to overrule this decision. She also noted that the economic concerns were far from conclusive.
The majority also noted that there were several ways that parties can construct license agreements that meet the limitations of Brulotte. For instance, parties can agree to spread out payments after the expiration of the patent, as long as the use/sale giving rise to the royalty occurred before the patent expired. Parties can also create hybrid agreements that include royalties for other intellectual property (such as trade secrets) if the royalty amount decreases after expiration of the patent.
In the end, the majority felt that there was not a sufficient reason to overrule Brulotte. Therefore, it affirmed the lower court’s rulings that the post-expiration royalties were barred.
The dissent took a different view. They felt that the economic rationale behind Brulotte was flawed and did not deserve deference. They also questioned the notion that Brulotte was decided by construing the patent statute. Instead, they felt that the decision was improper policymaking that should be overruled.
With respect to the particulars of the this case, they were concerned that the parties negotiated a resolution being unaware of the Brulotte rule, only to have Marvel come in afterwards and upset the prior agreed arrangement once it learned of Brulotte. Had the parties been aware of Brulotte during negotiations, they might have reached a different arrangement.
The Kimble decision does not change the state of the law. In a rather unusual move for the Supreme Court in the patent arena, they have maintained the bright-line rule that patent royalties based on actions that occur after a patent expires are not enforceable. Practitioners should be aware of this rule when crafting royalty agreements to structure them in a way to avoid this issue.
We’ve updated our Resources and Links page with more links to helpful intellectual property resources and references for practitioners, inventors, and artists. If you haven’t looked at this section recently, you should see what we’ve added.
The contributors here on the Pit IP Tech Blog are proud to announce the formation of a new DRI Community (IP Litigation) that opened last month. I am co-chair of the community, and I will be splitting my time between this site and the community going forward. The IP Litigation Community is a forum for DRI members to share information and insights into issues involving their practice areas, along with useful resources.
One of my posts is featured on the community pages that deals with the Supreme Court’s decision in Alice Corp. v. CLS Bank International (No. 13-298) and how Courts and the US Patent and Trademark Office are dealing with that decision. The short answer is that things are looking rough for software inventors who are trying to obtain patents.
Pittsburgh has so far escaped any major damage from Sandy. However, as we learn from cable reporters standing in waist deep water and TV logo monogramed wetsuits, we know that many folks in areas along the east coast have not fared so well. In Pittsburgh we have had a lot of rain and will have some river flooding, but perhaps got lucky, while surrounded by major weather issues. There are more people in West Virginia and the midwest who are still to see some nasty weather. We wish all those affected well in the days to come.
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Contact our Pittsburgh Intellectual Property, Data Security, Trade Secret, DTSA and Technology Attorneys at Houston Harbaugh, P.C. through IP Section Chair Henry M. Sneath at 412-288-4013 or email@example.com. Some posts herein were published by the law firm Picadio Sneath Miller & Norton, P.C. (PSMN®) which has merged with HoustonHarbaugh, P.C. and are used by permission. DTSALaw® is a federally registered trademark. See Firm Website at: www.hh-law.com