Intellectual Property

As 2008 gets underway, its time for companies to take a fresh look at how they manage intellectual property assets. This applies to companies that have never taken serious steps to protect intellectual property, and those companies that have an understanding of the value of intellectual property and take active steps to secure and protect these assets. The three steps below are a good starting point for companies addressing this issue for a first time, and are a well needed refresher for companies that already have IP management protocols in place.

Step No. 1 – Know Your Inventory

Intellectual property is a company asset, just like inventory. You wouldn’t think of running a company where you didn’t know the extent of your inventory. Likewise, it doesn’t make sense for a company not to have a firm understanding of all of its potential intellectual property assets. Even companies that regularly take steps to protect intellectual property through, for example, registering trademarks, or registering copyrights, a yearly review can prove beneficial. Sometimes marketing departments and independent divisions spin out valuable intellectual property assets that, for one reason or another, never made it past the desk of general counsel or a responsible executive.

You would want to review your company’s marketing and promotional materials, and website for trademarks, logos, or slogans that the company is using with frequency. If these trademarks have not been cleared, be sure to read Step No. 3 below on preventing unintended liabilities. You would also want to look at domain names and toll free numbers, which may also serve as potential trademarks. If your company has changed its product packaging, point of sale displays, or product design, these may also be protectable trade dress. In order for the above to constitute trade dress, the packaging, or product design would have to be more than merely functional.

You would also be wise to take stock of the company assets protectable under the federal copyright laws. For example, a company’s website, marketing materials, manuals, promotional videos, software, articles, white papers, etc. are all protectable under the federal copyright law. Although you may ultimately decide that the cost benefit of securing protection is such that registration does not economically make sense, the company should at least maintain inventory of its copyrightable works.

In addition, a company needs to be mindful of any new inventions that were developed by the company or its employees during the last year. Such inventions may be protectable under federal patent laws. However, unlike copyright or trademarks, an inventor must secure a patent application within a very short period of time in order to prevent the work from falling into the public domain. Companies that routinely produce new inventions should put into place a process which enables inventors to disclose a potential invention to a responsible executive well prior to the invention being disclosed to the general public.

In addition, a company should take stock of those items that it considers proprietary trade secrets. Trade secrets are items not generally known by the public but have economical value and are the subject of reasonable precautions to maintain their secrecy. In general, trade secrets have no duration of protectability and there is not a method for registering a trade secret in the United States. Items that may be protected by state trade secret laws include software source code and related documentation; customer lists, employee knowledge, training and experience; proprietary terminologies or definitions; specially developed customer information; sales practices; negative information such as negative results from research and development projects; and customer and consumer surveys. Each of the above could constitute proprietary trade secrets depending upon whether its owner took reasonable steps to maintain its trade secret status. (See Step No. 2 – Taking Steps to Protect Intellectual Property.)

In addition to employee created and company created intellectual property, a company should take stock of its inventory of intellectual property acquired by way of contractual agreements. For example, a company should review agreements with its employees and make sure that these agreements have proper assignment language and confidentiality provisions. In addition, the company should review items that were developed or created through the use of independent contractors, such as photographers, web developers, software developers, advertising agencies, graphic artists, production companies, and the like. If the company intended to own all of the rights, including any intellectual property rights, in the works created by these independent contractors then the agreements with these independent contractors should have proper intellectual property vesting language – such as work made for hire language or an assignment provision. If the company’s agreements were only verbal or did not contain such language, then the company needs to make another resolution: make sure you own the intellectual property you paid for.

Step No. 2 – Take Reasonable Steps to Protect Your Intellectual Property

After you have created a working intellectual property inventory list, the next step is to identify those items that are already the subject of active protection efforts (i.e. pending or issued registrations) and those that are not. Then, the company executives, along with corporate counsel and if appropriate outside intellectual property counsel, should review the list of unprotected intellectual property and determine whether taking steps to secure their protection make economic sense. Sometimes, a company might find that the cost to secure protection of an intellectual property asset outweighs the potential economic value of that asset or that protection would be mostly duplicative of another item which is already protected. However, companies should take advantage of the intellectual property protection that costs less to secure. For example, securing copyright registration and trademark registration can be substantially less than securing patent protection. Most often, copyright protection is the least expensive intellectual property protection to obtain and the benefits of securing such protection prior to an act of infringement far outweigh the cost of securing the cost of filing the copyright registration application.

Step No. 3 – Prevent Unintended Liabilities

A fair number of clients who become involved in disputes involving intellectual property rights find themselves on the receiving end of a cease and desist letter. Although most don’t intend to infringe, often the infringement occurs either through poor oversight or lack of prior due diligence or investigation. For example, most often in trademark disputes the potential defendant adopts and begins using a mark without having a trademark attorney perform a trademark search. Most of the time clients believe that if a Google web search did not uncover any conflicting references, they are home free. This is not the case. Google does not pick up entries in the federal or state trademark databases, or in the multitude of other proprietary databases that a full search would encompass. A trademark search performed by an experienced trademark attorney is the only way to go when it comes to clearing a mark for use.

Other unintended liabilities result from the company’s interaction with independent contractors that have been hired to create something for the company. Whether it is a web designer hired to redesign a company’s website, a graphic artist hired to create a new logo or artwork, or a copyrighter hired to write content for company’s documents, a company needs to remember that in the past these types of vendors have been known to take shortcuts and “borrow” from existing sources. Unless a company executive is closely managing these professionals when they do their work, it would difficult to determine whether or not they engaged in acts that may be considered infringement until such time as the company receives a cease and desist letter. However, there are precautionary steps a company can take to prevent unintended liabilities. A company should always have written agreements with vendors such as these which unconditionally requires them to indemnify the company for any claims of infringement resulting from the works they were hired to create. Additionally, a company should require these vendors to carry insurance that would provide coverage for such a claim (either E&O or professional liability insurance) and that the company be named an additional insured on the policy. Lastly and most important, the company should have a general understanding of who they are doing business with. A little time spent researching whether the vendor has negative claims with the Better Business Bureau, has licensing issues, generally has satisfied customers, whether there are any lawsuits pending, etc., can tell a company quite a bit about the work habits and ethics of any potential vendor.

Lastly, a company should take a careful look at its data collection practices and make certain that its policies comply with a existing data management laws. There have been some changes in existing laws and the passage of new laws concerning the management of consumer data and companies should make sure that its policies are in line with today’s requirements. If not, a company could potential face both civil and criminal liabilities depending on the circumstances.

These steps are part of good IP management practices. It is always the easiest thing to settle back into the routine that we have always known. However, there is a substantial benefit to taking a fresh approach to IP management, and the benefit can drive directly into a company’s bottom line.

Last week, the Second Circuit affirmed a summary judgment against an advertising consultant in a suit against American Express. The consultant, Stephen Goetz, sued American Express for misappropriation and trademark infringement for the slogan “My Life, My Card” that Goetz claimed to have introduced to American Express. The court affirmed the summary judgment stating that Goetz never actually used the slogan in commerce. Since Goetz never used the slogan in commerce, he had no trademark rights in the mark.

In the summer of 2004, Goetz worked as a consultant for Mez Design. While at Mez Design, Goetz formulated an idea to allow credit card customers to personalize their credit cards by choosing a photograph to be displayed on the face of the card. Goetz then developed software to produce these cards with the idea of selling or licensing the software to credit card companies. After developing the software, Goetz mailed proposals to large credit card companies, including American Express. In these proposals, Goetz prominently displayed the slogan “My Life, My Card.” On July 30, 2004, Goetz mailed a proposal to American Express.

In addition to sending out these proposals, Goetz created an internet-based demonstration of his concept. The website also prominently displayed the slogan “My Life, My Card.” On September 7, 2004, Goetz registered the domain name www.mylife-mycard.com, and he also filed an application to register his trademark with the United States Patent and Trademark Office. Although American Express never expressed interest in the concept, MasterCard replied to his proposals. MasterCard viewed Goetz website which included the slogan “My Life, My Card.”

During this same time period, American Express was searching for a new global advertising campaign. They hired an agency which was brought in to develop the new campaign. On July 22, 2004, a week before Goetz sent his proposal, the agency proposed the slogan “My Life. My Card.” to American Express. American Express pursued the idea and asked the agency’s counsel to conduct a full trademark search on the slogan. This trademark search did not produce any results that referenced Goetz. American Express proceeded with the campaign, and on September 1, 2004 they registered the domain name www.mylifemycard.com. On September 15, they filed an intent to use application for the trademark “My Life. My Card.” A few months later, the global campaign featuring numerous celebrities was launched on television, print and internet ads.

Shortly after American Express’s campaign began, Goetz filed an action claiming that American Express infringed his trademark rights. The court in that case dismissed Goetz’ claims because Goetz had no protectable trademark rights in the slogan because he did not use the mark in commerce. Goetz also did not dispute the fact that American Express independently developed the slogan. Goetz appealed the ruling to the Second Circuit and argued that he was the first to use the mark in commerce based on his sales proposals to several credit card companies. This included his presentation to MasterCard. Goetz argued that since he used the slogan in commerce before American Express, he is the senior user of the mark.

After hearing these arguments, the Second Circuit affirmed the previous ruling. The court held that under the Lanham Act, a trademark or service mark is “any combination of words, names, symbols or devices that are used to identify and distinguish goods or services and to indicate their source.” On the other hand, copyright law protects the content of the creative work. A trademark identifies the source of the product and does not protect the creative content of the product. For example, a title of a song or movie may be a trademark, but the content of the song or movie is not. The court noted that an advertising agency that creates a slogan does not have a trademark in that slogan. The slogan is the agency’s creative work and does not usually identify the source of goods and services of that agency. The slogan, however, can become a trademark for the company that uses the agency’s slogan on their goods. Until the slogan is used by the company in commerce, it will not become a trademark.

Goetz, however, claims that his slogan was used in commerce by Mez Design where Goetz was employed. The court disagreed. The court stated that “My Card, My Life” slogan did not distinguish the goods of the advertising agency. It is merely the creative work of the agency. The court examined the facts of the case and found that Goetz never used the slogan in commerce to sell his agency. Rather, he used the content of the slogan as part of an overall campaign to sell the credit card company’s products. The court found that the slogan never referenced the agency nor Goetz himself. In fact, each letter contained the Mex Design logo. This logo identified the source of the services of the agency. The slogan was merely the creative work of the agency, and was used to entice credit card companies to use his services.

Because Goetz never used the slogan in commerce as a trademark, Goetz had no protection from trademark laws. The slogan was the creative work of Goetz and did not identify his services. Goetz could pursue his claims under copyright law, but since he did not argue against the fact that both slogans were created independently, he would not be able to show such infringement.

By Andrea Anapolsky

The “work made for hire” doctrine is a major exception to the fundamental principle that copyright ownership vests in the person who created the work. The significance of this doctrine is that, as the copyright owner of the work, an employer will own all exclusive rights to the work and may freely commercialize the property to its fullest extent. This article examines the provisions and case law underlying the “work made for hire” doctrine and provides some practical advice for employers when hiring an independent contractor or an employee who may create an original work during the course of the parties’ relationship.

The U.S. Supreme Court first recognized the “work for hire” doctrine as early as 1903, when it held that copyright to certain advertisements created by an employee during the course of his employment belonged to his employer. (Bleistein v. Donaldson Lithography Co., 188 U.S. 239 (1903)). The courts did not truly examine the meaning of “ownership” of a work “for hire” until the Copyright Act codified this doctrine, which defines the word “author” as including “an employer in the case of works made for hire” (17 U.S.C. ¬ß 26). Accordingly, an employer may claim to be the “author” of a work under one of two prongs: first, if the work is prepared by an employee within the scope of the employee’s employment; and second, if an independent contractor and employer agree in writing that the work created by the independent contractor shall be considered a “work made for hire”.

When determining who owns a written work, the first question to ask is whether the creator of the work falls under the employee prong or the independent contractor prong. Generally, if the creator of the work is an employee, it is presumed that the employer owns the copyright. Any unease under this prong rests on whether the creator was an actual employee of the employer. The U.S. Supreme Court resolved much of the tension underlying this issue in 1989, in Community for Creative Non-Violence (“CCNV”) v. Reid, which involved a dispute over ownership of a sculpture commissioned by a nonprofit organization. (CCNV, 490 U.S. 730 (1989)) The Court held that the artist was an independent contractor and not an employee since the sculptural works did not fall within one of the nine specific categories of “commissioned” works listed in the Copyright Act, and no written agreement between the parties existed. In reaching this conclusion, the Court examined the common law agency principles, which include: (1) the hiring party’s right to control the manner and means of creation, (2) who provided the materials and tools, (3) the skill required by the hired person, (4) the location of the work, (5) the length of the relationship between the parties, (6) how the hired party was paid, (7) who hired and paid assistants, (8) whether the work is part of the regular business of the hired party and (9) the tax treatment of the hired party. CCNV has been viewed as a major legal victory for independent contractors in that creators who produce work at the request and expense of a third party do not necessarily give up their copyrights in the process. For hiring parties, it stands as a warning that the hiring party does not automatically own the copyright just because they paid for the commissioned work.

If the creator of the work is not an employee, then three requirements of the independent contractor prong must be satisfied in order for the hiring party to own the original work. The requirements are: (1) prior to the commencement of the work, the parties must agree in writing that the work shall be considered a “work for hire”; (2) the work must have been “specially ordered” or “commissioned” by the employer; and (3) the work must fall within at least one of nine statutorily mandated categories of commissioned works listed in the Copyright Act. The nine categories include: using the work as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas. (17 U.S.C. ¬ß 101). An original must fall into one of these nine categories; otherwise a “work made for hire” provision in an agreement does not always result in a work becoming “for hire.” A novel, for example, can never be a work made for hire because it does not fall into one of these nine categories.

To avoid problems concerning copyright ownership with independent contractors, the hiring party should always reduce its intentions to writing, and include a provision in the written agreement which contains a clause stating that the work created by the independent contractor is considered a “work made for hire.” The agreement should also contain a “back up” clause which states that in the event the work does not qualify as a “work made for hire”, the employer may obtain the exclusive rights to a copyrightable work created by an independent contractor through an assignment.

Plaintiffs in trademark infringement cases may not be eligible for attorney fees depending on their election of damages. This last December, the Ninth Circuit Court of Appeals examined whether or not electing statutory damages for trademark counterfeiting claims under 15 U.S.C. § 1117(c) precludes the awarding of attorney fees under 15 U.S.C. § 1117(b). The court held that an election for statutory damages does indeed bar the plaintiff from recovering attorney fees in counterfeiting cases.

For over three decades, K&N Engineering (“K&N”) has designed, manufactured and distributed automotive air filters, air intake kits and other related products throughout the country. K&N has a registered stylized trademark that it uses on each of its products. In 2004, K&N became aware that Sarah Bulat and Steve Wandel (“Bulat”) were selling decals of K&N’s registered trademark on Ebay. Bulat made and sold 89 sets (two decals per set) on Ebay for a total of $267. K&N sued Bulat for, among other things, trademark infringement and counterfeiting. K&N elected to seek statutory damages under 15 U.S.C. § 1117(c). The district court granted summary judgment in favor of K&N on all claims and awarded K&N statutory damages in the amount of $20,000. The district court also awarded attorney fees to K&N in the amount of $100,000 under U.S.C. § 1117(b). Bulat appealed the summary judgment and the award of attorney fees. Bulat argued that the district court erred when it awarded attorney fees to K&N. Bulat claimed that K&N’s election of statutory damages precludes them from recovering attorney fees.

Section of 1117 of the Lanham Act which covers trademarks specifically lists the types of damages that can be awarded in trademark actions. 1117(a) covers actual damages and states that damages can be recovered for (1) defendant’s profits, (2) any damages sustained by the plaintiff and (3) the costs of the actions. This section states that the court can award damages in the amount of the actual damages not to exceed three times the amount of such. In addition, the court may, in exceptional cases, award reasonable fees to the prevailing party.

Section 1117(b) covers treble damages for use of counterfeit marks. This section states, “In accessing damages under subsection (a) of this section, the court shall, unless the courts find extenuating circumstances, enter judgment for three times such profit or damages, whichever is greater, together with a reasonable attorney’s fee ….”

The last subsection under 1117 covers statutory damages for counterfeit marks. 1117(c) states that the plaintiff at any time before the rendering of the final judgment may elect to recover, instead of actual damages under subsection (a), an award of statutory damages for an amount not less than $500 and no more than $100,000. If the counterfeiting use is willful, the court can award up to $1,000,000.

In this case, K&N elected to be awarded damages under this last subsection. This election was likely guided by the fact that the sales of the decals were for only $267. The district court, in its discretion under subsection (c) awarded K&N statutory damages in the amount of $20,000. It also awarded attorney fees which was the basis of Bulat’s appeal. Bulat argued that the election of statutory damages under subsection (c) does not include attorney fees. In fact, subsection (b) specifically relates back to subsection (a). The fact that both subsections (a) and (b) include reference to attorney’s fees and subsection (c) does not, led the court to rule in favor of Bulat. The court held that the district court erred in awarding statutory damages and attorney’s fees. Thus, a plaintiff who elects statutory damages is barred from recovering attorney fees.

It is interesting to note that subsection (c) was adopted three years after the other two sections were adopted. Whether or not the drafters intended this result may be decided by the Supreme Court if K&N appeals this ruling. Until then, Plaintiffs will likely be hesitant to elect damages under subsection (c), especially if the party’s attorney’s fees are significant.

In a trademark counterfeiting claim, the successful plaintiff is entitled to recover actual damages or can statutory damages. However, according to a recent decision by the 9th Circuit, depending on the recovery sought, the plaintiff may loose the ability to recover attorney fees.

In K and N Engineering, Inc. v. Bulat the defendants were selling unauthorized decals bearing the K&N logo on eBay. The defendants created vinyl decals in the shape of plaintiff’s logo and sold 89 sets of those decals for a total of $267. After contacting the defendants, K & N filed a complaint alleging trademark infringement, trademark counterfeiting, and other related claims. K&N also elected to seek statutory damages under 15 USC 1117(c). The district court granted judgment in favor of K&N and awarded it statutory damages of $20,000 under 15 USC 1117(c) and $100,000 in attorney’s fees under 1117(b). The defendant appealed the attorney’s fee award and argued that K&N’s election to receive statutory damages under 15 UCS 1117(c) precludes an award of attorney’s fees under 1117(b).

Section 1117 covers damages that may be awarded to a successful plaintiff in a trademark infringement action. Under Section 1117(a), a plaintiff seeking actual damages for trademark infringement, and is entitled to reasonable attorney’s fees in exceptional cases. When counterfeit marks are involved, Section 1117(b) is also applicable. Under this section, a plaintiff may, under 1117(a), recover three times the actual damages plus reasonable attorney’s fees, or may elect to recover statutory damages in the range of $500 to $100,000 per counterfeit mark per type of goods sold or offered for sale.

The defendant argued that K&N is not entitled to an award of attorney’s fees since Section 1117(c) does not authorize an award of attorney’s fees. Section 1117(b)’s attorney’s fee provision, the defendant argued, applies only in cases where actual damages are recovered under 1117(a).

The 9th Circuit agreed with the defendant’s argument. The Court found that because an election to receive statutory damages under 1117(c) precludes an award of attorney’s fees under section 1117(b).

The 9th Circuit’s ruling appears to run counter to the purpose behind the allowance for statutory damages in a counterfeit case. Statutory damages are available to a successful plaintiff in a counterfeit case most likely because actual damages may be difficult to prove. The availability to recover statutory damages may encourage a plaintiff to take early action to catch a counterfeiter. However, where early action is taken, the amount of actual damages is likely to be small. The ability to recover attorney fees and costs would appear to be the only saving grace encouraging early action. Otherwise, in order to be assured recovering damages justifying the cost of litigation a plaintiff would be better to wait until the defendant had sold a significant number of counterfeit goods. This runs contrary to the purpose of the Lanham Act; consumer protection legislation. How would it be to the benefit of consumers to allow counterfeiters to sell knock-off goods.

Just how valuable are baseball statistics? Apparently very valuable. In fact, baseball statistics are so valuable that CBC Distribution and Marketing, which has run the CDM Fantasy Sports leagues since 1992, sued Major League Baseball and challenged its ownership claim over player statistics. In a matter which rose all the way to the United States Court of Appeals for the 8th Circuit, CBC agued that baseball statistics become historical facts as soon as a game is over, and that it shouldn’t have to pay for the right to use them. Major League Baseball claimed that the right of publicity belonging to major league baseball players makes it illegal for fantasy leagues to commercially exploit the statistical profiles of its players.

The Major League Baseball Players Association is the bargaining representative for Major League baseball players and is comprised of almost all persons who are employed as Major League baseball players. When a player joins the Players Association it can choose to grant the Players Association certain rights with regard to the player’s name, nickname, likeness, signature, picture, playing record, and/or biographical data.”

CBC sells fantasy sports products online. Its fantasy baseball products incorporate the name, performance and biographical data of actual major league baseball players. Before the commencement of the major league baseball season each spring, participants form their fantasy baseball teams by “drafting” players from various major league baseball teams. Participants compete against other fantasy baseball “owners” who have also drafted their own teams. A participant’s success, and his or her own team’s success, depends on the actual performance of the fantasy team’s players on their respective actual teams during the course of the major league baseball season. Participants in CBC’s fantasy baseball games pay fees to play and additional fees to trade players during the course of the season.

The Players Association and Advanced Media, a company that, in 2005, entered into an exclusive license with the Players Association to use baseball players’ names and performance information for, among other things, providing fantasy baseball games on the MLB website, challenged CBC’s right to use the names of, and information about, major league players from the Players Association in connection with fantasy baseball games. The Players Association and Advance Media claimed that CBC violated the players’ right of publicity in their names and playing records as used in CBC’s fantasy games.

In Missouri, the elements of a right of publicity action include: 1) that the defendant used the plaintiff’s name as a symbol of his identity; 2) use without the plaintiff’s consent; and 3) with the intent to obtain a commercial advantage. These elements are almost exactly the same as California’s: (1) the defendant’s use of the plaintiff’s identity; (2) the appropriation of plaintiff’s name or likeness to defendant’s advantage, commercially or otherwise; (3) lack of consent; and (4) resulting injury.

Both the lower court and the Court of Appeals determined that CBC’s use of the players’ names and playing records implicate all three elements of Missouri’s right of publicity. The players’ names used by CBC are understood by CBC and fantasy baseball players as referring to actual major league baseball players. Additionally, the evidence showed that CBC’s use was without consent.

With regard to whether CBC’s use of the players’ names and statistics was “with the intent to obtain a commercial advantage,” the Court of Appeals noted that CBC’s use does not fit neatly into the more traditional categories of commercial advantage, namely using individuals’ names for advertising and merchandising in a way that states or intimates that the individuals are endorsing a product. Nevertheless, the Court of Appeals found that because CBC uses the baseball players’ identities in its fantasy baseball products for a project, CBC is using the identities for commercial advantage.

CBC argued that in the event it violated the players’ right of publicity, the First Amendment nonetheless trumps the right-of-publicity action provided by state law. CBC argued, and the court agreed, that the information used in CBC’s fantasy baseball games is speech. If previous court decisions have held that pictures, graphic designs, concept art, sounds, music, stories and narrative present in video games can constitute speech, so too can the players’ names, likeness, signatures, pictures, playing records and biographical information.

In determining that the players’ names and statistics are speech, the court found persuasive the fact that the information in question is readily available in the public domain. The court noted that it would be strange law that a person would not have a first amendment right to use information that is available to everyone. Further, the court the recognized the public value of information of the game of baseball and its players. The Court of Appeals noted that baseball is the “national pastime” and is followed by millions of people across the country on a daily basis. The Court noted a California appeals court decision which held that the “recitation and discussion of factual data concerning athletic performance of [players on Major League Baseball’s website] command a substantial public interest, and, therefore, is a form of expression due substantial constitutional protection.”

Based on the above, and the fact that the facts in the instant case barely, if at all, implicate the interests that states typically intend to vindicate by providing rights of publicity to individuals, CBC’s First Amendment rights in offering its fantasy baseball products supersedes the players right of publicity.