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How many of the lawyers out there liked hypotheticals in law school? I did not, but this case prompted me to write one!  So, for those of you who enjoy hypotheticals, here it is:

Company A, a North Carolina LLC, owns four patents.  A new company is formed, Company B, a Texas LLC.  Company B has the same corporate address in North Carolina and the same five shareholders as Company A.  Company B conducts no business activities.  About 20 days after Company B is formed, Company A assigns its four patents to Company B, with an agreement that gives Company B the rights to sue for patent infringement only in the district court for the Western District of Texas.  (And assume that the Western District of Texas is a very fast and favorable court for plaintiffs in patent infringement cases.)  About ten days after the assignment, Company B files two lawsuits for patent infringement in the Western District of Texas, alleging that the defendants sell mobile devices that use third party applications that infringe the patents.  The defendants move to transfer the cases to the district court in the Northern District of California on grounds of convenience.  They allege that the Western District of Texas is not the proper venue because most of the third-party applications were researched and developed in the Northern District of California, while none were developed in the Western District of Texas, and several witnesses and inventors were located in the Northern District of California, while none were in the Western District of Texas.  Here’s the question: Should the district court for the Western District of Texas grant the motions to transfer?

If you said “yes,” you are right.  But that is not what the district court did.

In In Re Samsung Electronics and LG Electronics, 2021 U.S. App. LEXIS 19522 (June 30, 2021), the plaintiff, Ikorongo Texas, filed separate lawsuits for patent infringement against Samsung and LG in the Western District of Texas.  The lawsuits were filed a month after Ikorongo Texas was formed.  Ikorongo Texas was a Texas LLC, but it had the same corporate address in North Carolina and the same shareholders as Ikorongo Technology LLC, a North Carolina LLC.  Ikorongo Technology assigned its four patents to Ikorongo Texas about 20 days after Ikorongo Texas was formed.  The assignment documents provided that Ikorongo Texas could only enforce the patents in the Western District of Texas.  Ikorongo Texas conducted no business activities.  Ikorongo Texas filed the two lawsuits ten days after receiving the assignment.

Samsung and LG each moved to transfer their cases to the Northern District of California.  They contended that of the five allegedly infringing third party applications, three were researched and developed in the Northern District of California where the third parties conducted extensive business activities; none of the applications were researched and developed in Texas; the witnesses and evidence were located in the Northern District of California; two inventors were located in the Northern District of California; and no witnesses or evidence were located in Texas.

The district court for the Western District of Texas denied the defendants’ motions despite finding that most of the relevant factors weighed in favor of transferring the cases.  The court found that Ikorongo Texas did not have the right to sue anywhere except in the Western District of Texas, so it could not have filed the lawsuits in California. On that basis, the court ruled that the defendants had not satisfied their burden for transfer.

The defendants filed petitions for writs of mandamus to the Federal Circuit Court of Appeals requesting the appellate court to order the district court to transfer the cases to the Northern District of California.

The Federal Circuit granted the defendants’ petitions and ordered the district court to grant the defendants’ motions to transfer the cases to the Northern District of California.  The appellate court held that the district court had clearly abused its discretion in denying the motions.  The Northern District of California was the proper venue for the cases.  The district court should not have considered the conduct by Ikorongo Technology and Ikorongo Texas “aimed at manipulating venue.”

The appellate court explained that courts can disregard a party’s collusive or manipulative conduct to obtain jurisdiction, noting that Ikorongo Texas “seems to exist for the sole purpose of limiting venue to the Western District of Texas.”  The court further emphasized: “The presence of Ikorongo Texas is plainly recent, ephemeral, and artificial – just the sort of maneuver in anticipation of litigation that has been routinely rejected.”  The court explained that if the manipulative conduct was not considered, the suits could have been brought in the Northern District of California, and therefore should be transferred to that court.

At last, the NCAA has changed its policy on college athletes monetizing their name, image, and likeness, also known as their NIL. Who cares if the Supreme Court forced the NCAA’s hands in Alston v. NCAA, which didn’t directly address the issue but provided clear indicia that the Court intended to deal with the issue eventually? What matters is that college athletes can finally market their valuable NIL and enrich themselves while the NCAA is enriching itself during their college careers. But, of course, no benefit comes without its risks.

While many college athletes are represented with respect to their NIL by experienced agents who are either personally aware of important intellectual property issues or have legal departments which are, there are many other athletes who are either unrepresented or represented by people who may not be fully aware of these issues. Therein lies the risk. If the athletes aren’t aware of the potential IP pitfalls, and they are represented by agents or marketing managers who are likewise unaware of these risks, then who is to ensure those risks don’t become truly problematic for the athlete? Well, if this article achieves its purpose, it will enlighten at least some athletes and their representation and hopefully prevent them from stumbling over these issues.

Many companies, intentionally or unintentionally, have language in their contracts that would severely prejudice the athletes in the future. For example, and this is the most prevalent issue I’ve seen, many companies include language in the agreements that would grant the company a license “in perpetuity” to use the athlete’s NIL. But what does that mean in practical terms? It means that the company will pay whatever compensation is called for by the agreement to the athlete to license the athlete’s NIL, and once the agreement’s term has concluded, it will still be able to use the athlete’s NIL for its own purposes. Put another way, the company is only paying the athlete for the express term of the contract, but it will be able to use the athlete’s NIL forever. How is that fair? It’s not.

Other issues arise when the player is asked to provide a photo for the company to use or when the company takes one of the athlete’s photos off social media. The first issue arises when the player or the company uses a photo without owning the copyright or obtaining a license from the copyright holder to use the image for a commercial purpose. That is clear-cut copyright infringement, except when used in limited circumstances such as a transformative work. Another issue arises when the photo used by the company includes the school’s trademarks or trademarks from sponsors of the school, like the Jordan logo. If the player and/or the company do not have a license from the school or the sponsor to use those marks, that too is infringement. I don’t know about you, but I’ve seen both of these issues come up in these new advertisements, and it’s likely because the individuals involved aren’t used to considering these issues. But for those of us that deal with branding, licensing, and intellectual property, these are everyday issues that we’re constantly considering.

It’s really a matter of education. If the student athletes and their representation are made aware of these issues, it’s likely that there would be fewer problems. Unfortunately, only certain schools/states were prepared to educate the athletes because only about 20% of the states were legalizing monetization of NIL for college athletes. The others had no plans to do so because they lacked state laws permitting such behavior and superseding NCAA policy. It wasn’t until the NCAA changed its policy about two weeks before July 1—the date when all athletes were permitted to start monetizing their NILs. As a result, the large majority of the schools and their compliance departments were unable to timely educate the athletes on these pitfalls. However, I expect that will change as time passes and schools actually have time to generate their own policies to protect their student athletes from these dangers.

I will be doing a webinar on this topic next month, so keep an eye out and feel free to reach out for more information.

Watch the full episode on the Weintraub YouTube channel, here.

Listen to the podcast of this episode on your favorite platform or online, here.