Troy & Schwartz Attorneys-At-Law

This blog, part 1 of a 2-part series on the cancellation of federally registered trademarks, focuses on the cancellation of registered trademarks by operation of law.  The maintenance of federally registered trademarks should be part of a strategic planning approach for protecting and enhancing the value of intellectual property rights obtained through hard work, a dream, and perseverance.   For registered marks that are still being used in commerce, failure to renew these marks may well have a detrimental impact on registered mark’s owner strategic business plans including its exit strategy.  This blog discusses: I) the importance of trademark registration renewals; II) the USPTO’s registered trademark renewal schedule; and III) recommendations for monitoring registration due dates.

I. Background on Registered Trademarks & the Ramifications of Non-Renewal

Federally registered trademarks are valuable, monetizable business assets for even small businesses because they promote brand recognition in the minds of target consumers/businesses.   A registered mark may be leased, sold, and even used as collateral. Registered marks help establish the mark owner’s credibility amongst its customer base, whether that base is comprised of consumers or other businesses.  Also, registered marks allow the mark owner to use and enforce the mark throughout the country in which it is registered.  For the United States, the “reach” of registered trademarks includes all 50 states and U.S. territories.

Securing a registered trademark is no small feat.  That’s why registered mark owners need to understand that mark registration does not automatically result in “forever” associated rights under the law.  Continued registration status is contingent upon the periodic renewal of the mark with the United States Patent & Trademark Office (and/or the foreign office(s) in countries where the mark has been registered).  Failure to renew the registered mark will result in cancellation of the mark.  The only way to get the mark “back” is to submit a new application which may or may not be approved.

Failure to renew a registered mark can have serious ramifications including a decrease in a business’s valuation due to the loss of registration status; failure to procure the same registered mark upon submission of a new application; loss of brand awareness and client loyalty; and greater difficulty for a company to protect its goods or services against piracy or counterfeiting.

If a registered trademark loses its registration status and cannot “regain” registration status, the user of the mark will need to depend on common law rights which are generally more difficult and costly to enforce.   Common law trademarks generally only allow the owner to sue for infringement in state court.  Also, whereas federally registered trademark owners may seek injunctive relief, common law trademark owners are generally restricted to receiving monetary damages. Finally, lack of a registered trademark(s) can also interfere with a company’s growth strategy across state lines including growing a franchise.

Once a mark is cancelled, anybody may file an application to register the mark through the USPTO (or other relevant jurisdiction).  This does not mean that the application will actually evolve into a registered mark since the application will be examined on its own merits.  Theoretically, the former owner of the registered mark may also still have common law priority rights in the mark.

II. The USPTO’s Trademark Renewal Schedule

The owners of a registered trademark must periodically renew their registered trademark to maintain the mark’s registered status.  This process of “renewing” a registered trademark is known as post-registration maintenance.  Failure to do so will result in cancellation of the mark. Trademark law imposes the following renewal deadlines:  between the 5^th and 6^th years after the registration date though a Section 8 Declaration, the 9^th and 10^th years after the registration date, and every 10 years thereafter.  The latter two types of renewals involve the filing of a combined Section 8 and Section 9 Declaration. The Section 8 Declaration actually refers to mark maintenance while the Section 9 Declaration refers to mark renewal.

It is important to note that the registrant is asserting that the mark is indeed being used in commerce when submitting the declarations.  Additionally, the registrant must amend the original description of goods and/or services to delete any goods/services no longer being sold or offered in commerce.  Specimens showing use of the mark must also be submitted. In other words, Section 8/9 Declarations require something more than a statement “we’re good to go.” If the registered mark is no longer being used in commerce with at least one of the registration’s specified goods/services, the registrant should not file a Section 8/9 Declaration.

The USPTO provides a 6-month grace period after each of the deadlines for filing the renewal for an additional filing fee.  Failure to at least file the required declaration within the 6-month grace period will result in cancellation of the registered mark.  The registrant may file a petition to revive the cancelled mark within 2 months of the USPTO’s notice of cancellation.  The petition must be accompanied by all necessary declarations and fees.  If more than 2 months have passed since the USPTO’s cancellation notice, a trademark owner will need to file a new application for the same mark.  There is no guarantee that the new application will evolve into a registered mark.

If a registered mark is subsequently cancelled by operation of law (i.e., for failure to renew), the effective cancellation date stated in the USPTO’s record’s publicly viewable records will be the last day immediately preceding the start of the 6-month grace period associated with the renewal period.

III. Steps a Registered Mark Owner Should Take to Monitor Renewal/Maintenance Due Dates

The commentator advises her trademark/IP clients to do the following to not only maintain their registered trademarks but also to enhance their value and the value of all of the registrant’s other intellectual property:

1. For a new registrant, calendar the due date for the 5/6 year Section 8 Declaration. Ideally, file the documentation on the 5^th anniversary date and no later than 6^th year anniversary date even though the USPTO does offer a 6-month grace period following the 6th year anniversary date .  If our law office obtained the registration on behalf of the registrant, our office also calendars the due dates.  It is recommended that the required documentation be filed by an attorney, preferably the original attorney of record to ensure that any required amendments to the original description of goods and services are made.
2. If a Section 8 Declaration 8 is filed as above, calendar the 10th anniversary date and the last date to timely file the Section 8/9 Declarations if the registrant is going to rely on the 6-month grace period.  Keep calendaring the renewal days in 10 year increments.
3. We encourage all registrants to establish an IP portfolio which contains all government-granted IP rights (patents, registered trademarks, and registered copyrights) wherein the portfolio is maintained by a designated authorized representative for business registrants. Such organized records may come in very handy for those businesses which are seeking investors, potentially involved in an M&A, establishing a growth strategy, or considering selling/licensing their IP assets.  It is noted that issued utility patents must also be maintained periodically. Any such patent owner also needs to calendar patent maintenance due dates.
4. If trademark rights are assigned by the registrant, the assignee should plan to take charge of all renewal dates and calendar the due dates.

In Need of Legal Counsel on Trademark Matters?

Trademark law is a complex area of the law.  Contact Susan at 305-279-4740 for a complimentary consultation on trademark law matters as well as matters related to patents, copyrights, and trade secrets.

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.

© 2023 by Troy & Schwartz, LLC

The blog provides a detailed analysis of the U.S. Supreme Court’s June 29, 2023 decision in Abitron Austria v. Hetronic International, a case which involves international trademark rights.   Justice Sotomayer’s concurrence, reading more like a dissent, is, in this commentator’s opinion, the correct legal application of the Lanham Act.

Quick Overview of Abitron’s Take Home Points:

1. More than ever before, trademark owners will likely need to protect their marks abroad by registering the mark in the countries in which the goods/services will be sold and/or even manufactured.
2. Contracts between U.S. companies and foreign parties need to clearly specify ownership and use of the relevant IP globally to clearly provide a contractual basis for trademark infringement liability related to conduct outside of the U.S.

Analysis

U.S. trademark law is governed by the Lanham Act (“Act”).  The Lanham Act was enacted at a time when international commerce was far less common than it is today. Sections 1114(1)(a) and 1125(a)(1) of the Act specify remedies for trademark infringement.  The former section pertains to situations when a person without the consent a trademark registrant uses in commerce a reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offer for sale, distribution, or advertising of any goods or services or in connection of such use is likely to cause confusion, cause a mistake or deceive with a registered is used in commerce.  The latter section pertains to situations where any person, who on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device or any false designation of origin, false, or misleading description of fact or false or misleading representation of fact is likely to cause confusion, cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person as to the origin, sponsorship, or approval of his or her goods.

Registered marks are enforceable under the laws of the country in which they are registered.  As for infringement activities, neither of the above referenced Lanham Act sections define what is meant by “in commerce.”  That is, does “in commerce” pertain to infringing activities of a U.S. registered mark only in the United States for a U.S. registered mark? Or does it “in commerce” include commerce within foreign jurisdictions?

The underlying case involved Hetronic’s radio remote controls, which are used to operate heavy-duty construction equipment, such as cranes.  An agreement between Hetronic and Abitron allowed Abitron to make and sell Hetronic-branded products that contained genuine Hetronic parts. In 2015, Hetronic sued Abitron and its affiliates in Oklahoma federal court, alleging they breached the contracts by making and selling products with unauthorized parts.   The district court awarded Hetronic a permanent injunction blocking Abitron from further infringement worldwide.  The jury’s $96 million dollar award was upheld by the Tenth Circuit Court of Appeals even though Abitron had argued that 99.98% of its infringing sales happened abroad.

In affirming the district court, the appeals court found that a significant amount of Abitron’s foreign sales of the infringing products ended up in the U.S. and Hetronic provided evidence that these sales caused confusion among U.S. customers and “even Abitron Germany’s own U.S. distributor.”  In finding for Hetronic, the appellate court also stated that the fact that only a small percentage of Abitron’s products made it into the U.S. was irrelevant.  “Otherwise, billion-dollar-revenue companies could escape Lanham Act liability by claiming millions of dollars of their infringing products from entering the U.S. represented only a fraction of their sales.”  The opinion also emphasized that the Lanham Act applied because Abitron “diverted tens of millions of foreign sales from Hetronic that otherwise would have ultimately flowed into the U.S.”

Abitron appealed to SCOTUS arguing that the Lanham Act is not applicable when infringement occurs outside of the U.S. for a U.S. registered mark and does not cause likelihood of confusion within the U.S.  Arbitron again emphasized its “small” percentage of U.S. sales.

SCOTUS construed the “in commerce” references in Sections 1114(1)(a) and 1125(a)(1) as providing no express statement of [the Act’s] extraterritorial application beyond U.S. borders or any other clear indication that [the Act] is one of the ‘rare’ provisions that do apply abroad. Having found that the Lanham Act provisions are not extraterritorial, SCOTUS next determined whether Hetronic’s claims involved domestic (i.e., in the U.S.) conduct.  According to the majority, Arbitron’s use in commerce (i.e., conduct) was not in the U.S.  As such, there could be no likelihood of confusion in the U.S and the Tenth Circuit’s decision was thus vacated.

Justice Sotomayer’s concurring opinion argued that the analysis should actually include a two-pronged approach.  She agreed that there is no indication that the Lanham Act’s “in commerce” provision has an extraterritorial reach.  However, a “domestic application of the statute can implicate foreign conduct in prong two of the analysis so long as the plaintiff proves a likelihood of confusion domestically.”   She concluded that the case should be vacated not because of the majority’s reasoning but because the Tenth Circuit and the district court did not apply the proper two-prong test.  As she emphasized, for a plaintiff to prevail on the second prong of such an analysis, the plaintiff must offer proof of likelihood of confusion by U.S. consumers as a result of the defendant’s extraterritorial infringing activities.  The majority’s statement that such a test would open the floodgates for confusion by the lower courts in applying the Lanham Act is thus misplaced.  Instead, the majority’s conduct-focused test on remand is improper because that test “is not supported by either the Lanham Act or this Court’s traditional two-step extraterritoriality framework.”

In reaching its conclusion, the Court did not rely on its decades-old previous decision on the Lanham Act’s extraterritorial reach in Steele v. Bulova Watch Co. Inc., 344 U.S, 280 (1952). That case involved both domestic conduct by a U.S. citizen and the likelihood of domestic confusion.  The Steele case involved a San Antonio, Texas resident who purchased unfinished Bulova watches and took them to Mexico for finishing.  When he learned that Bulova had not registered its mark in Mexico, he obtained a Mexican trademark which was later cancelled by the Mexican trademark agency.  His watches, sold in Texas and Mexico, were of inferior quality.

The Steele Court held that, “[w]here as here, there can be no interference with the sovereignty of another nation (because the defendant no longer had a Mexico-registered trademark), the District Court, in exercising its equity powers, may command persons properly before it to cease or perform acts outside its territorial jurisdiction.”

The Supreme Court in Abitron noted that the Steele and Abitron cases involve a different set of facts; in Steele, the plaintiff’s “in commerce” conduct within the U.S. was clear.  Even so, unfortunately, the Abitron decision now seemingly immunizes all trademark infringement that originates abroad regardless of whether that infringement (“the conduct”) also causes adverse effects (a damaging result”) in the U.S.   The various circuit courts of appeal had relied on Steele v. Bulova to develop different tests for applying the Lanham Act extraterritorially.  Will these courts now need to reevaluate their tests in light of the Arbitron decision?

Moreover, the Arbitron decision arhttps://www.law.cornell.edu/uscode/text/15/1125guably misses the Lanham Act’s point: that the focus should be on whether consumer confusion (the result) ultimately occurs in the U.S., not whether the defendant’s use (the conduct) was abroad or domestic.  SCOTUS in essence has established a bright-line test, overturning over 60 years of jurisprudence from the various circuits since Steele.  If the defendant’s use in commerce occurs abroad, then no claim can seemingly now be made under Abitron.  Yet with our global economy, the possibility of extraterritorial infringement has increased dramatically including promoting the importation of counterfeit goods into the U.S.  Abitron, as a foreign infringer, may not have intended that its problematic goods ever end up in the U.S., but some did as the district court case found.

The Act’s Section 1125(b) does cover importation of imported counterfeit goods (goods marked or labeled in contravention of the provisions of Section 1125(b) wherein such goods are not to be imported into the U.S. and may be seized by customs and border patrol.  The port of Miami alone seizes millions of dollars of counterfeit goods on an annual basis.  Obviously, the manufacture of such goods is an extraterritorial activity.  But here, the Act clearly is intended to prevent a U.S. effect from happening in the first place.   Unfortunately, foreign counterfeiting of major U.S. brands continues to be a significant problem particularly in the areas of electronics, pharmaceuticals, and fashion.  The Arbitron opinion may well make it more difficult for U.S. companies to enforce their trademarks and stem the flow of counterfeit goods into the U.S. (which happened with Arbitron’s counterfeit products as the jury found) when such items make it past customs and border control.

Conclusions

After Abitron, trademark registration strategies even by smaller companies should consider the possibility of registration in appropriate foreign jurisdictions.  For example, had Hetronic had an Austrian registered mark or an EU registered mark, it would have had an action for trademark infringement in Austria or any EU member country where the infringement occurred.   Please also see the take home points presented at the beginning of this blog.  Contact Susan at 305-279-4740 for a complimentary consultation on international trademark registration strategy.  We liaise with law firms abroad to protect our clients rights on an international basis.

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.

© 2023 by Troy & Schwartz, LLC

Introduction

Intellectual property assets (patents, copyrights, trade secrets, and trademarks) can be sold, assigned, or licensed by the IP’s owner.   For companies, IP ownership issues may arise where steps are not taken to ensure that any IP created by or developed by an employee or independent contractor will belong to the company or hiring party.   Such issues could have a devastating effect on the company under a variety of scenarios as discussed below.  As such, every employee of a company should be required to sign a confidentiality and IP assignment agreement as a condition for employment.  Such an agreement obligates the employee to keep confidential the proprietary information of the business, both during employment and after the employment ends.  The agreement also ensures that any inventions, ideas, creations, business plans, logos, brands, trade secrets, copyrightable works, or services developed within the scope of his/her employment during the term of employment belong to the company and not the employee.

Similarly, all independent contractors should be required to sign a confidentiality/non-disclosure agreement.  If their efforts on the company’s behalf could result in an IP asset(s), the independent contractor should also be required to sign an IP assignment of rights agreement.   Examples  of IP-related works often developed by independent contractors are: APPs, software programs, prototypes, formulations, websites and logos.

Of all the four types of IP, ownership issues involving copyrights are arguably the most misunderstood as the result of the copyright law’s work made for hire doctrine as defined in 17 U.S.C. § 101.

Copyright Ownership as the Result of a Work Made For Hire

Copyright law may seem deceptively simple compared to patent and trademark law especially with regards to the registration process.  Where copyright law can get particularly complicated for the unwary, however, is in the area of copyright ownership.  Under U.S. law, the creator or author of the work is the owner of the copyright.  But what happens if the work was created by and employee in the scope of his/her employment or by an independent contractor who was hired or commissioned to create the work?

Regarding an employer-employee relationship, the work is generally treated as a work made for hire wherein the employer (and not the employee) is deemed the author and owner of the work.  The forms for federal registration of a copyrightable work include a section addressing ownership secured on the basis of a work made for hire.

Regarding an independent contractor relationship, the work may qualify as a work made for hire providing two conditions are met pursuant to the Copyright Act (Act).  First, the work must fall into one of the nine enumerated types of works specified in the Act.  Second, the independent contractor and the hiring party must have also both signed an agreement agreeing that the work to be created is a work made for hire.  If both of these two requirements are met, the hiring party is deemed as the owner of the work created by the independent contractor.

Note the difference between works made for hire by an employee versus those made by an independent contractor.  In the latter case, the type of works qualifying as work made for hire are limited by statute and a written assignment agreement is required for all such “statutorily” defined works made for hire.

What happens if the work created by the independent contractor does not fall into one of the nine enumerated types of works in the Act?  An assignment of rights agreement executed by the independent contractor will be required for the hiring party to “honestly” claim copyright ownership as the claimant in a copyright registration application.

Why the Distinction Between and Employee and an Independent Contractor Is Important

Take the scenario of software developers who are often hired as independent contractors by startup companies.   Software can be copyrighted, but software is not one of the enumerated types of works qualifying as a work made for hire work by Independent Contractors.  Therefore, even with a written agreement stating that the software is a work made for hire, the hiring company will not actually own the copyright to the developed software under the Act even though the software developer (independent contractor) was paid to create the software.   That is, the software developer may well still be the owner of the software despite the work made for hire agreement.   On the other hand software development companies such as Microsoft Corporation that have employees dedicated to developing software are the owners/authors of any copyright-related rights in the software under the work made for hire doctrine.   See the U.S. Copyright Office Records for Microsoft Corporation’s registered copyrights where Microsoft is listed as the author of the work as the result of an employer work made for hire.

Copyright ownership issues as they relate to independent contractors may remain hidden and then arise: 1) when a business is being sold and the sale involves intellectual property (IP) assets such as copyrights; 2) in a copyright infringement lawsuit; 3) or a business is being evaluated by venture capitalists or other investors or is involved in an M&A transaction.    The buyer of IP assets will want assurance that the IP assets are indeed owned by the seller so that they may be effectively assigned to the buyer by a written instrument signed by the seller and the buyer.   A deal could fall through if the seller cannot prove to the buyer’s satisfaction that it – the seller – is the owner of the copyrights and therefore has the right to transfer ownership to the buyer.

As for a copyright infringement lawsuit, standing is a requirement for bringing a lawsuit, namely that the plaintiff is the true copyright owner.   A defendant in a copyright infringement lawsuit may be able to use “lack of ownership” as a defense if the work was created by an independent contractor and the work does not qualify as a work made for hire under the Copyright Act.  That is, ownership remains vested in the independent contractor and plaintiff does not own the copyright it claims is being infringed under the law.  The author of this blog has successfully used lack of ownership of the registered work as grounds for dismissing a copyright infringement lawsuit.

As for scenario #3, the buyer’s due diligence team will also be looking for these agreements with employees and/or independent contractors to ensure that the copyrights (and all of the company’s IP) is owned by the company.

Ensuring the Legally Sufficient Transfer of a Copyright by an Independent Contractor

What steps can be taken to ensure the proper transfer of copyright-related rights from an independent contractor?  Where the work(s) to be created clearly fall into one of the nine enumerated classifications specified within the copyright statute, the  hiring company should require the independent contractor to sign an agreement wherein the work(s) to be created is designated as a work made for hire with all associated copyright-related rights belonging to the hiring party.  This agreement should be executed by both the company and the independent contractor before work on the project commences.

Copyright ownership can also be transferred by an assignment of rights.  For her clients, the author includes an assignment of rights provision within all work made for hire agreements with independent contractors as a precaution to cover the situation where the created work may be found to not qualify as a work made for hire after all.  Thus, if for whatever reason the work should not qualify as a work made for hire because, e.g., it does not fall into one of the nine enumerated categories, the hiring party would still own the copyright as the result of the independent contractor’s assignment of rights to the hiring party.   17 U.S.C. § 201(d)(1).  Any such assignment needs to be clear as to the rights being conveyed and the nature of the underlying works.     For a good discussion of how important an assignment of rights provision may be where the work made for hire conveyance by an independent contractor fails, see Capital Concepts, Inc. v. Mountain Technology Corp., et al., WL 6761880 (W.D. Va. 2012).  In our software development example, the assignment agreement should also state that the independent contractor is assigning any and all patent and trade secret rights to the company since software may also qualify for these types of IP protection.  That is, the company/individual hiring an independent contractor needs to ensure that it is the owner of all potential IP rights emanating from the independent contractor’s work.

We are proud of the legal services we provide to our business and entrepreneurial clients on all matters related to intellectual property law including trademark law.  Contact us at 305-279-4740 to discuss any questions related to IP including ownership questions.   

Troy & Schwartz, LLC

Attorneys-at-Law

Miami, Florida  (305) 279-4740

Where Legal Meets Entrepreneurship™

This blog is for informational purposes only and does not constitute legal advice.

© 2023 by Troy & Schwartz, LLC

On June 6, 2022 a copyright infringement lawsuit was filed in the U.S. District Court for the Central District of California over the new blockbuster film Top Gun Maverick by the heirs of deceased Israeli author Ehud Yonay.  The lawsuit involves a relatively unknown area of copyright law – the recapture doctrine – codified in § 203 of the Copyright Act.  This law gives authors and their heirs the right to recapture ownership of valuable copyrights by “terminating” past assignments and licenses of copyrighted works starting at the end of the 35th year from the date of the grant and for five years thereafter.  The process is complex and requires a notice to the copyright holder as well as the filing of documents with the U.S. Copyright Office.   Recapture is available even if the original grant was for the entire life of the copyright.  The doctrine is attended to provide the copyright owner and heirs with the right to seek new opportunities to receive financial compensation for their copyrighted works.  Such an option is particularly desirable where the copyrighted work’s value has increased over time as is the case here.  The Top Gun Maverick plaintiffs are seeking an injunction and compensation.

Paramount, the movie’s producer and distributor, allegedly secured the exclusive motion picture rights to the author’s copyrighted story which resulted in the release of the first Top Gun film in 1986.  The plaintiffs assert that Paramount knowingly failed to re-acquire the rights to the requisite film and ancillary rights to the author’s copyrighted story prior to the completion and release of the 2022 sequel as a derivative work.  That is, Paramount knew it didn’t have the rights to the sequel but moved ahead with production and distribution anyway.

Mr. Yonay owned the original copyright in the story “Top Guns” which was published in a 1983 issue of California magazine.   The magazine piece described the high-adrenaline world of jet pilots at the US Navy’s “Top Gun” fighter training school. Yonay also later wrote a book, “NO MARGIN FOR ERROR: The Making of the Israeli Air Force.”

Paramount acquired the copyright to Yonay’s story immediately following its 1983 publication which resulted in the release of the 1986 film.  The copyright’s termination of the copyright became effective on January 24, 2020 or within the 5-year window from 2018, the 35^th year following the story’s publication.  The copyright claimant for Yonay’s story was not, however, the author himself but “California Magazine.”  The registration listed in the complaint is for a copyright in a “serial publication,” with California Magazine seemingly claiming authorship under the work-made-for-hire doctrine according to the registration.  See copyright registration no. TX0001213463.

It is unclear whether this underlying registration helps the plaintiffs.  Copyright laws are applied according to the territory in which the lawsuit is filed.  Registration of a work in the U.S. is a prerequisite for the commencement of a copyright infringement lawsuit since the U.S. Supreme’s decision in Fourth Estate Pub. Ben. Corp. v. Wall-Street.com.  Plaintiffs, who are not U.S citizens, may argue that U.S. registration of Mr. Yonay’s underlying story which resulted in the California article is not necessary for foreign nationals and the lawsuit should proceed.  Even if this assertion is found to be a valid basis for proceeding with the lawsuit without registration, the Plaintiff’s will likely need to allege as such under U.S. law.

Also, many of the complaint’s allegations appear to involve the expression of ideas that would fully be expect to be present in any story or film about combat military pilots, in this case navy pilots.  Copyright law does not protect common themes which appear across different works, e.g., romantic themes, works involving detectives, love songs, impressionism in art, etc.  Thus, even if the Plaintiffs pass the “copyright registration” threshold issue, they may have a very difficult time proving actual copyright infringement.

One of the more interesting allegations in the Complaint suggests that the famous scene in the original Top Gun movie where Maverick and Goose’s F14 plane is inverted over a Russian MiG was the author’s original expression. The 1983 California magazine article does reportedly show a photograph with one F-14 plane inverted atop another plane but the article credits a C.J. Heatley as the photographer.  The Complaint makes no mention of Heatley or the photograph and it is not clear from the story whether the “inverted plane orientation” is the author’s original expression and the photograph is a secondary expression which captures the literary expression to add “color” to the story.

This case will either be thrown out early on due to the registration issue without addressing “copying” issues or it will be drawn out.   Dates will be critical since Paramount is maintaining that the sequel was “sufficiently completed” prior to the copyright termination date of January 24, 2020.  Work on the sequel began in 2018.  The plaintiffs allege that the movie was completed in 2021 or well after the copyright’s 2020 termination date. “Big screen” release was postponed until May 27, 2022 after the movie was completed in 2021 because of the pandemic. Mr. Yonay passed away in 2021 or after termination of the copyright.

Plaintiffs contend that they originally sent Paramount a “termination of rights notice” in 2018 based on the 1983 magazine’s publication date.  However, Paramount allegedly ignored the letter apparently believing that the termination was ineffective because they had acquired the rights from the California magazine and not Mr. Yonay himself.  Instead, Paramount moved ahead with the very lucrative sequel.  It’s not clear who advised Paramount on the potential seriousness of this matter in 2018 but that this lawsuit has now been filed should have come as no big surprise.  The heirs now surprisingly are seeking to share in the financial bounty of a terrific movie which may owe its existence to a story written by their loved one almost 40 years ago under a legal doctrine that allows such redress.  Whether or not their claim of copyright infringement will pass muster remains to be seen.

The lawsuit will also likely call into question the underlying contracts between Paramount and California Magazine and California Magazine and Mr. Yonay.  It is noted that if a contract includes a waiver of termination rights by the copyright owner, such a waiver is generally unenforceable.

Stay tuned for periodic updates as the case progresses.

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY                    AND IS NOT LEGAL ADVICE.

Intellectual property law is a complex area of the law.  Contact us at 305-279-4740 for a complimentary consultation on protecting your inventions, creative works, brands, and proprietary information through patents, copyrights, trademarks and trade secrets or our litigation services involving intellectual property disputes.   We represent both individuals and business entities.  Our mission is to serve innovators and creators in protecting the fruits of their hard work and ingenuity through our Client Services Creed:  Conscientious, Rigorous, Energic, Empathetic, and Diligent legal services. 

© 2022 by Troy & Schwartz, LLC

Take Home Points

1. File at least a provisional patent application before taking steps to commercialize and sell an invention.
2. Understand the ramifications of the on-sale bar to patentability.
3. If engaging in experimentation with others prior to filing a patent application, ensure that contracts are very clear concerning the experimentation purpose.
4. Be very careful about making an offer for sale of the invention prior to filing a patent application. An offer for sale can take many forms including a contract, proposal and/or invoice.

Section 102(b) of the Patent Act involves the on-sale bar to patentability.  The America Invents Act (“AIA”) amended § 102(b).  Any patent issuing from an application filed before May 16, 2013 which is later subjected to an on-sale bar analysis in a patent infringement analysis will be analyzed under pre-AIA § 102(b). This section states that a patent claim is invalid under 35 U.S.C. § 102(b) if “the invention was  . . .  on sale in this country more than one year prior to the date of the application for patent in the United States.”

This commentator recently published a blog on the CAFC’s February 2022 opinion in Junker v. Medical Corp., Inc where the Court held that the patentee had not timely filed a patent application under § 102(b) of the Patent Act.  Also see that blog for a comparison of the pre-AIA § 102(b) and the post AIA statute.  In Junker, the patent owner’s damages for patent infringement awarded by the district court were negated.  Now we have another decision in just over two months where the patent owner has had patent claim rights adversely affected because of failure to timely file a patent application.

On April 29, 2022^, in Sunoco Partners Marketing v. U.S. Venture, Inc., the CAFC again addressed the on-sale bar to patentability.  The patent at issue involved an application filed on February 9, 2001.  Accordingly, based on 35 U.S.C. § 102(b), the critical date (the latest date on which the patentee could have made an offer for sale without violating the on-sale bar) was Feb. 9, 2000.  Here, the patentee’s offer for sale was Feb. 7, 2000.  Put another way, once the offer for sale was made, the patent applicant had exactly one year to file the patent application or until Feb. 7, 2001.

In Sunoco, the defendant asserted an on-sale bar defense to invalidate claims in two of Sunoco’s patents. To prevail, the defendant needed to demonstrate by clear and convincing evidence that the patented invention was both: (1) “the subject of a commercial offer for sale”; and (2) “ready for patenting.”  Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 57 (1998).

A factor which may allow the patent owner to negate an on-sale bar invalidation is whether the offer for sale occurred primarily for purposes of experimentation.  The “experimentation” exception to the on-sale bar was first articulated by the U.S. Supreme Court in City of Elizabeth v. Am. Nicholson Pavement Co., 97 U.S. 126, 137 (1877):  [E]xperimental use allows inventors to delay patenting to engage in “bona fide effort[s] to bring his invention to perfection or to ascertain whether it will answer the purpose intended.”  At the same time, “[a]ny attempt to use [the invention] for a profit and not by way of experiment” before the critical date will “deprive the inventor of his right to a patent.”  Ultimately, as the City of Elizabeth court explained, the on-sale bar is related to the monopoly afforded to a patentee – to have the government-granted right to seek legal recourse for the unauthorized use of the patented invention for a statutory period of time.   The on-sale bar prevents a subsequent patentee from “acquiring an undue advantage over the public by “preserv[ing] their monopoly . . .  for a longer period than is allowed.”

Sunoco, the current owner of the patents at issue, argued the on-sale bar was not violated because the inventor’s company, MCE Blending (“MCE”) offer to sell the invention to Equilon Enterprise, LLC (“Equilon”) was primarily for experimentation purposes.  The district court agreed and held found that the defendant’s on-sale bar defense was negated by the experimental use doctrine.

The CAFC disagreed on the basis of the terms of a contract between the inventor’s company and MCE.  The opinion is instructive because it demonstrates how a contract’s terms can play a critical role in upholding or defeating patent rights.  Whether such a transaction was for primarily for experimental or commercial purposes is a “question of law to be analyzed based on the totality of the surrounding circumstances.”   The Sunoco court assessed the transaction “under contract law as generally understood, focusing on those activities that would be understood to be commercial offers for sale in the commercial community.”

The invention was for an automated butane-blending system to maximize a desirable property of combining butane and similar gasoline components.

Based on the following contractual words and terms, the transaction was deemed to be a commercial offer for sale for the following reasons:

1. The contract expressly described the transaction as a sale without any mention of any experimental purpose.
2. The contract stated that MCE already developed the relevant technology and equipment, that Equilon wanted to purchase it, and that MCE was willing to sell it, install it, and supply butane for it in return for Equilon’s agreement to purchase several hundred barrels of butane from it over a period of five years.
3. The contract stated that MCE is willing to install the blending Equipment and to supply the butane required for such blending to Equilon.
4. The contract stated that the ownership and title to the Equipment shall be conveyed to Equilon by MCE upon completion of the installation and training. MCE was to execute a bill of sale to effectuate the conveyance of ownership of the Equipment to Equilon.
5. The contract referred to Equipment Testing and not Experimental Evaluation.

The district court concluded that there had been no offer of sale of the invention because the contract “did not require Equilon to pay MCE anything in exchange for the system which incorporated the invention.  In contrast, the CAFC opined that Equilon purchased MCE’s equipment by committing to buy MCE’s butane.  In other words, it incurred a real if indirect cost.   Had the contract not intertwined the equipment’s required installation with Equilon’s obligation to buy butane, the CAFC indicated that it would not have characterized the transaction as a sale.

The CAFC further emphasized that the concept of experimental use can be difficult to establish.  For example, the contract had a section entitled “Equipment Testing” with two sets of testing:  pre-installation testing and post-installation testing.  Sunoco argued that MCE wanted “to experiment at the actual tank farm and determine whether their inventive idea was capable of performing its intended purpose in its intended environment.” MCE therefore would need access to Equilon’s facility to test under action conditions.  However, testimony revealed that the testing, which focused on determining whether that system could communicate with one of the equipment’s components was not done at Equilon, after all but by a third party.  Additionally, the testing could have been done at any time prior to entering into the offer for sale with Equilon.   This was not a situation involving, e.g., street pavement, which cannot be experimented upon satisfactorily except on a highway.  Sunoco court quoting City of Elizabeth, 97 U.S.C. 134.

The commentator adds that large, expensive equipment is often set up and qualify assurance tests conducted by the seller’s employees.  However, these are not “experimental purpose” activities because the buyer is expecting the equipment to work.  A good example is medical diagnostics equipment.

The inventor’s subjective intent concerning experimentation is of minimal importance.  The courts have generally looked to objective evidence to show that a precritical date sale was primarily for experimentation.   The opinion includes a useful list of objective indicia relied on by the courts in footnote 5.  In this case: 1) the terms of the sale agreement itself constituted objective evidence; and 2) the nature of the experimentation was such that it could have been done prior to the sales offer.

In conclusion, the CAFC held that the Equilon agreement was an offer for sale to commercially exploit the invention rather than primarily for experimentation purposes. Equipment which incorporated the invention was ready for use at the time the contract was entered into and ready for patenting based on objective evidence.   The district court’s experimental-use determination was reversed and its infringement determination with respect to the pertinent claims was vacated.   The decision involved some other issues which are separate from the 102(b) discussion of this blog for those interested.

If you have any questions about when you should file a patent application to preserve your rights, contact Susan at 305-279-4740.

WE THANK YOU READING THIS BLOG AND HOPE YOU FOUND IT INFORMATIVE.  HOWEVER, THE CONTENT IS PROVIDED FOR INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE.  IF YOU ARE CONTEMPLATING ANY ACTION THAT MAY HAVE LEGAL CONSEQUENCES, CONSULT WITH AN ATTORNEY.

©2022

Troy & Schwartz, LLC

Where Legal Meets Entrepreneurship™

(305) 279-4740