Buried in the 5,500-page Consolidated Appropriations Act for 2021 among various COVID-19 relief was the Trademark Modernization Act of 2020 (“TMA”). The TMA, which will become effective on December 27, 2021, makes several important amendments to federal trademark law (the Lanham Act) intended to modernize trademark application examinations and clean house of trademark registrations for marks not used in commerce. For litigants, the TMA also adds important clarity to the Lanham Act’s standard for obtaining injunctive relief by restoring the rebuttable presumption of irreparable harm called into question by the Supreme Court’s decision in eBay v. MercExchange, LLC, 547 U.S. 388 (2006). A summary of these key changes for trademark registrations and trademark litigation follows.

Ex Parte Challenges to Current Trademark Registrations

A significant impetus for the TMA was comments during a 2019 hearing before the House Subcommittee on Courts, Intellectual Property, and the Internet concerning “clutter” and “deadwood” on the United States Patent and Trademark Office (“USPTO”) trademark registers. As of July 18, 2019, the USPTO trademark register comprised approximately 2.4 million registrations.[1]  As testified by Commissioner for Trademarks Mary Boney Denison, the USPTO had seen an increase in trademark applications or registration maintenance filings that contained false or misleading claims and information, particularly with regard to specimens of use.[2] Trademark applicants are required to submit evidence with their applications that the applied-for trademark is actually being used in commerce in the class of goods or services listed on their respective application. Trademark owners are required to regularly submit similar evidence to maintain their registrations. Commissioner Denison testified that the USPTO has increasingly received fake or digitally altered specimens that do not actually show use of the mark in commerce as required by the Lanham Act.[3] These false submissions, as well as excessive registrations for marks no longer in use, limit the usefulness of Trademark Register and significantly increase trademark clearance costs.

The TMA seeks to address these issues through two new ex parte proceedings. The first mechanism, an ex parte reexamination, permits third parties to challenge use-based registrations where the trademark owner swore that the marks were used in commerce, either in the application itself or in a statement of use. This mechanism allows the USPTO to reexamine the accuracy of the applicant’s claim of use at the time the averment was made. The second mechanism primarily targets foreign applications that claim use under Lanham Act section 44(e) or 66(a)—which allows foreign applicants to bypass submitting a statement of use in lieu of providing evidence of trademark registration in another country—and allows challenges to marks that have never been used in commerce. These proceedings can each be initiated by submitting testimony or evidence establishing a prima facie case of non-use, or the Director of the USPTO may determine on his or her own initiative that a prima facie case of nonuse exists. The registrant will then have the opportunity to respond to the alleged prima facie case. The registration will then either be cancelled, subject to the registrant’s right of appeal to the Trademark Trial and Appeal Board, or confirmed valid. A validity decision will preclude all further ex parte challenges to the registration.

These ex parte mechanisms add renewed focus to the Lanham Act’s requirement of “use” for trademark rights. The Lanham Act requires “bona fide use of a trademark in the ordinary course of trade.” For goods, that can include consistently placing the trademark on the product or its packaging, labels, or tags or, if it is impractical to use on the product itself, invoices and documents associated with the sale of the goods. For services, use can include advertising in connection with actual offers for the services.[4] Given these new mechanisms and an increase in fraudulent applications, USPTO trademark examiners may more strictly scrutinize specimens of use for compliance with trademark use requirements. To avoid unnecessary delays in trademark applications, applicants should take care to ensure specimens meet the requirements of the Trademark Manual of Examining Procedure (“TMEP”) and that their use actually qualifies as trademark use. Experience intellectual property counsel can help clients navigate the TMEP and trademark application procedures.

Changes to Trademark Registration Examination Procedures

The Lanham Act currently requires trademark applicants to respond to office actions issued during the examination within 6 months. The TMA now allows the USPTO increased flexibility to set shorter response deadlines. Specifically, the USPTO can, through regulations, set shorter response periods between 60 days to 6 months, provided applicants can receive extensions of time to respond up to the standard 6 months. Much like extensions of time granted by the USPTO for patent applications, any such extension requests will incur additional fees.

Formalization of the Informal Protest Procedure

Though not a formal process, the USPTO has long allowed third parties to submit evidence regarding registrability of a mark during examination of a trademark application. Section 3 of the TMA now formalizes that process by: (1) expressly allowing third party evidence submissions; (2) setting requirements that the submission include identification of the grounds for refusal to which the submission relates; and (3) authorizing the USPTO to charge a fee for the submission. The USPTO is required to act on that submission within two months of its filing. The decision on the submission is final, but the applicant may raise any issue regarding the grounds for refusal in the application or any other proceeding.

Presumption of Irreparable Harm for Trademark Infringement Plaintiffs

The primary goal of most trademark infringement litigation is to stop the infringing behavior, typically through injunctions. Section 6 of the TMA provides that a “plaintiff seeking an injunction shall be entitled to a rebuttable presumption of irreparable harm.” This language codifies a standard that most courts had applied to establish harm before the U.S. Supreme Court’s 2006 decision in eBay v. MercExchange, LLC.[5] In eBay, the Supreme Court held that patent owners were no different than any other litigant seeking equitable relief, so those owners must demonstrate irreparable harm to be entitled to a permanent injunction. Several courts then applied eBay’s holding by extension to trademark owners, finding they also must demonstrate irreparable harm for an injunction to be warranted.[6] Some courts, like the Fifth Circuit, have struggled in their application of eBay to trademark infringement disputes, leading to confusion and disagreement among lower district courts.[7] The eBay decision thus ultimately led to a circuit split on whether the rule presuming irreparable harm remained valid in Lanham Act cases.[8]

The TMA makes clear that trademark infringement plaintiffs are entitled to the presumption that they will be irreparably harmed if the infringer is allowed to continue use of the infringing trademark. Section 6(b) further confirms the retroactivity of this presumption, stating that Section 6’s amendment “shall not be construed to mean that a plaintiff seeking an injunction was not entitled to a presumption of irreparable harm before the date of enactment of this Act.” This change increases the likelihood that trademark infringement plaintiffs will be awarded preliminary and permanent injunctive relief, decreasing overall litigation costs and evidentiary burdens on plaintiffs.

The Trademark Modernization Act of 2020 addresses a grab-bag of challenging trademark issues that together provide additional protections for trademark owners and, ultimately, consumers. Trademark owners seeking to register their marks will soon have expedited procedures to tackle fraudulent or “deadwood” registrations that block their trademark applications. The Act further resolves a circuit split for awarding an injunction, easing the burden on trademark owners to show harm. While the ultimate effect of the TMA remains to be seen, these changes should empower trademark holders with additional tools to combat problematic registrations and ease litigation burdens.

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[1] Statement of the Commissioner for Trademarks Mary Boney Denison before the United States House Subcommittee on Courts, Intellectual Property, and the Internet Committee on the Judiciary, Jul. 18, 2019 (available at https://www.uspto.gov/about-us/news-updates/statement-commissioner-trademarks-mary-boney-denison-united-states-house_).

[2] Id.

[3] Id.

[4] Services must actually be offered in connection with the advertisement to qualify as “use.” Couture v. Playdom, Inc., 778 F.3d 1379 (Fed. Cir. 2015).

[5] 547 U.S. 388 (2006).

[6] See Peter J. Karol, Trademark’s eBay Problem, 26 Fordham Intell. Prop. Media & Ent. L.J. 625, 636–653 (2016) (available at https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=1623&context=iplj); Mark A. Lemley, Did eBay Irreparably Injury Trademark Law?, 92 Notre Dame L. Rev. 1795 (2017) . See also Gene Quinn, “Why eBay v. MercExchange Should, But Won’t, Be Overruled”, IPWatchdog.com (Feb. 16, 2020) (https://www.ipwatchdog.com/2020/02/16/ebay-v-mercexchange-wont-overruled/id=118929/).

[7] See Karol, supra n. 5 at 646–47.

[8] Testimony of Douglas A. Rettew, “Fraudulent Trademarks: How They Undermine the Trademark System and Harm American Consumers and Businesses” at p. 13, Hearing Before the Senate Committee on the Judiciary, Subcommittee on Intellectual Property (Dec. 3, 2019) (available at https://www.judiciary.senate.gov/imo/media/doc/Rettew%20Testimony.pdf).

The Case Act of 2020 provides cost-effective means to protect copyrights. With the passage of the Copyright Alternative in Small-Claims Enforcement Act of 2020 (the “CASE Act”), Congress has blessed the creation of an alternative forum for copyright infringement claims, the Copyright Claims Board (“CCB”) within the U.S. Copyright Office, in which claimants can seek to resolve certain copyright claims in a more expeditious and cost effective manner.

The CCB has authority to render decisions on copyright infringement claims, declaratory judgment claims, misrepresentation claims in connection with the Digital Millennium Copyright Act (DMCA) notifications, and counterclaims for infringement or DMCA misrepresentations that arise under the same transaction, occurrence, or agreement at issue in the primary claim. However, the board has limited jurisdiction to hear matters with a maximum amount of damages in the aggregate of $30,000, excluding fees and costs. Moreover, the CCB does not have authority over claims or counterclaims previously decided or currently pending before another court, claims or counterclaims by or against a Federal or State governmental entity, and claims or counterclaims asserted against a non-United States resident individual or entity.

In direct contrast to federal court litigation, a claimant before the CCB is only required to have a pending application for copyright registration prior to initiating an action, but the CCB cannot make a determination on a claim over a pending application until after the Copyright Office has issued a registration and the other parties have had an opportunity to address the registration certificate. Subject to the $30,000 cap mentioned above, the CCB can award actual damages and profits under existing copyright law, while considering any mitigation efforts of the infringer. Prior to the CCB’s final determination, a claimant may elect to recover statutory damages provided by existing copyright law subject to the limitations that damages for timely registered works may not exceed $15,000 for each work, and damages for works not timely registered are limited to $7,500 for each work or a total of $15,000 in any one proceeding. In awarding statutory damages, the CCB is required to consider mitigation efforts of the infringer, but not willfulness.

The 2020 Protecting Lawful Streaming Act seeks to stop widespread unlawful streaming. The Protecting Lawful Streaming Act of 2020 was introduced on December 10, 2020 by Senator Thom Tillis, and ultimately added to the omnibus Consolidated Appropriations Act, 2021 that was signed into law on December 27, 2020. (Division Q, Title II, § 211). Prior to releasing the text of the bill, Senator Tillis received heavy pushback from tech companies and free speech advocates that were concerned that the intent of the bill was to target individual online streamers. However, the language of this new provision very clearly targets commercial or for-profit websites operating as “digital transmission services” engaged in wide-spread illicit streaming or piracy. The new law prohibits unauthorized digital streaming of copyrighted work when the streaming is done willfully or for the purpose of commercial gain, and the website is: (1)primarily designed for unauthorized streaming; (2) has no commercially significant purpose other than unauthorized streaming; or (3) is intentionally marketed to promote its use for unauthorized streaming.

Ordinary violations can amount to being fined and/or imprisonment for up to three years, while violations concerning works being prepared for commercial public performance allow for fines and/or imprisonment for up to five years if the violator knew or should’ve known that the work was being prepared for commercial public performance. Repeat offenders may be sentenced to prison for up to ten years for second and subsequent convictions under this section.

If you had ears in mid-2014, you’ve heard pop-star Taylor Swift’s Billboard Hot 100 song, “Shake it Off.” The lyrics feature a catchy phrase (apologies in advance for getting it stuck in your head):

‘Cause the players gonna play, play, play, play, play

And the haters gonna hate, hate, hate, hate, hate

Baby, I’m just gonna shake, shake, shake, shake, shake

I shake it off, I shake it off’

Based on these lyrics, two song writers from 3LW, an all-girl group that gained popularity in the early 2000s, sued Taylor Swift for alleged copyright infringement of their song Playas Gon’ Play. The suit was filed back in 2017 in the U.S. District Court for Central California.

In this latest development, Swift filed a motion to dismiss with the district court on the ground that the disputed lyrics lacked sufficient originality to enjoy copyright protection, for various reasons. The district court agreed with Swift, and the plaintiffs appealed to the Ninth Circuit. The Ninth Circuit reversed the dismissal on the ground that the originality of the lyrics could not be determined as a matter of law and remanded the case back to the district court with the directive to consider Swift’s alternative arguments in support of the motion to dismiss.

Both sides filed supplemental briefs, with Swift arguing that Plaintiffs’ claim is precluded because the unprotected ideas underlying the alleged copied words merged with those words, rendering them unprotectable too. That is, Swift alleged that the “merger doctrine” precluded copyright protection because there is practically only one way to express the idea of “people will do what they will do”.[1]

Copyright protection does not extend to ideas, only to expression. And the merger doctrine recognizes that “some ideas can only be expressed in a limited number of ways. . . . When expression is so limited, idea and expression merge.”[2]  In that situation, because the would-be copyright owner cannot own the idea itself, courts cannot protect the expression.

Citing the merger doctrine, Swift argued that the expressions players gonna play and haters gonna hate were merged with the underlying idea that “people will do what they will do.” The district court disagreed that such a finding was appropriate at this stage in the litigation, holding that:

But, as Plaintiffs note, their lyrics, as alleged, are more complex than people will do what they will do, and it is not abundantly clear from the Complaint that there are sufficiently few means of expressing this idea.

Accordingly, the district court denied Swift’s motion. So, for now, Plaintiffs’ case will “keep cruising, can’t stop, won’t stop moving.”[3]

The case is: Sean Hall et al. v. Taylor Swift et al., Case No. CV 17-6882-MWF.

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[1] Courts will not protect a copyrighted work from infringement if the idea underlying the work can be expressed only in one way, lest there be a monopoly on the underlying idea. See EtsHokin v. Skyy Spirits, Inc., 225 F.3d 1068, 1082 (9th Cir. 2000)).

[2] See e.g., Zalewski v. Cicero Builder Dev., Inc., 754 F.3d 95, 102 (2d Cir. 2014) (internal cites omitted).

[3] Lyrics to “Shake it Off” by Taylor Swift, with Max Martin, Shellback.

In United States Patent & Trademark Office v. Booking.com B. V.,[1] SCOTUS held that a mark styled as “generic.com” is eligible for federal trademark registration if the applicant shows  “generic.com” is not a generic name to consumers. Although the Court did not expressly say so, this decision chips away at the rule that generic terms cannot become protectable marks.[2]

A travel-reservation agency known as “Booking.com” sought to register a trademark for its website of the same name with the United States Patent and Trademark Office (“PTO”). The PTO denied the registration concluding that the term “Booking.com” is a generic name, a name of a class of products or services instead of a specific brand. So, BOOKING.COM was ineligible for federal trademark registration.

According to the PTO, “booking” was a generic term for online hotel-reservations, and the combination of generic term with “.com” did not overcome this finding.[3] Booking.com sought judicial review, and the District Court determined that BOOKING.COM—unlike the term “booking” standing alone—is not generic. The Court of Appeals affirmed and the PTO sought review with SCOTUS.

The 8–1 majority opinion plays out a clash between two principles of trademark law: the ability to distinguish one’s goods from another’s based on consumer recognition and the need to leave generic terms in the public domain.[4]

The PTO relied on the principle articulated in Goodyear’s India Rubber Glove Mfg. Co. v. Goodyear Rubber Co., 128 U. S. 598 (1888), which stated that a generic term followed by word “company” is not trademark-eligible. But the majority opinion distinguished the prior ban on generic terms by noting that that the mark “generic.com” implies a specific website domain that is only occupied by one entity at a time. So, if the public perceives “generic.com” as a specific brand name—which, in the case of BOOKING.COM, consumer surveys indicate it does—the term acquires the descriptiveness needed for federal trademark registration.[5]

Although the majority noted that marks like BOOKINGS.COM would be “weak” marks that would necessarily be difficult to enforce in court, Justice Breyer, the lone dissenter, urged that the majority underestimated the anticompetitive effects of the holding. According to Justice Breyer, “[t]erms that merely convey the nature of the producer’s business should remain free for all to use.”[6]

With this decision, SCOTUS has decisively expanded the availability of federal registration for domain names containing generic terms. This relaxing of the sweeping anti-generic rule may indicate an uptick in trademark registrations for historically generic terms (as long as they include “.com”).

The author wishes to thank their law clerk, Joseph Balhoff, for their assistance in preparing this article. 

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[1] The opinion is available at: https://d2qwohl8lx5mh1.cloudfront.net/5OsQDpOQ2dJ63nh0n-PMog/content.

[2] See Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 9 (2d Cir. 1976).

[3] United States Patent & Trademark Office v. Booking.com B. V., No. 19-46, 2020 WL 3518365, at *2 (U.S. June 30, 2020).

[4] Id. at *9 (Breyer, J., dissenting).

[5] Id.

[6] Id. at *9 (citing Goodyear, 128 U.S. at 603).

COVID-19 has shuttered businesses across the globe with no “grand return” day yet in sight. Looking to generate revenue while brick and mortar locations are closed, businesses are turning to the online sales and services, many for the first time. Fine dining restaurants that have never before offered takeout are now doing so, shops are holding sales using social media, and restaurant food purveyors are now selling to the general public. Local boutiques that have before never had an online storefront are now conducting website sales and local porch deliveries. In one interesting case, the reservations website Tock recently pivoted to offer “Tok to Go” and is managing takeout orders for the restaurants on their platform.[1] For smaller businesses now scrambling to adjust to today’s virtual market, website privacy policies are likely not at the top of the priority list. However, if material changes have been made to the business’ website to accept online orders, and the website is now newly collecting the personal data of visitors, the website privacy policy must be updated.

A website privacy policy is an important legally binding document that notifies visitors as to the types of personal information gathered from visitors and how the website operator uses, stores, manages, and/or distributes that information. Types of personal information that are typically gathered from websites that allow account creations and/or online purchases include names, email addresses, phone numbers, billing and shipping addresses, payment information, and other data. Websites may also passively gather data about the users’ device and location including GPS data, IP address, service provider, ISP, website traffic, and additional data through cookies, web pixels, and other tracking technologies. Regardless of whether the user actually reads the privacy policy, the policy is intended to govern the user’s interactions with the website and how the website operator can use the data provided by visitors.

The general rule on privacy policies is that the disclosures must be clear, complete, and not misleading. If the privacy policy states that the website operator does not sell user data, then the website operator should not be selling user data. Federal legislation on privacy policies is limited; however, the Federal Trade Commission has taken up the mantle of bringing regulatory actions against companies whose actual data practices conflict with their privacy policies and against companies who post misleading privacy policies. In 2019, the FTC imposed a $5 billion penalty and sweeping new privacy restrictions on Facebook, which the FTC charged with violating FTC orders by deceiving users about their ability to control the privacy of their personal information.[2] The FTC consent judgment claims that Facebook repeatedly used deceptive disclosures and settings for user privacy preferences that allowed Facebook to share users’ personal information with third party apps downloaded by the user’s Facebook Friends without the knowledge of the user. While the Facebook penalty is the largest ever levied by the FTC, the agency has routinely brought enforcement actions against entities whose privacy policies did not meaningfully provide notice before sharing personal information or using the collected data in a substantively different manner than described in the policy.

For many local and small businesses, websites can be fairly basic. A local restaurant may have a webpage that just displays the menu, location, and hours of operation. A local boutique may have a webpage that only displays hours of operation, location, and a few frames from its recent Instagram posts. For websites like these that do not use tracking technologies, account creation, online ordering, or any other kind of user interaction features, privacy polies can be fairly basic since little personal information is being collected. But with the pivot to an online model, if a website is now accepting personal information to fulfill online orders, the privacy policy needs to be updated to account for those changes.

That need for update goes double for any businesses located in California or with significant enough contacts to California to make the business subject to the new California Consumer Privacy Act (CCPA). The CCPA, which went into effect in January 2020, requires that each website have a Privacy Policy that advises California consumers of the various rights the CCPA gives to them. The CCPA gives California consumers several rights with regards to the data collected about them, including the rights to: (1) request disclosure of the business’ data collection and sales practices for the particular consumer; (2) request a copy of the personal information collected about the consumer during the 12 months before the request; (3) have the collected information deleted, with certain exceptions; (4) request that the personal information not be sold to third parties; and (5) not be discriminated against for exercising any of these rights. Despite requests from industry groups for delay due to COVID-19 logistical issues, the California Attorney General will not be delaying enforcement of the CCPA, which is scheduled to begin on July 1, 2020.

Privacy policies are not exciting, but they are a vital aspect of doing business and collecting data online. If your business has recently expanded its online offerings, be sure your privacy policy covers those changes.

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[1] Kristen Hawley, “Your Reservation Has Been Canceled: How apps like OpenTable, Tock, and Resy are pivoting to keep themselves – and restaurants – afloat in a world without bookings”, Eater, Vox Media (Apr. 22, 2020) (https://www.eater.com/2020/4/22/21223993/reservation-apps-coronavirus-changes).

[2] “FTC Imposes $5 Billion Penalty and Sweeping New Privacy Restrictions on Facebook”, Federal Trade Commission (Jul. 24, 2019) (https://www.ftc.gov/news-events/press-releases/2019/07/ftc-imposes-5-billion-penalty-sweeping-new-privacy-restrictions).

We previously reported that the United States Patent and Trademark Office granted a 30 day extension for many proceedings in response to the COVID-19 pandemic. The time period for this extension has been extended. As of time of publication, the USPTO has issued Orders granting a 30 day extension for (1) the specific filings set forth below that (2) had deadlines which fell between March 27, 2020 and May 31, 2020, extending the time period from the prior cut-off of April 30.  To invoke this extension, the filing must be accompanied by a statement that the delay in responding was due to the COVID-19 outbreak as specified in the Order.

Patent:

  1. reply to an Office notice issued during pre-examination processing by a small or micro entity;
  2. reply to an Office notice or action issued during examination or patent publication processing;
  3. issue fee;
  4. notice of appeal under 35 U.S.C. § 134 and 37 C.F.R. § 41.31;
  5. appeal brief under 37 C.F.R. § 41.37;
  6. reply brief under 37 C.F.R. § 41.41;
  7. appeal forwarding fee under 37 C.F.R. § 41.45;
  8. request for an oral hearing before the Patent Trial and Appeal Board (PTAB) under 37 C.F.R. § 41.47;
  9. response to a substitute examiner’s answer under 37 C.F.R. § 41.50(a)(2);
  10. amendment when reopening prosecution in response to, or request for rehearing of, a PTAB decision designated as including a new ground of rejection under 37 C.F.R. § 41.50(b);
  11. maintenance fee, filed by a small or micro entity; or
  12. request for rehearing of a PTAB decision under 37 C.F.R. § 41.52.

Trademark:

  1. response to an Office action, including a notice of appeal from a final refusal, under 15 U.S.C. § 1062(b) and 37 C.F.R. §§ 2.62(a) and 2.141(a);
  2. statement of use or request for extension of time to file a statement of use under 15 U.S.C. § 1051(d) and 37 C.F.R. §§ 2.88(a) and 2.89(a);
  3. notice of opposition or request for extension of time to file a notice of opposition under 15 U.S.C. § 1063(a) and 37 C.F.R. §§ 2.101(c) and  § 2.102(a);
  4. priority filing basis under 15 U.S.C. § 1126(d)(1) and 37 C.F.R. § 2.34(a)(4)(i);
  5. priority filing basis under 15 U.S.C. § 1141g and 37 C.F.R. § 7.27(c);
  6. transformation of an extension of protection to the United States into a U.S. application under 15 U.S.C. § 1141j(c) and 37 C.F.R. § 7.31(a);
  7. affidavit of use or excusable nonuse under 15 U.S.C. § 1058(a) and 37 C.F.R. § 2.160(a);
  8. renewal application under 15 U.S.C. § 1059(a) and 37 C.F.R. § 2.182; or
  9. affidavit of use or excusable nonuse under 15 U.S.C. § 1141k(a) and 37 C.F.R. § 7.36(b).

Please note that the Order is limited to certain filings and does not extend the deadlines to file patent applications with the USPTO. Anyone seeking to maintain provisional patent application priority should immediately consult with his or her attorney. Additionally, the continued extensions are placing some pending trademark applications in limbo. Ordinarily, trademark applications are published for a period of 30 days to allow third parties to oppose the mark.  Because the Trademark Order extends the opposition period, applications cannot complete this stage of the application process and pass to the next stage, which is typically allowance.

For a full copy of the USPTO’s new notices, please see Patent Notice and Trademark Notice. Interested parties should always check the USPTO for the most up to date information on filings.

 

Intellectual property comprises some of the most valuable assets a business may hold – its brands, patents, know-how, and other intangible rights that make the business unique.  The intellectual property assets (IP) throughout the energy sector—upstream, midstream, downstream and service providers along the way—will be affected as more energy companies seek bankruptcy relief in the wake of both the oil price war and the Covid-19 pandemic. Even companies not considering bankruptcy for themselves are likely to be affected when their IP licensors or licensees file for bankruptcy.

There is no one-size-fits-all answer to IP or bankruptcy issues, much less when they collide in a licensor or licensee’s bankruptcy case. A creditor-licensor of intellectual property rights is in a vastly different position than a creditor-licensee who takes its rights from a newly bankrupt party. This article explains some of the rights and obligations of the non-debtor licensor and licensee of IP. It also provides a brief overview of how potential IP buyers can benefit from Section 363 of the Bankruptcy Code, which allows them to acquire a bankrupt entity’s IP assets free and clear of that entity’s liabilities.

1. Rights and restrictions by a licensor against the debtor-licensee.

When an IP licensee files bankruptcy (i.e., becomes the “debtor” in a bankruptcy case), the non-debtor licensor may be placed in a precarious position.  Debtors are debtors because they cannot (or will not) pay their debts. If the debtor-licensee was already behind on license payments, and then files bankruptcy, the non-debtor licensor’s first instinct may be to terminate the license. Once the bankruptcy is filed, however, the licensor cannot unilaterally terminate the license without bankruptcy court approval.  The filing of a bankruptcy petition triggers an “automatic stay,” which prevents creditors from taking any actions against the debtor and its estate due to pre-bankruptcy debts. Violations of the automatic stay can carry hefty fines or worse; therefore, it is imperative to tread carefully and seek advice of counsel before taking any actions against a bankrupt debtor. Moreover, many courts have found that the “automatic termination” clauses that trigger upon a filing of bankruptcy are unenforceable. Thus, before terminating the license, the non-debtor licensor must obtain permission to do so from the bankruptcy court.

A bankruptcy filing gives the debtor-licensee great latitude in how to treat what is termed an “executory” IP license. The classification of a license as “executory” is an important distinction because a debtor-licensee may elect to reject (terminate), assume (keep the license as-is), or assign (effectively, sell or otherwise transfer)[1] an executory license. See 11 U.S.C. §365. While the bankruptcy statute does not define the term, a contract is generally considered “executory” if each party has ongoing obligations to perform in some way, and courts have been overly accommodating in finding contracts to be executory. For example, some courts have determined that a licensor’s continued obligation not to sue its licensee for infringement caused the license to be executory. Obligations as simple as a licensee’s requirement to maintain confidentiality, appropriately mark a patented product, or provide accounting of sales have been found to satisfy the “continued obligation” requirement.

A licensee’s ability to assume or assign a license may raise great alarm to a licensor concerned that its rights could fall into the hands of an ineffective licensee or a competitor.  Luckily, the power to assign or assume a license is not absolute. Section 365(c)(1) of the Bankruptcy Code prevents a debtor-licensee from assigning or assuming an executory contract when (a) the licensor does not consent to the assumption/assignment and (b) applicable law otherwise excuses the licensor from accepting performance or rendering performance to another party. While an anti-assignment clause in the license will be disregarded for these purposes, a clause that specifically allows assignment under certain circumstances may be used to provide the requisite consent. A non-debtor licensor should insert itself into negotiations about a possible sale and assignment of a license to ensure that its rights are protected, and it should be prepared to file an objection to the assignment with the bankruptcy court when necessary to protect and preserve its rights.

Depending on the circumstances, a licensor may urge the bankruptcy court to treat license payments that accrue while a bankruptcy case is pending as an administrative claim. If accepted, the claim would be entitled to priority over some other claims against the estate and paid during the course of bankruptcy. If unsuccessful, however, this action may be detrimental to the licensor’s rights.

2. Rights and restrictions of the licensee against a debtor-licensor.

When a licensor files bankruptcy, a licensee will logically fear that it will lose the rights to continue using a critical piece of technology. After all, the same statutes that allow a bankrupt licensee to reject, assign, or assume an executory contract also apply to the licensor. Importantly, Section 365(n) of the Bankruptcy Code protects a licensee’s ability to continue business as usual in some regards. Notably, even if a bankrupt licensor rejects an IP license, the licensee can elect to either (1) accept the termination and assert a breach of contract claim or (2) continue to act on the license as it existed on the day the bankruptcy petition was filed. In effect, as long as the licensee continues to uphold its end of the license (e.g., pay royalties, appropriately mark and account for product sold, etc.), the licensee will be entitled to continue using the technology or other licensed IP as it existed when the bankruptcy petition was filed. One important caveat is that the licensee’s rights will often not extend to any improvement to the technology made after the petition is filed. Moreover, the licensee is on its own if an infringement claim is made against it. A licensor who has rejected a license will not be required to perform any obligations under the license, such as defending its licensee from infringement claims, other than to refrain from suing the licensee for infringement.

It is important to note that the particular provisions of Section 365(n) only apply to copyright, patent and trade secret/know-how licenses; they do not apply to trademark licenses.  For information on a recent Supreme Court ruling concerning trademarks and bankruptcy, see our article at https://www.louisianalawblog.com/business-and-corporate/recent-united-states-supreme-court-decision-tackles-question-of-what-happens-when-bankruptcy-meets-intellectual-property/.

3. Issues and benefits of acquisitions through bankruptcy – the 363 sale.

Sales of a bankrupt company’s assets through Section 363 of the Bankruptcy Code offer a great opportunity for a solvent company to expand its patent portfolio, acquire desirable IP licenses, and otherwise expand its IP.  Bankruptcy sales are a specialized form of asset acquisition; a potential buyer should engage experienced counsel to guide it through the process and avoid potential landmines.  One particularly attractive aspect of “363 Sales,” as they are often called, is that purchasers of estate assets can usually obtain those assets free and clear of any liens and encumbrances.[2]  The buyer can often take the assets free of any unknown liabilities, such as infringement claims that pre-date the sale.

As with any asset purchase, due diligence will need to be performed on the assets (IP) to be acquired. Unlike typical deals, however, sales through the bankruptcy are often subject to a relatively short timeline. Due diligence of the bankrupt assets is typically compressed and may have to be performed without substantial assistance from the bankrupt seller, who often lacks the necessary funds or infrastructure to assist. Diligence is particularly important because the seller may cease to exist as a going concern soon after the sale closes.  Post-closing indemnities are rare, and trying to enforce one may be practically impossible.  This risk is typically factored into the purchase price for the assets.

Moreover, portfolios are often acquired in less than pristine shape. It costs money to maintain IP rights: both U.S. and foreign patent and trademark registrations require the payment of maintenance fees to remain in force, and many foreign countries require these payments annually. The failure to pay these fees at any time may result in the abandonment of the rights. As such, the potential purchaser needs to ascertain the status of all significant intellectual property rights and develop a plan during the due diligence to take over and cure[3] any issues or defects that may exist. Likewise, to the extent that pending applications are acquired, the purchaser needs to be ready to take over these applications in whatever state they exist and take immediate action to perfect these rights. Kean Miller maintains relationships with foreign IP attorneys who are ready to assist our clients in the protection of their rights across the globe.

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[1] Perhaps the biggest concern is that a debtor-licensee may assign its license to a competitor of the licensor.

[2] Chapter 11 Bankruptcy permits licensees of the estate’s IP to petition the Court to protect their interest by insuring that the licensees be permitted to continue using the technology.

[3] Some jurisdictions allow for the revival of IP rights upon the payment of the owed annuity and a surcharge, while others require the owner to file a petition explaining why the payment was missed. Depending on the circumstances, forfeited rights may not be able to be revived.

 

This article first appeared on the Louisiana Law Blog here

The COVID-19 pandemic has made people race to wash hands, stock up on toilet paper and sanitizer, and transition to working from home. But a separate group of “opportunistic” individuals have run another race—to the United States Patent and Trademark Office. As of April 2, 2020, more than 85 trademark applications have been filed for COVID-19 and Coronavirus related marks. The applied-for marks are largely for t-shirts, hats, apparel and stickers, but applications have also been filed for vaccines (“COVID-19 VAX”), rubber bracelets (“WASH YOUR HANDS!”), and beer (“SOCIAL DISTANCING”). A similar trend has been seen in China, with applications filed related to Huoshen Mountain Hospital, Leishen Mountain Hospital, and Dr. Li Wenliang.[1]

While some may find this move surprising, this pattern is familiar to intellectual properly lawyers. Whenever a new phrase or slogan enters the larger public consciousness, “enterprising” individuals will dash to the USPTO to file trademark applications. When President Donald Trump tweeted the word “Covfefe” in 2017, more than 40 separate trademark application were filed. Several applications for the phrase “Philly Special” were filed after the Philadelphia Eagles ran a trick play by that name during Super Bowl LII. Numerous applications were filed for “#MeToo” after the MeToo movement went viral in 2017. Most of these applications are unsuccessful and are abandoned.

The majority of the COVID-19 trademark applications will likely be rejected and abandoned because they rely on a fundamental misunderstanding of how trademark registrations work. The purpose of a trademark is to identify the source of the goods or services for the consuming public. Trademark law ensures that when you buy a soda with the words “Coca-Cola” on it, you can be confident that it actually is a Coca-Cola product and not a Red Bull. For this reason, unlike patents, trademark registrations do not rely on a “first to file” system. Rather, trademark rights are established through use of the mark, so the applicant must demonstrate that it is actually using the mark as a trademark in commerce before a registration is issued. Contrary to the beliefs likely behind most of these applications, slapping “I HEART CORONAVIRUS” on trucker hats and selling them is typically not enough to constitute use in commerce. Such use is considered “ornamental use” rather than an actual designation of the origin of the product and thus is grounds for rejection.

Many of these applications will likely also fail for the same reason the “covfefe” applications failed—it is incapable of being a source identifier. In the USPTO Office Actions rejecting the “covfefe” applications, the Office recognized that covfefe was a term originally written by President Trump in a tweet, which then went viral over the internet in news articles and social media postings, and ultimately led to a proliferation of apparel, mugs, beer, stickers, and other products with “covfefe” printed on them. As stated by the USPTO: “[b]ecause consumers are accustomed to seeing this slogan or term commonly used in everyday speech by many different sources, the public will not perceive the term or slogan as a trademark or service mark that identifies the source of the applicant’s goods, but rather only as conveying an informational message.”[2] The same is true of COVID-19, Coronavirus, and Social Distancing. These terms are now a permanent part of our daily vernacular and have been used countless times by thousands of sources. It is highly unlikely that “COVID-19”, “Coronavirus”, or “Social Distancing” could ever uniquely identify a specific person or entity as a source of goods.

These applications are frequently filed without an attorney involved, so misunderstandings about trademarks are not caught before the filing fees are paid. Ultimately, many of these knee jerk applications are a waste of time and money.

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[1] Aaron Wininger, “Chinese Trademark Office Cracks Down on Malicious Filing of Coronavirus-Related Trademarks”, The National Law Review, National Law Forum, LLC (https://www.natlawreview.com/article/chinese-trademark-office-cracks-down-malicious-filing-coronavirus-related-trademarks)

[2] USPTO Office Action for Serial No. 87470872 (8/14/2017) (http://tsdr.uspto.gov/documentviewer?caseId=sn87470872&docId=OOA20170814085059#docIndex=1&page=1)

Companies that rely upon trade secret information must remain diligent with their rights at all time – one inadvertent disclosure could, in theory, kill trade secret protection. As such, companies will need to adapt and revamp their security measures to account for the mass adoption of teleworking in response to the COVID-19 pandemic. The Uniform Trade Secrets Act[1] protects certain information that “[i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Unfortunately, the applicable statutes do not offer guidance on pandemics, and Courts have not yet had the opportunity to weigh in on what is considered reasonable under these circumstances. Nevertheless, although there is no “one size fits all” approach to protecting trade secrets, here are some practical and simple solutions that may help limit exposure and demonstrate reasonable measures to protect information under the current circumstances:

1. Non-disclosure and confidentiality agreements remain key. It is more important now than ever to clearly delineate how trade secret information will be protected at the front end of a relationship. Trade secret cases often turn on the existence of written confidentiality agreements. COVID-19 is not going to change this. But, it is clear that many companies are making broader and faster concessions to secure work than they otherwise may have in the past. Companies cannot overlook the important protections afforded by simple confidentiality agreements and the confidentiality clauses in contracts.

2. Security measures need to be maintained and/or adapted. As always, access to trade secret information should be limited to those on a need to know basis. Companies often limit access to certain network drives or physical files containing sensitive information. But, this may become difficult to monitor when the majority of employees are working remotely.

Policies should be written, and instructions should be given on how employees are to secure information they access from home. In more sophisticated companies, this may be provided in a specified telework agreement; others may rely on published policies and e-mails that specify how this information should be accessed and used. Common examples of security measures include prohibiting the viewing of information on non-work computers; requiring employees use secured internet connections, such as password protected WiFi and LAN lines to access information on the company network; limiting what documents can be viewed or printed in physical form (and by whom); and instructing employees on how to safeguard information in their possession. Beyond the initial access point, information sent to others should ideally be encrypted and password protected, and companies should continue to monitor the network to ensure that only authorized users have access.

Even if employees are teleworking, closed offices remain a security concern. Lawful access to the office may be prohibited, but that will not stop a determined thief. Traditional security measures (locks, alarms, etc.) should continue to be used to secure offices and access to data.

3. Important information should be marked appropriately. Appropriately designating documents as having confidential or proprietary information is one of the simplest measures a company can take to put both its own employees and all third parties (vendors, customers, etc.) on notice of what the company deems protectable confidential information. A good confidentiality agreement will not require information to be marked as “confidential” to invoke protection, but this does not negate the importance of this step. Likewise, merely marking a document as “Confidential” does not make it so; Companies still need to take other measures to affirmatively protect the information. Notices can be as simple as marking a page “Confidential and Proprietary” to an affirmative statement: “This Document contains confidential and proprietary information belonging to [Company]. This document and its contents shall not be used or disseminated in whole or in part without [Company]’s express written permission.”

4. Limit information provided in sales pitches. A delicate balance must be struck between securing work and securing your trade secrets. Defendants in trade secret litigation always look at sales pitches for leaks in trade secret information. While current conditions may prevent the all-disclosing trade show pitch (my favorite), an improperly trained sales staff is still likely to give away secrets from home. Companies should scrub their marketing materials or any confidential or proprietary information and train their sales staff on what not to say when pitching for work.

Even in this crisis, companies must continue to take measures today to protect their trade secrets for tomorrow.  A failure to do so may cause the company to irreparably lose its rights. This article provides some simple, practical measures that can assist a company in safeguarding its rights during this crisis and beyond. But, circumstances are different for every company and for every trade secret (e.g., software, manufacturing processes, and chemical formulae are protected in different manners). As such, this article cannot take the place of specific advice from competent counsel.

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[1] The Uniform Trade Secrets Act has been adopted by over 47 states and the District of Columbia, and was adapted in creating the Federal Defend Trade Secrets Act.

This article first appeared on the Louisiana Law Blog here

In addition to providing financial support to individuals and small business, the much discussed CARES Act also authorized government agencies like the US Patent and Trademark Office (USPTO) to extend certain deadlines prescribed by statute. As of time of publication, the USPTO has granted a 30 day extension for (1) the specific filings set forth below that (2) had deadlines which fell between March 27, 2020 and April 30, 2020.  To invoke this extension, the filing must be accompanied by a statement that the delay in responding was due to the COVID-19 outbreak as specified in the Order.

Patent:

i. reply to an Office notice issued during pre-examination processing by a small or micro entity;

ii. reply to an Office notice or action issued during examination or patent publication processing; issue fee;

iii. notice of appeal under 35 U.S.C. § 134 and 37 C.F.R. § 41.31;

iv. appeal brief under 37 C.F.R. § 41.37;

v. reply brief under 37 C.F.R. § 41.41;

vi. appeal forwarding fee under 37 C.F.R. § 41.45;

vii. request for an oral hearing before the Patent Trial and Appeal Board (PTAB) under 37 C.F.R. § 41.47;

vii. response to a substitute examiner’s answer under 37 C.F.R. § 41.50(a)(2);

x. amendment when reopening prosecution in response to, or request for rehearing of, a PTAB decision designated as including a new ground of rejection under 37 C.F.R. § 41.50(b);

xi. maintenance fee, filed by a small or micro entity; or

xii. request for rehearing of a PTAB decision under 37 C.F.R. § 41.52.

Trademark:

i. response to an Office action, including a notice of appeal from a final refusal, under 15 U.S.C. § 1062(b) and 37 C.F.R. §§ 2.62(a) and 2.141(a);

ii. statement of use or request for extension of time to file a statement of use under 15 U.S.C. § 1051(d) and 37 C.F.R. §§ 2.88(a) and 2.89(a);

iii. notice of opposition or request for extension of time to file a notice of opposition under 15 U.S.C. § 1063(a) and 37 C.F.R. §§ 2.101(c) and  § 2.102(a);

iv. priority filing basis under 15 U.S.C. § 1126(d)(1) and 37 C.F.R. § 2.34(a)(4)(i);

v. priority filing basis under 15 U.S.C. § 1141g and 37 C.F.R. § 7.27(c);

vi. transformation of an extension of protection to the United States into a U.S. application under 15 U.S.C. § 1141j(c) and 37 C.F.R. § 7.31(a);

vii. affidavit of use or excusable nonuse under 15 U.S.C. § 1058(a) and 37 C.F.R. § 2.160(a);

viii. renewal application under 15 U.S.C. § 1059(a) and 37 C.F.R. § 2.182; or

ix. affidavit of use or excusable nonuse under 15 U.S.C. § 1141k(a) and 37 C.F.R. § 7.36(b).

Note that the Order opens the door for an applicant to petition for additional relief; however, the Order does not extend the deadlines to file patent applications with the USPTO. Anyone seeking to maintain provisional patent application priority should immediately consult with his or her attorney.

For a full copy of the USPTO’s notices, please see:

https://www.uspto.gov/sites/default/files/documents/Patents%20CARES%20Act.pdf for patent and

https://www.uspto.gov/sites/default/files/documents/TM-Notice-CARES-Act.pdf for trademark.

This article first appeared on the Louisiana Law Blog here