2018 Trademark and Copyright Year in Review

From eatery and brewery disputes to music piracy and social media posts, 2018 was a busy year for trademark and copyright law. On January 23rd, Fish's Cynthia Walden, Kristen McCallion, and Nancy Ly hosted our annual Trademark and Copyright Year in Review webinar, where they looked back on some of the most important cases from 2018 and discussed their significance and potential impact on your business and intellectual property (IP) strategy. Included below are snapshots of the cases discussed during the webinar.

Notable Trademark Cases

NantKwest, Inc. v. Iancu, No. 16-1794 (Fed. Cir. 2018)

While not a trademark case, NantKwest could have had a significant impact on trademark litigation had it been decided differently. The question presented to the court was whether the phrase "all expenses of the proceedings shall be paid by the applicant" in 35 U.S.C. § 145 includes expenses the United States Patent and Trademark Office (USPTO) incurs when its employees defend the agency in § 145 litigation. The Federal Circuit affirmed the District Court's ruling that fee shifting of this nature is not permitted under § 145. The "American Rule" holds that each litigant generally bears its own attorney fees unless a statute has "specific and explicit" language that departs from that rule. The "all expenses of the proceedings" language in § 145 falls short of this standard. The Supreme Court granted certiorari to hear this case in March.

Mission Product Holdings v. Tempnology, 879 F.3d 389 (1st Cir. 2018)

Mission Product Holdings arises at the intersection of trademark and bankruptcy law. When a company files for bankruptcy protection under Chapter 11 of the bankruptcy code, § 365 allows the trustee or the debtor in possession to secure court approval to reject any executory contract of the debtor, leaving the other party to the contract with a damages claim for breach but not the ability to compel specific performance. When the debtor is a licensor of a right to IP, the code further states in § 365(n) that the licensee may reject the debtor's rejection and elect to retain its right under the contract and, therefore, retain its right under the license to use the IP. When defining IP, however, the code mentions patents, copyrights, and trade secrets, but not trademarks. Therefore, the question presented to the court in this case was whether the bankruptcy code's definition of IP includes trademarks.

The Fourth Circuit held in Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985) that the debtor's rejection of a licensing agreement terminates the licensee's right to use the license to the IP. Subsequent decisions have followed Lubrizol in holding that trademark licensees are not protected under § 365(n). That changed in 2012, when the Seventh Circuit held in Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, 686 F.3d 372, that the rejection of a trademark license does not terminate the licensee's right to use the mark, thus creating a circuit split.

In this case, the First Circuit followed Lubrizol rather than Sunbeam Products, holding that Mission Product Holdings had no rights to continue using the marks licensed to it by Tempnology after Tempnology rejected the contract under § 365(a). Mission Product Holdings then petitioned and was granted a writ certiorari to the Supreme Court to resolve the circuit split. The Supreme Court generally agreed with the court in Sunbeam Products, holding that agreements rejected by a debtor in bankruptcy will not be deemed terminated or rescinded. Mission Product Holdings v. Tempnology, 587 U. S. ____ (2019). Outside of the bankruptcy context, a licensor's breach does not revoke continuing rights given to a counterparty under a contract, and because rejection constitutes a breach under § 365, the same outcome must follow from rejection in bankruptcy. Therefore, the non-debtor party retains whatever rights it would have outside of bankruptcy following a breach of the licensing agreement.

Bodum, USA, Inc. v. A Top New Casting, Inc., No. 1:16-cv-02916 (N.D. Ill. 2018)

This case is concerned with the shape and overall design of Bodum's French presses. Bodum sued A Top for trade dress infringement, arguing that A Top's French press looked confusingly similar to its own. A Top then moved for summary judgment, arguing that Bodum had abandoned its trade dress because of "naked licensing" with respect to a license it had granted to a third party in the 1990s.

A "naked license" is created when a trademark holder allows others to use the mark without exercising reasonable control over the nature and quality of the goods, services, or business on which the licensee uses the mark. This doctrine is based in the principle that the grantor of a trademark license must exercise quality control over the licensee's products. If the licensor fails to do so, it can be deemed to have abandoned any rights it had in the trade dress. This is a very difficult burden to meet, however, as it requires the party alleging abandonment to show that the licensor's efforts at quality control were objectively unreasonable.

In addressing the reasonableness of a licensor's exercise of quality control, the Seventh Circuit has held that "if the trademark owner has good reason to rely on the licensee's reputation and expertise, the existence of contractual obligations undertaken by the licensee may be sufficient in itself to constitute reasonable quality control … at least in the absence of evidence indicating significant deviations from the agreed standards or procedures." In other words, if the licensee has a good reputation and the licensor relies on that reputation, that reliance can constitute reasonable control over the nature and quality of the goods.

The court in this case held that A Top failed to meet its burden, finding that Bodum actually had examined the third-party licensee's products annually and that A Top had failed to show that the licensee's products in that case deviated from the agreed-upon standards in the license. Thus, Bodum had not abandoned its rights in the trade dress at issue. This case then moved to a jury trial, resulting in a finding of willful infringement, profit disgorgement in the amount of $2 million (which the court doubled to $4 million), and a permanent injunction.

Viacom International, Inc. v. IJR Capital Investments, LLC, No. 17-20334 (5th Cir. 2018)

Any reader who has ever seen an episode of the children's animated TV show SpongeBob SquarePants will be familiar with the trademark rights at issue in this case. IJR Capital Investments applied for and was granted trademark registration on the "Krusty Krab" name, which it used for a chain of restaurants it operated. Viacom later sued, arguing that the Krusty Krab mark violated its common law trademark on the Krusty Krab restaurant in the television series.

The question in this case was whether fictional elements from within a TV show qualify for trademark protection. These elements generally qualify as long as the movant can establish:

1. It has ownership of the mark through sales and licensing.
2. The mark creates a distinctive commercial impression that is source-identifying.

IJR claimed that there was a material question of fact about whether Viacom owned a legally protected mark on the Krusty Krab name and whether there was a likelihood of confusion. The Fifth Circuit disagreed, affirming the District Court's ruling on Viacom's motion for summary judgment, finding that Viacom had presented compelling evidence of secondary meaning and licensing of the mark for merchandise.

Schlafly v. Saint Louis Brewery, LLC, 17-1468 (Fed. Cir. 2018)

In this case, the trademark applicant was a craft brewery started by Thomas Schlafly (nephew of conservative activist Phyllis Schlafly). Registration was opposed by the Revocable Trust of Phyllis Schlafly and Dr. Bruce Schlafly, but the Trademark Trial and Appeal Board (TTAB) denied the opposition. On appeal, the opposers argued that the TTAB erred by not recognizing that "Schlafly" was primarily a surname and that it had improperly accepted evidence of secondary meaning. Further, the Revocable Trust of Phyllis Schlafly argued that, as a prominent conservative activist, Phyllis Schlafly should not have her name associated with alcoholic beverages, as many of her followers oppose the consumption of alcohol on religious grounds. Dr. Schlafly also argued that the Schlafly name should not be associated with alcoholic beverages because this could have a detrimental effect on his reputation among his patients.

The Federal Circuit affirmed the TTAB's denial of the opposition. In doing so, the court held that the following evidence should be considered when determining whether a surname has acquired secondary meaning:

• Ownership of prior registrations
• Five years of substantially exclusive and continuous use
• Other evidence

Here, the court found that the Saint Louis Brewery already owned several registered logos containing the Schlafly name and had been using that name exclusively and continuously since 1991. The "other evidence" the court considered was the extent of the Saint Louis Brewery's operations — the brewery sold 60 types of beer across 15 states in 14,000 retail locations and several national restaurant chains. Therefore, the court concluded that the Schlafly surname had acquired secondary meaning sufficient to justify trademark registration.

Knowles-Carter v. Feyonce, Inc., No. 16-CV-2532(S.D.N.Y. 2018)

This star-studded case involves a small company that produces and sells merchandise using the brand name "Feyoncé" — a play on the word "Beyoncé" and the term "fiancée" — which it markets to newly engaged couples. Feyoncé Inc. applied to register the mark Feyoncé and was refused registration due to the likelihood of confusion with the Beyoncé mark. Beyoncé's counsel subsequently sent Feyoncé Inc. a cease-and-desist letter demanding that it stop using the Feyoncé mark and abandon its registration. When Feyoncé, Inc. did not respond, Beyoncé filed a complaint for trademark infringement and several related claims.

When evaluating Beyoncé's claim that the Feyoncé mark was likely to cause confusion, the court stated that the key inquiry is whether a rational consumer would mistakenly believe that Feyoncé products were sponsored by or affiliated with Beyoncé products, ultimately answering that question in the negative. The court gave the following justifications for its holding:

1. Even close similarity between two marks is not dispositive of the likelihood of confusion.
2. Feyoncé is clearly a play on words and could dispel consumer confusion that might arise due to its visual similarity to Beyoncé.
3. Consumers looking for Beyoncé products are unlikely to select a Feyoncé product inadvertently.

Based on these findings, the court was unable to conclude that the marks were confusingly similar as a matter of law. Importantly, the court noted that while it assigns substantial weight to the USPTO's finding that the mark is likely to cause confusion and to the subsequent refusal to register the mark, those findings are not conclusive. The primary takeaway here is that even when two marks are extremely similar (such as differing only by a single letter, as in this case), that similarity alone does not create a likelihood of confusion.

Royal Crown Co., Inc. v. The Coca-Cola Co., No. 16-2375 (Fed. Cir. 2018)

The Coca-Cola Company in this case attempted to register the word "zero," to which Royal Crown objected, arguing that the word is generic. The TTAB denied Royal Crown's opposition, finding that Coca-Cola had established significant use of the Zero mark on several of its beverages and that the term had acquired secondary meaning. On appeal, the appellants asserted that the TTAB erred in framing the question of genericness and failed to determine whether, if not generic, the marks were at least highly descriptive.

When determining whether a mark is generic, the court looks to two factors:

1. What is the genus of the goods or services at issue?
2. Is the term understood by the relevant public primarily to refer to that genus of goods or services?

The Federal Circuit vacated and remanded the case to the TTAB on the basis that the TTAB had failed to examine (1) whether Zero identified a key aspect of the genus at issue, and (2) how the relevant public understood the brand name, finding that the TTAB failed to consider that a term can be generic for a genus of goods/services if the relevant public understands the term to refer to a key aspect of that genus. In this case, the court found that the genus at issue was soft drinks, energy drinks, and sports drinks with zero or near-zero calories. On remand, the question for the TTAB is whether, when applied to the beverages of this genus, zero is, in fact, a generic term.

In re Serial Podcast, 126 USPQ2d 1061 (TTAB 2018)

Based upon the enormous success of its podcast series, Serial applied to register several "Serial" text and logo marks. The USPTO denied registration on the grounds that the marks were generic and, if not generic, merely descriptive of the applied-for services. On appeal, Serial argued that the Serial mark had acquired distinctiveness, offering as evidence the fact that its podcast had been downloaded several million times.

With regard to the SERIAL text mark, the TTAB agreed with the examining attorney that the term "serial" is generic, referencing the dictionary definition of serial as "something that is published in installments at regular intervals." The TTAB also held that Serial's evidence of the number of times its podcast had been downloaded proved only commercial success, not customer recognition of the mark. With regard to the logo marks, the TTAB found that they were not inherently distinctive, but that taken together, the elements did have at least some distinctiveness and public recognition. A key piece of evidence the TTAB cited in its finding that the logos had public recognition was that the Serial logo had been parodied on both Saturday Night Live and Sesame Street. Serial was thus allowed to register its two logo marks as long as it disclaimed the word Serial from them.

Notable Copyright Cases

Fox News Network, LLC v. TVEyes, Inc., No. 15-3885 (2nd Cir. 2018)

TVEyes is a company that monitors and records all content that is broadcast by news organizations and transcribes it into a searchable database for its subscribers. The Fox News Network sued TVEyes for trademark infringement, against which TVEyes asserted a fair-use defense. In determining whether the use made of a work in any particular case is fair use, the court considers the following factors:

1. The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes (the "transformative use" factor)
2. The nature of the copyrighted work
3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole
4. The effect of the use upon the potential market for or value of the copyrighted work

In its first ruling, the District Court focused on the first factor and held that TVEyes' search engine and display of clips were transformative in that they serve a new purpose and thus qualify for fair-use protection. In its second ruling on this case, the District Court subsequently found that some features (the search function and the watch function) constituted fair use, but other features (the download and share function) could facilitate infringement and did not constitute fair use.

The Second Circuit reversed the District Court's findings of fair use for almost all of the features of TVEyes' service, holding that, although the use was somewhat transformative, the effect on Fox's prospective revenue was too significant. The service, in effect, deprives Fox of licensing revenue it could have received from offering its own similar service. In a notable departure from other courts, the Second Circuit considered the fourth rather than the first factor of the fair-use test to be the most important factor in fair-use analysis.

Goldman v. Breitbart News Network, No. 17-CV-3144 (S.D.N.Y. 2018)

Goldman v. Breitbart revolves around the issue of whether in-line linking of content from one website to another — such as embedding a Tweet containing a copyrighted image — can lead to copyright infringement. In this case, the Southern District of New York noted that the Seventh and Ninth Circuits follow the "server rule," which holds that a content provider infringes a copyright only when it hosts a copyrighted image on its own server; merely linking to a copyrighted image hosted elsewhere does not constitute infringement. The court declined to follow that rule, holding that the server test was neither appropriate to the facts of this case nor adequately grounded in the text of the Copyright Act. Rather, steps being taken to transmit an image via in-line linking satisfies the Copyright Act's requirement that the image be "publicly displayed."

BMG v. Cox, No. 16-1972 (4th Cir. 2018)

The Digital Millennium Copyright Act (DMCA) generally protects internet service providers (ISPs) from copyright infringement actions if they act merely as conduits for infringing content that is transmitted by their users. In order to qualify for this safe harbor's protection, an ISP must show that it has "adopted and reasonably implemented a policy that provides for the termination in appropriate circumstances of subscribers who are repeat infringers" [17 U.S.C. §512(i)(1)(A)]. In this case, Cox argued that it qualifies for the DMCA's protections because its policy was to review notices of infringement against users until the 13th notice, at which time the user was to be suspended and considered for termination. However, in discovery, it was found that Cox routinely ignored notices of infringement and was not taking appropriate action consistent with its policy against infringing users.

The Fourth Circuit thus held that Cox did not qualify for the safe harbor provisions of the DMCA, but also found that the District Court erred in giving a jury instruction that the jury could impose liability for contributory infringement if it found that Cox knew or should have known of infringing activity. The court held that this instruction was incorrect. Rather, contributory infringement requires proof of at least willful blindness negligence is insufficient.

Rentmeester v. Nike, Inc., No. 15-35509 (9th Cir. 2018)

The copyrighted work at issue in Rentmeester was a photograph of Michael Jordan that the plaintiff had taken of the athlete while he was in college. Nike commissioned a very similar photograph of Jordan while he was playing for the Chicago Bulls and subsequently used Jordan's "jumping man" silhouette as a logo on its products. Rentmeester then sued, alleging copyright infringement.

To state a claim for copyright infringement, the plaintiff must allege:

1. Ownership of a valid copyright
2. The defendant's copying of protected aspects of the copyright

The plaintiff can prove the second element by presenting evidence of copying or unlawful appropriation. However, merely copying "ideas" or "concepts" in the plaintiff's work is insufficient to establish unlawful appropriation. The issue in this case was whether Rentmeester plausibly alleged that Nike copied enough of the protected expression from his photograph to establish unlawful appropriation. To do so, Rentmeester had to show that Nike copied enough to render the two works substantially similar.

The Ninth Circuit uses a two-part test to determine substantial similarity:

1. Extrinsic test: Comparison of the objective similarities of the work, focusing only on protectable elements of plaintiff's expression
2. Intrinsic test: A holistic, subjective comparison of the works to determine whether they are substantially similar in "total concept and feel"

A plaintiff must prove substantial similarity under both tests, and in this case, the court found that Rentmeester could not prove the extrinsic test. The court found that the two images were not substantially similar because "[w]hat Rentmeester's photo and the Nike photo share are similarities in general ideas or concepts: Michael Jordan attempting to dunk in a pose inspired by ballet's grand jeté; an outdoor setting stripped of most of the traditional trappings of basketball; a camera angle that captures the subject silhouetted against the sky … Rentmeester cannot claim an exclusive right to ideas or concepts at that level of generality, even in combination."