POST-LICENSE USE OF TRADEMARK IS COUNTERFEITING

A former trademark licensee’s continued use of a trademark after termination of the license constitutes trademark counterfeiting. That is the holding in a recent District of Indiana default judgment case, Century 21 v. Destiny Real Estate. The court explained:

If an unrelated entity had created an identical trademark and provided authorized goods or services (or the kind provided by the owner of the mark) under that mark, there would be no question that there was counterfeiting. The Court can conceive of no reason why an ex-franchisee should escape liability for counterfeiting simply because that person had access to a franchisor’s original marks because of the former relationship and therefore did not need to reproduce an identical or substantially similar mark.

Other courts have come to differing conclusions on this issues, in various contexts. In a 1997 case, the 6th Circuit held that a franchisee’s holdover use of a trademark was not counterfeiting. The 9th Circuit held that the licensee’s holdover was counterfeiting in a 2005 case involving continuing use of the Idaho potato certification mark.

The significance is that pursuant to 15 U.S.C. § 1117(b), if he is found to be a counterfeiter, the former licensee can be liable for statutory damages(up to $2 million in cases of willful counterfeiting), and will be liable for three times profits or damages, whichever amount is greater, together with a reasonable attorney’s fee unless the court finds “extenuating circumstances.” If he is merely an infringer, statutory damages are not available and treble damages and attorneys’ fees are less certain to be awarded. They may be awarded “subject to the principles of equity.”

The Century 21 court’s damage, injunction and individual liability analyses also are noteworthy. Century 21 sought its actual damages plus treble damages. The court held that such an amount would be quadruple, rather than treble damages, one multiple too many. The court further reduced the award to two times damages, on the ground that the liquidated damages provided for in the license agreement and awarded by the Court coincided with the actual damages, and therefore to awarded treble damages in addition would again result in quadruple recovery.

On a cheerful note for trademark owners, the Court granted a permanent injunction, finding that “the injury especially justifying injunctive relief is the loss of control over and harm to its valuable name and trademark, in which it has invested substantial effort and money over time to develop goodwill.” If that is going to suffice under Ebay, trademark owners may not need to be as concerned that injunctions against infringers will be harder to come by.

The court declined to impose liability on Destiny Real Estate’s principal. After surveying the law on individual liability for corporate trademark infringement, the Court found that Century 21’s allegations that the individual was President of the company and authorized or approved of the misconduct were not sufficient bases to hold the individual liable for the corporation’s infringement.
 

WHAT ARTISTS CAN LEARN ABOUT BRANDING FROM THE PARTRIDGE FAMILY

In a few words, your brand can be even more valuable than your talent. This is the lesson we can draw from recent litigation brought by the actor David Cassidy against the owner of The Partridge Family. As a star of The Partridge Family, David Cassidy may have been well-compensated for his work on each episode, and he undoubtedly has earned significant residual income from re-runs over the years. Apparently only now, however, has he realized the amount of income he lost because he did not share in revenue received from merchandise sales. He recently filed suit claiming that he is owed a fortune.

Artists should be as concerned about revenue opportunities that may arise beyond their actual work, opportunities such as merchandising or endorsements, as they should about the amount they are paid to perform. They should try to ensure that their talent contracts guarantee them a share in revenues generated from merchandising. And they must then police such uses to be sure they are receiving their rightful share. Better not to be seeking your fortune three decades later.
 

LICENSING VERSUS SELLING YOUR SOFTWARE

Software, in particular, typically is equally amenable to licensing or sales models. In a word, control is typically the most compelling reason to license your IP rather than selling it. Freedom from ongoing duties to buyers is often a compelling reason to sell it. Video game makers, particularly those who make games for play on the Internet or otherwise among gaming “communities” seem increasingly have settled on the licensing model because they think it enables them to insure a level playing field for all of their customers. Inevitably, however, their customers feel, or at least want to feel that they own the software they purchased.

So what are the principal factors courts use to differentiate a license from a sale? Case law seems to be coalescing around three. Considering how one wants to address each may help individual IP owners decide whether licensing or selling works better for them.

The first seems obvious, what the agreement says. If it says it is a license, it more likely is.

The second is whether the IP owner significantly restricts users’ ability to transfer the software. In a recent Ninth Circuit case concerning the World of Warcraft game, the court held that restrictions prohibiting re-sale, restricting transfer to those who agreed to abide by the end user license agreement and requirements that the transferor delete all of its copies, evidenced a license rather than a sale.

The third is whether the IP owner imposes significant restrictions on the manner in which the software may be used. The court in the World of Warcraft case held that restrictions on the locations in which the software could be used , prohibitions on use with third-party software and reservation of a right to alter the game or suspend users evidenced a license.