A recent case out of the Ninth Circuit, Oracle USA, Inc. v. Rimini Street, Inc. (July 13, 2017), illustrates some of the risks third party software vendors run concerning copyright issues.  Oracle develops and licenses proprietary “enterprise software” for business around the world.  A business using Oracle’s enterprise software would pay a one-time licensing fee to download the software and then can elect to buy a license maintenance contract that provides for periodic software updates. 

Rimini provides third party support for Oracle’s enterprise software in lawful competition with Oracle’s own maintenance services. In the course of providing third party services, Rimini also is required to provide software updates to its customers.  It appears that between 2006 and 2007, Rimini obtained software and/or updates from Oracle’s website with automated downloading tools on behalf of several of its customers.

Oracle sued Rimini in 2010 and obtained partial summary judgment on parts of its copyright infringement claim.  After trial, the jury found in favor of Oracle on other claims (including computer abuse claims which are not discussed in this article) and awarded Oracle damages that totaled more than $120 million after interest, attorney’s fees and costs were added.  Rimini appealed the Court’s decision to the Ninth Circuit.

One of the primary issues addressed by the Ninth Circuit was whether Rimini copied Oracle software in a manner that gave rise to copyright infringement.  The evidence was undisputed that Rimini used Oracle’s enterprise software to help develop and test updates that it would then push out to its customers.  It appears that Rimini, while using the license for one of its customers to obtain the Oracle download, would then use the software to provide updates to other customers who either had Oracle licenses or were considering obtaining them.

Rimini argued that it should have prevailed on the copyright infringement claims by asserting two affirmative defenses, express license and copyright misuse.  As to the express license defense, the U.S. Supreme Court has long recognized that “anyone who is authorized by the copyright owner to use the copyrighted work in a way specified in the statute … is not an infringer of the copyright with respect to such use.”  However, a person could be liable for copyright infringement to the extent they exceed the scope of the license granted by the copyright holder.  Thus, the Ninth Circuit’s inquiry focused on whether Rimini was acting in excess of the scope of the licenses held by its customers.

The District Court had instructed the jury that it would not necessarily be copyright infringement by Rimini if it had used a customer’s license to develop updates for that particular customer.  However, it would be unlawful if Rimini was to use the license from one particular customer to develop updates to be used by others.    The Ninth Circuit reasoned that Rimini’s use of one customer’s license to develop updates for other of its customers amounted to “cross use” and rejected Rimini’s claims that “cross use” is not infringement.  The Court found it significant that Rimini acknowledged that “cross use“ allows it to reduce expense to its customers by essentially “reusing work” performed for one customer.  The Ninth Circuit rejected this argument and agreed with Oracle by focusing on the language of the licenses that limited the scope of any authorized use to be done on behalf of that particular licensee.  By performing work for other customers, Rimini was exceeding the scope of any license and therefore was liable for copyright infringement.

Next, the Ninth Circuit turned to Rimini’s claim that Oracle was guilty of “copyright misuse.”  The copyright misuse doctrine prohibits copyright holders “from leveraging their limited monopoly to allow them control of areas outside the monopoly.”  In essence, the doctrine is intended to prevent copyright holders from stifling competition; however, it is not intended to prohibit the copyright holder from using conditions “to control use of copyrighted material.”  As a result, the copyright misuse defense should only be used “sparingly.”

Rimini argued that in essence, Oracle was “misusing” its copyright to prevent competition in the “aftermarket for third party maintenance.”  The Ninth Circuit rejected this argument finding that there was nothing wrong with requiring third party maintenance vendors to respect and comply with Oracle’s copyrights.

The Ninth Circuit’s decision in Oracle is a reminder that third party software vendors relying on their customer’s licensing of software or other computer programs need to be careful of running afoul of copyright laws.  Such vendors should obtain legal advice as to whether any of their proposed services run afoul of the software owners’/developers’ copyright interests.

James Kachmar is a shareholder in Weintraub Tobin Chediak Coleman Grodin’s litigation section.  He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes.  For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com. 

The U.S. District Court for the Central District of California recently issued its opinion in TCL Communications v. Ericsson (SACV 14-341 JVS(DFMx) and CV 15-2370 JVS (DFMx)) on standard-essential patents and whether a commit to license them was on terms that are fair, reasonable and nondiscriminatory, or FRAND.  The Court determined Ericsson did not offer to license its standard essential patents on reasonable terms, and instead become only the fourth U.S. Court to determine a royalty rate for essential patents.

Patent holders that own patents essential to industry standards often offer (or are required by the standard setting body to offer) to license their patents on FRAND terms when a patent is, or may become, essential to practice a technical standard, such as the wireless communications standards.  A patent becomes standard-essential when a standard-setting organization sets a standard that adopts the patented technology.  The acceptance of a patent holder’s patent into a standard is of great value to the patent holder, and enhances the monopoly which the patent holder has by virtue of the patent.  The accepted patents are often referred to as standard essential patents, or “SEPs.”  Anyone who wishes to manufacture products or provide services in accordance with the standard must now secure a license from the patent holder.  However, in exchange for acceptance of the patent as part of a standard, the patent holder must agree to license that technology on FRAND terms, which is typically a lower license rate than a standard (or non-FRAND) patent license in a comparable setting and with little ability to refuse to license.

Here, this case focused on the licensing of patents in the telecommunications field affecting 2G, 3G, and 4G1 cellular technologies.  Potential licensees TCL Communication Technology Holdings, Ltd. TCT Mobile Limited, and TCT Mobile (US) Inc. ( collectively “TCL”) manufacture and distribute cell phones on a world-wide scale.  Patent holders Telefonaktiebolaget LM Ericsson and Ericsson Inc. ( collectively “Ericsson”) hold an extensive portfolio of telecommunications patents.  TCL sought to license Ericsson’s patents, but the parties could not agree on terms.  The relevant standard setting organization at issue in this dispute is the European Telecommunications Standards Institute, or “ETSI.”

In beginning its analysis, the Court laid out the three tasks it needed to undertake.  The Court had to first “determine whether Ericsson met its FRAND obligation, and then whether Ericsson’s final offers before litigation, Offer A and Offer B, satisfy FRAND.  If they are not, the Court must determine what terms are material to a FRAND license, and then supply the FRAND terms.”

There were two principal schemes presented to the Court to consider in determining the proper FRAND rate, and if Ericcson offered to license at that FRAND rate.  One approach, offered by TCL, is a “top-down” approach which begins with an aggregate royalty for all patents encompassed in a standard, then determines a firm’s portion of that aggregate.  There other, offered by Ericcson, is an “ex ante,” or ex-Standard, approach which seeks to measure in absolute terms the value which Ericsson’s patents add to a product.  However, instead of just using one approach or another, the Court combined the two approaches.  Essentially, the Court undertook a non-discrimination analysis based principally on the review of comparable licenses.

At the end of the day, after conducting its analysis based on the combined hybrid non-discrimination approach, the Court reached the following conclusions:  “Ericsson negotiated in good faith and its conduct during the course of negotiations did not violate its FRAND obligation.  It is unnecessary for the Court to determine whether the failure to arrive at an agreed FRAND rate violated Ericsson’s FRAND obligation. Regardless of the answer to that question, the Court is required to assess whether FRAND rates have been offered in light of the declaratory relief which both sides seek.”

The Court then determined that Ericsson’s Offer A and Offer B were not FRAND rates and proceed to determine its own FRAND rates.  The court prescribed that the parties enter into a 5-year license agreement reflecting the FRAND rates, and TCL must pay Ericsson approximately $16.5 million for past unlicensed sales.  The FRAND rates determined by the Court were as follows:

In sum, if it stands, this case will likely make it easier for lower end product vendors like TCL to negotiate lower FRAND rates, and in turn more competitively offer their products in major markers.  It will also set a precedential approach to be used in future FRAND license negotiations and determinations.  However, Ericcson has already appealed this ruling to the Federal Circuit, so the final outcome is still far from over.

By Scott Hervey

Did you ever wonder why some movies use fictional names for companies or sports teams? TV and movie producers intentionally avoid using brand or company names in order to avoid any potential of an entanglement with a trademark owner.  Some studio lawyers insist that no third-party brands may be used under any circumstances without permission (I have had these discussions).  How do they explain that other producers, including the producers of HBO’s series, “Ballers”, use the actual names and logos of NFL teams within the show’s story without NFL permission?  Hopefully, the Ninth Circuit’s decision in 20th Century Fox Television v. Empire Distribution, Inc. will provide the legal framework by which these reticent studio lawyers may now approve the uncleared use of a third-party trademark. 

Empire Distribution is a record label that records and releases albums in the urban music genre, which includes hip hop, rap, and R&B.  In 2015, Fox launched the TV series, “Empire”, a drama about a fictional New York based record label.  The show features music in each episode, including some original music.  Under an agreement with Fox, Columbia Records distributes the music from the show under the brand Empire.

Believing that its marks were being infringed, Empire Distribution sent Fox a cease and desist letter; Fox filed suit on March 23, 2015, seeking a declaratory judgment that the Empire show and its associated music releases do not violate Empire Distribution’s trademark
rights. Empire Distribution promptly filed a counterclaim for, among other claims, trademark infringement.

In most instances, likelihood of confusion is the method for determining trademark infringement.  However, when the allegedly infringing use is in connection with an expressive work, courts in the 9th Circuit will apply a different test developed by the Second Circuit in Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989).  Courts apply this different test primarily because such situation implicates the First Amendment right of free speech which must be balanced against the public’s interest in avoiding consumer confusion.   Sometimes a brand will acquire cultural significance and a storyteller may seek to use such significance to advance a storyline.

Under the Rogers test, the use of a third-party mark in an expressive work in not trademark infringement if the use of the third-party mark has artistic relevance and is not expressly  misleading as to the source or the content of the work.  Trademarks that do more than just identify goods, marks that “transcend their identifying purpose”, are more likely to be used in artistically relevant ways.  However, a trademark mark that has no meaning beyond being a source identifier is more likely to be used in a way that has “no artistic relevance.”

The court easily found that Fox’s use of “Empire” for both the title of its series and the name of the record label at the center of the show’s drama had artistic relevance and its use was not misleading.  However, Empire Distribution took issue with use of the “Empire” mark “as an umbrella brand to promote and sell music and other commercial products” such as appearances by cast members in other media, radio play, online advertising, live events, and the sale or licensing of consumer goods.

How far would Fox’s legitimate use extend?  According to the 9th Circuit, quite far.  The court acknowledged that while the above promotional efforts “technically fall outside the title or body of an expressive work, it requires only a minor logical extension of the reasoning of Rogers to hold that works protected under its test may be advertised and marketed by name.”  If the court did not extend Rogers to cover legitimate marketing and advertising endeavors, Fox would not have been able to effectively promote and market its TV program.

This is a good case for TV and movie producers and also the studios that market and promote their works.  For brand owners (like Empire Distribution), it’s also clear that acceptable use under Rogers is broad enough to include any activity whose purpose includes the promotion and marketing of the creative work.

Author: David Baker

Earlier this month, a jury in San Diego federal court was asked to decide if the use of the trademark “COMIC CON” by Daniel Farr, Bryan Brandenburg, and Dan Farr Productions for a comic book convention held in Salt Lake City constituted an infringement of the trademark “COMIC-CON” (note the distinguishing hyphen) owned by San Diego Comic Convention.  Farr and Brandenburg had organized and presented the Salt Lake City convention under the name “Salt Lake Comic Con” since 2011.  San Diego Comic Convention (or “SDCC”) also asked the jury to award monetary damages totaling $12 million as compensation for damage allegedly done to the “COMIC-CON” trademark by its misuse. 

After hearing testimony and considering the evidence presented at trial, the jury ruled in favor of SDCC and found that the name “Salt Lake Comic Con” (“SLCC”) had infringed the SDCC mark (and that such infringement should stop).  However, the jury awarded SDCC monetary damages of only $20,000.  It may have been difficult for the jury to believe that a trademark for a comic book convention could be worth anywhere near $12 million.

In fact, SDCC has operated an annual comic book convention in San Diego since 1970 and it holds thirty-eight (38) active federal registrations for trademarks associated with the convention that are registered with the U.S. Patent and Trademark Office (the “PTO”).  Principal among these registered marks is “COMIC-CON” (PTO Service Mark Reg. No. 3,219,568), a mark that has been used by SDCC from the beginning in relation to “conventions showcasing comics and comic books as well as other aspects of the popular arts such as graphic arts, science fiction films, fantasy films, and literature.”

As SDCC alleged in its complaint, the “COMIC-CON” marks have been used so extensively and continuously to promote the San Diego convention that “consumers have come to recognize and identify the “COMIC-CON” marks as representative of the quality events and services provided by SDCC.”  Indeed, the San Diego Comic-Con convention has grown so much in popularity over the past five decades that attendance now exceeds 130,000 and many films and television shows, including The Big Bang Theory, often reference the convention as key plot points.

In comparison, other comic conventions like the SLCC convention (and over a hundred others using the name “Comic Con,” including Los Angeles Comic Con convention and New York Comic Con convention) now draw similar attendance numbers but it is generally accepted that they are able to do so, in large part, because of the sustained popularity of the San Diego event.

Somewhat surprisingly, it wasn’t SLCC’s mere usage of “COMIC CON” that triggered the SDCC lawsuit.  What directly led to the filing was a marketing stunt Farr and Brandenburg pulled in 2014 to promote their own convention.  They traveled to San Diego, rented large panel trucks, affixed huge billboards to them inviting viewers to attend SLCC that September, and then drove them back and forth along Harbor Drive in front of the San Diego Convention Center during the July 2014 San Diego Comic-Con convention.

Seemingly left with no other choice (and likely hoping to send a message to other competing comic book conventions misusing the trademarks), SDCC filed suit against Farr and Brandenburg in August 2014 in the U.S. District Court for the Southern District of California (Case No. 14CV1865 AJB JMA) alleging trademark infringement and false designation of origin.

Once the battle was joined, Farr and Brandenburg filed their own cross-complaint and sought to have the “COMIC-CON” trademarks declared “generic” and, therefore, unenforceable.  Genericism occurs when a protectable trademark like linoleum, escalator, or even videotape becomes so associated with a good or service in consumer minds that it stops serving as a source identifier.  And, worse, they become ineffective as a trademark.  Farr and Brandenburg also filed a cancellation proceeding against the “COMIC-CON” mark based on the same genericism argument (which is still pending) in the PTO’s Trademark Trial and Appeals Board.

Unfortunately for SLCC, Farr and Brandenburg’s genericism arguments were inconsistent.  In certain pleadings, they argued that SDCC’s failure to enforce its trademark rights in the face of ever widening third party usage had led to them becoming a generic means of referring to any comic book convention.  And in other pleadings, they argued that trademarks like “COMIC-CON” were generic ab initio, meaning that they were already generic when SDCC started using them in 1970.

In understanding a fundamental flaw in the defense, it is important to understand that the 9th Circuit Court of Appeals (under whose jurisdiction the San Diego court operates) does not recognize genericism ab initio as a matter of law.  So, without any supporting case law from the 9th Circuit, District Court Judge Anthony J. Battaglia ruled against FARR and Brandeburg’s genericism ab initio arguments presented in competing motions for summary judgment in September.  Effectively, this gutted the SLCC defense and set up the November trial that ended with the December 1 jury decision in favor of SDCC.

Why It Matters.  While it remains to be seen what impact the jury’s decision will have on other competing comic book conventions (as of the writing of this post all were still using variations of “comic con” on their websites), there are several important takeaways from the recent court battle.

First, SDCC had little choice but to sue SLCC and to take the case all the way to trial once it had decided the “COMIC-CON” trademark was worth protecting, SLCC was infringing that trademark and SLCC refused to negotiate reasonable settlement terms.  After selecting a strong trademark, there are many things a trademark owner can do to strengthen and protect a trademark but one of the essential things it must do is to force infringers to stop infringing.

Second, now that SDCC has prevailed over SLCC, there is no certainty that the numerous other conventions using the “comic con” trademark as their own will decide to stop and avoid incurring the wrath of SDCC.  In fact, it remains SDCC’s responsibility to pursue each and every other infringer if it intends to fully protect its mark.  Quite simply, there are no “trademark police.”  The law places the responsibility for enforcement on the trademark owner.

Third, the case serves as an important reminder that trademark litigation can be very, very expensive with no guarantee of a sizable monetary recovery.  Precise numbers for the attorney’s fees, expert witness fees, and assorted litigation expenses on both sides have not been made public, but before the case even went to trial the SLCC organizers looked to online fundraising to try and raise more than a million dollars to cover their own fees and costs.

And whether it was Voltaire, Stan Lee, or Spiderman’s Uncle Ben who first said, “With great proper comes great responsibility,” San Diego Comic Convention knew that the same logic applies to great trademarks and it acted accordingly.

There is no federal court jurisdiction for disputes involving patents where the claimant does not actually own the patents. The possibility that one might own a patent, if a contingent future event occurs, is not enough. This seems like an obvious rule, but it ended up before the Federal Circuit Court of Appeals. 

The case is First Data Corp. v. Inselberg  (Fed. Cir. 9/15/17).  The defendants were Eric Inselberg, an inventor, and his company, Inselberg Interactive, LLC.  Inselberg Interactive owned several of the inventor’s patents.  In connection with a loan transaction in which Interactive borrowed money from Frank Bisignano, Interactive gave Bisignano a security interest in the patents.  After Interactive defaulted on the loan, Interactive was required to, and did, enter into an assignment agreement with Bisignano. Interactive assigned all of its rights in the patents to Bisignano.  Bisignano then became the CEO of First Data Corp.

Several years later, Inselberg told Bisignano that First Data was infringing the patents and did not have a license. Inselberg demanded that First Data either buy the patents or license them, contending that the assignment Interactive had made to Bisignano was not valid. Bisignano then licensed the patents to First Data. Inselberg continued to assert that First Data was infringing the patents. Inselberg’s counsel sent Bisignano and First Data a draft complaint that Inselberg stated he intended to file in state court, alleging that Inselberg owned the patents and could sue First Data for patent infringement.

Bisignano and First Data jumped the gun and filed suit in the federal district court for the District of New Jersey.  The complaint sought a declaratory judgement that Bisignano owned the patents and that the license to First Data was valid. The complaint also sought a declaratory judgement that First Data did not infringe the patents because Bisignano owned the patents and had licensed them to First Data.

Inselberg and Interactive filed suit in New Jersey state court, seeking a declaratory judgment that they owned the patents because the assignment to Bisignano was invalid. Bisignano and First Data answered the complaint and filed counterclaims seeking a declaratory judgement of noninfringement of the patents and of invalidity of one of the patents. The defendants then removed the state court action to federal court, relying on the district court’s jurisdiction over patent cases.

In the federal court action, Inselberg and Interactive moved to dismiss Bisignano and First Data’s complaint and their counterclaims in the removed action, and sought remand of the state law claims.

The district court granted the motion to dismiss on the grounds that the federal court had no jurisdiction because there was no federal question. The district court found that Inselberg and Interactive had conceded that Bisignano owned the patents by seeking to invalidate the assignment agreement in their state court complaint, and, therefore did not own the patents. The district court held that Inselberg and Interactive did not have a claim for patent infringement and would not have such a claim unless they obtained ownership of the patents under their state law claims. Thus, the patent claims were contingent on the outcome of Inselberg and Interactive’s state law claims.

On appeal, the Federal Circuit affirmed the district court’s order dismissing Bisignano and First Data’s federal claims and remanding the state law claims. The court held that there was no federal question jurisdiction because Inselberg and Interactive did not, and could not, assert a threat of infringement against First Data as Inselberg and Interactive did not own the patents. In addition, the court held that Bisignano and Frist Data had no standing to assert their declaratory judgement claims.  For similar reasons, the court also held that Bisignano and Frist Data’s claims were not ripe for adjudication because all of the claims were based on a contingent future event, the state court awarding ownership of the patents to Inselberg and Interactive.