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Owning and Assigning Copyright in Software Developed by Employees and Contractors

Owning a copyright in software, like other copyrightable works, developed by another usually arises by an employment relationship or by a written agreement.

If the software is developed by someone other than an employee acting within the scope of his/her employment, then the contracting party needs a written agreement with the software developer. And needs to decide whether to characterize the work as a work made for hire or not in that written agreement. Below are some factors to consider in making that decision.

Work Prepared by an Employee Within the Scope of Employment

A party that is not the creator may be considered the author, and therefore the initial owner, of the work if the work is considered a work made for hire under the Copyright Act. A work made for hire arises in two contexts: (1) when an employee creates the work within the scope of their employment, and (2) under a written agreement where the work falls into 1 of 9 statutory categories and the parties agree in writing that the work is a work made for hire. 17 USC 101.

In the first case, the employer will be considered the author of the work made for hire and will own the work created by an employee when the work is prepared by an employee within the scope of his or her employment. 17 USC 201(b) provides, “In the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author for purposes of this title, and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright.”

Work For Hire or Assignment?

If the software is not created by an employee within the scope of his/her employment, then the question is whether to structure the arrangement as a work made for hire or an assignment under a written contract.

When the work is a work made for hire, the hiring/contracting party is considered the author of the work rather than the creator. This avoids the statutory right of an author to terminate an assignment or transfer rights under 17 USC 203. That section provides that for works other than works made for hire, the exclusive or nonexclusive grant of a transfer or license of copyright or of any right under a copyright can be terminated 35 or 40 years after the date of execution if certain conditions are met. This right of termination cannot be waived by contract. Therefore, since works made for hire are excluded from rights termination under section 203, they may be preferred, if available. However, software often changes quickly. Therefore, 35 years later, the software may no longer be commercially valuable or may have been completely changed. As a result, the risk of termination under section 203 might be low for software.

Also, characterizing the work as a work made for hire, may have employment implications. For example the California Labor Code § 3351.5 provides an employee includes “…(c) Any person while engaged by contract for the creation of a specially ordered or commissioned work of authorship in which the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire, as defined in Section 101 of Title 17 of the United States Code, and the ordering or commissioning party obtains ownership of all the rights comprised in the copyright in the work.”

Therefore, characterizing a work as a work made for hire in connection with California may have the consequence of making the software contractor an employee under California labor code, with its attendant obligations.

Does the Work Qualify as a Work Made For Hire?

Outside of employment, for a non-authoring party to be considered the author of the work as a work made for hire, the work must be specially ordered or commissioned for use as one of nine categories of works and the parties must expressly agree in a written instrument signed by them that the work shall be considered a work made for hire. The nine categories are:

  1. as a contribution to a collective work,
  2. as a part of a motion picture or other audiovisual work,
  3. as a translation,
  4. as a supplementary work,
  5. as a compilation,
  6. as an instructional text,
  7. as a test,
  8. as answer material for a test, or
  9. as an atlas

Software is not a listed category. However, software development might fall in to one of the categories, such as a contribution to a collective work or a compilation or a part of other audiovisual work, depending nature and circumstances of the particular software development.

Further, it may be difficult to determine at the beginning of a project whether the software development will fall into one of the categories. Yet, it may not be necessary to make such a determination. Instead, alternative language can be used capturing subject matter that is eligible to be a work made for hire and capturing ineligible subject matter via an assignment.

Alternative Language Seeking Work Made for Hire with Fall Back to Assignment

When the parties desire the software development by non-employees to be a work made for hire, alternative language may be used in the applicable written agreement. The agreement will provide that the work is a work made for hire, but if the work does not qualify as a work made for hire, the creator/party hereby assigns the copyright in the work. Therefore, the agreement provides work made for hire language and present assignment language should the work not qualify as a work made for hire (because the work does not fall into one of the nine categories). In that way, the work will be considered a work made for hire if eligible under the statute, but if not, then ownership of the copyright is transferred by assignment.

Using work made for hire language only in an agreement without alternative assignment language may be risky. If the software development does not fall into one of the nine categories then it will not be a work made for hire, not withstanding what the agreement says. A parties’ agreement the the work is a work made for hire, does not make it so if the work does not fall into one of the 9 categories. And without fall back assignment language, ownership may not vest in the contracting party for such non-qualifying work.

A Writing is Needed

Regardless of whether software qualifies as a work made for hire, a written agreement is needed to own software developed by someone other than an employee within the scope of their employment. If the software falls into one of the nine categories, the Copyright Act requires the parties to expressly agree in a written instrument signed by them that the work shall be considered a work made for hire. If the software does not fall into one of the 9 categories, then ownership of the copyright from the authoring programmers or party must be transferred by a signed writing. This is required by 17 USC 204(a), which provides that “A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.” Therefore, even if the work is not a work made for hire, a signed writing transferring ownership is needed.

Conclusion

When software is to be developed by another, other than by an employee within the scope of their employment, a written agreement is needed to own the copyright in the software. Decide whether to structure the agreement as a work made for hire considering at least employment implications (such as in California) and termination rights under 17 USC 203. If it is desired to structure as a work made for hire, consider using fall back assignment language in case the work does not fall into one of the 9 categories and therefore does not qualify to be a work made for hire.

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Trademark Licensing Needs Quality Control

When an owner allows another (known as a licensee) to use the owner’s trademark, it is important that the owner control the quality of the goods and services provided by that Licensee under the owner’s trademark.

A trademark owner can lose rights in that trademark through uncontrolled licensing, also known as “naked licensing.” “If a trademark owner allows licensees to depart from its quality standards, the public will be misled, and the trademark will cease to have utility as an informational device,” resulting in its abandonment. TMT N. Am., Inc. v. Magic Touch GmbH, 124 F.3d 876, 885 (7th Cir. 1997)(a case involving THE MAGIC TOUCH trademark).

Reasoning for the requirement of quality control, includes that “The economic function of a trademark is to provide the consuming public with a concise and unequivocal signal of the trademarked product’s source and character … and that function is thwarted if the quality and uniformity of the trademarked product are allowed to vary significantly without notice to the consumer.” Draeger Oil Co. v. Uno-Ven Co., 314 F.3d 299, 301 (7th Cir. 2002).

How much control and inspection is necessary to satisfy the quality control requirement depends on the circumstances. What may be sufficient control for a mark used on clothing may be insufficient for a mark used on pharmaceuticals. McCarthy says, “The goal is that there must be control sufficient to meet the reasonable expectations of the customers when they see the licensed mark appear in the marketplace.” McCarthy on Trademarks 18:55.

Also, a written trademark license should provide the owner with a contractual right to control the nature and quality of the goods and services provided by the licensee under the mark. The written license should include the right to inspect the relevant goods/services and the corresponding operations of the licensee so the owner can insure conformance with the owner’s standards. Without a right to inspect, the owner many be hampered in exercising control. The written license may require the licensee to submit specimens/examples to owner of the goods and services to be offered by the licensee under the mark so that the owner can review, instruct modifications to conform to owner’s standards, and approve or disapprove such goods/services before sale by licensee. The owner should effectively exercise these rights.

Further, the written trademark license should provide the owner with the contractual right to control the nature and manner that the trademark is presented in the use by the licensee, such as on or in connection with the goods and services and related advertising. The owner may have a separate brand guide that specifies how the trademark should be used and presented. The brand guide may specify the particular font, style, color, placement, and/or other features of the use of the mark that the owner requires.

The result of abandonment by naked licensing is drastic–the forfeiture of the trademark. To better avoid a naked license challenge to the validity of its licensed mark, the owner should have a contractual right of control over the nature and quality of the goods/services and should effectively exercise that right.

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Record Trademark Assignments or Risk Loss of Rights

The case of C21FC LLC v. NYC Vision Capital Inc., No. CV-22-00736-PHX-SPL, shows ownership of registered trademark rights can be lost by not recording the relevant trademark ownership transfer document with the U.S. Patent and Trademark Office (USPTO).

In that case, plaintiff C21FC entered into a franchise agreement with NYC Vision Cap. Inc. (NYCVC) for a franchise under the mark The Eye Man. Two weeks later, on July 13, 2021, co-plaintiff C21VX executed an asset purchase agreement (APA) to buy another optical service business named The Eye Man. On the same day, the Eye Man’s sellers and Mr. Singer, C21FC’s principal member, also executed a Trademark Assignment (Assignment) to assign all rights and interests in The Eye Man trademark, goodwill, and business to Mr. Singer.

But a bank that provided financing to NYCVC for the franchise transaction requested that the assets purchased under the APA be owned by NYCVC so that there would be sufficient collateral. So an Amendment to the APA was executed later on the day the APA was executed, substituting NYCVC as the “Buyer” in the APA in place of C21VX.

A dispute arose over who owned The Eye Man trademark, among other matters. The Plaintiffs asserted the Amendment inadvertently failed to differentiate between the physical assets, which were to be transferred to NYCVC, and the trademarks, which were to be owned by C21VX. But NYCVC argued that the Amendment effected the sale of all The Eye Man’s assets to NYCVC.

The court found that the Amendment did “what it says it does: to substitute NYCVC as the Buyer in the APA in all respects, including as the buyer of The Eye Man’s intangible assets.” The court found that the Trademark Assignment, which appears to have been executed before the Amendment, did not change the outcome. The court found that the Trademark Assignment was likely void as against NYCVC under 15 U.S.C. § 1060(a)(4). That statute provides that “an assignment shall be void against any subsequent purchaser for valuable consideration without notice, unless the prescribed information reporting the assignment is recorded in the United States Patent and Trademark Office within 3 months after the date of the assignment or prior to the subsequent purchase.”

Here, Mr. Singer did not record the Assignment at the USPTO. And, there was no evidence that defendants became aware of the Assignment between the execution of the Assignment and the execution of the Amendment. Therefore, the later Amendment gave NYCVC ownership of the trademark and the earlier unfiled Assignment was void as against the defendants.

Trademark Registration Ownership Recording System

15 U.S.C. § 1060(a)(4) provides that if an assignment is not recorded at the USPTO within three months of the date of the assignment, it will not be superior to rights obtained by a third party subsequent for value if that third party did not have knowledge of the unrecorded assignment.

This provision is similar to many state-based systems of recording ownership of real estate.

Section 1060(a)(4) encourages trademark owners to file (record) evidence of their ownership of a trademark with the USTPO. This allows parties who enter into transactions regarding those trademarks to look to the public record to determine whether the party they’re dealing with is the actual owner or not.

The recording system discourages a seller from selling rights to a first party and then selling the same rights to a second party . The first party will have an incentive to record that transfer with the USPTO because of the protections provided by section 1060(a)(4).

Record

Therefore, when purchasing registered trademark rights (or rights in a mark with an associated pending trademark application) it is important to record at the USPTO the assignment (or other transfer document) transferring those trademark rights. Otherwise the purchaser could lose rights in the trademark(s) to someone who purchases rights in the trademark later without knowledge of the prior ownership/assignment.

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Reasons Not to Use a Trademark Descriptively

A trademark should be used as a trademark. But, sometimes a trademark, or a portion of the trademark, is used descriptively and not as a trademark. And that can be a problem.

What does it mean to use a trademark, or portions of it, descriptively? Let’s look at the trademark application for PRECISION CONVERTING.

His Company Inc. (“HCI”) applied to register PRECISION CONVERTING for “custom fabrication of parts and components to the order and specification of others…”

HCI previously held a registration on this mark for 10 years, but the registration was canceled based on an inadvertent failure to file a required renewal.

Nevertheless, the Examining Attorney refused to register the mark in the new application asserting that it was generic or highly descriptive without secondary meaning. The Trademark Trial and Appeals Board agreed. And one piece of evidence that the Board relied on was that HCI used “precision” and “convert” descriptively on its own website. The board said:

“….according to the specimen (portions of Applicant’s website), Applicant is a “3M Preferred Converter” that provides “converting and fabrication services.” … The website/specimen also states that “[c]ustom precision fabricated components are [Applicant’s] expertise,” and that Applicant offers “a wide range of material converting capabilities including custom and precision de-cutting, laminating, slitting, assembly and prototyping.”

The Board included an excerpt from HCI’s website with added highlights, a portion is shown here:

HCI submitted a declaration claiming use for 37 years and a retail value of sales under the mark between 2016-2019 in excess of $60 million. The Board found this was not enough to overcome the highly descriptive nature of its mark, even if the mark was not generic. The Board said regarding the sales figures:

“[HCI’s witness] does not account for two important facts apparent from the record: (1) while Applicant uses “Precision Converting” as a trade name, it also uses the terms “precision” and “converting” descriptively or generically, as shown, for example, in its specimen; and (2) Applicant’s “Precision Converting” trade name is typically, or at least often, displayed in close proximity to Applicant’s name and house mark HISCO. Thus, it is not clear whether sales made “under” the trade name “PRECISION CONVERTING” reflect consumers’ perception of that name as a source identifier as opposed to a mere description of Applicant’s services, especially where so many of Applicant’s competitors use “precision converting” only as a generic term.”

Therefore, HCI’s descriptive use of portions of its mark on its website muddied the water on the inferences that could be drawn from its sales. As a result, the $60 million in sales did not necessarily evidence a customer’s recognition of PRECISION CONVERTING as a trademark (source identifier) in the marketplace.

HCI’s own website was not the only evidence the Board relied on to refuse registration. Third party competitors’ use of the terms played an important role. However, HCI’s own descriptive website use did not help.

Descriptive uses of a trademark can weaken it and can make the it vulnerable to an attack asserting that the trademark is really not a trademark.

Cite: In re His Company, Inc., no. 88156779 (TTAB)

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Referencing Confidential Information When Preparing a NDA

A nondisclosure agreement (NDA) is used to impose confidentiality obligations on one or more parties. A NDA is often used when an inventor or owner desires to disclose details about an invention to another party, such as to obtain engineering or design assistance or to explore a possible business opportunity.

But how is confidential information referenced before an NDA is signed? First, let’s look at a case.

Chris Pritchard alleged that he sought to contract with an engineering firm in order to manufacture his dash cam with AI capabilities.

He reached out to Aaron Thompson at Harman Connected Services. Pritchard and Thompson had a phone call where Thompson allegedly told Prichard that “the correct way to go about sharing information and getting started on a future collaborative effort, would be to work up a Non-Disclosure Agreement (NDA).” Thompson allegedly offered to draft the agreement but allegedly told Pritchard that “the proper wording for the NDA would need to include word specific content related to the product.” Based on the alleged representation, Pritchard allegedly shared “very specific proprietary design, technical and AI operations of the product not revealed in [Pritchard’s] patent(s) so that the NDA . . . would encompass all the necessary details for protection of all parties involved.”

Later communication broke off between Pritchard and Thompson. Then Pritchard visited Harman’s website and allegedly discovered “an exact replica of [Pritchard’s] product” that was “complete with literally every item discussed on the phone calls in December 2021, and mimicked every AI operation listed in the patent pending page on the USPTO website.”

Pritchard sued Thompson and Harman for a number of claims including breach of contract.

Pritchard alleged in his amended complaint that an “oral contract was entered on December 3, 2021, at 1:59 p.m., when Plaintiff and Mr. Thompson engaged in a confidential call upon which Plaintiff sought the correct way to go about sharing information and getting started on a possible, future, collaborative effort regarding Plaintiff’s invention.”

The magistrate judge found that this allegation was not sufficient to plausibly establish the existence of a contract. The judge said, “There are no facts that detail an offer, acceptance, and consideration, nor is it clear what was promised by each party under the terms of this alleged oral contract.” The judge recommended that breach of contract claim be dismissed.

It is not necessary to disclose the invention or the confidential information, and it is not disclosed, to prepare a NDA. How the subject matter of the NDA is described will depend on the circumstances, but without disclosing the confidential information. For example, the NDA may identify the general subject matter at a high level such that no confidential information is disclosed.

If the NDA itself discloses confidential information or if the confidential information is disclosed to be included in the NDA, but the NDA never materializes or the other side refuses to agree to it, then the information will be disclosed to the other party without first obtaining a written commitment of confidentiality, which the NDA is supposed to provide. Perhaps one could rely on an “oral agreement” or another cause of action, but that’s risky, and it is a recipe for expensive disputes about what was allegedly agreed, and it might not work out, as occurred in Pritchard’s amended complaint.

One purpose of an NDA is to define the terms and confidentiality obligations of the parties clearly agreed in writing before a disclosure of confidential information between the parties–avoiding the possibility there is no confidentially obligation or nondisclosure agreement at all.

Case: Pritchard v. Thompson, No. 22-cv-2838-JPM-tmp (W.D. Tenn. Aug. 3, 2023) [order adopting Magistrate Judge’s Report and Recommendation]

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Fictitious Name Signups: Controlling Who is a Party to Technology Agreements

Should your customer be able to sign up on behalf of an unnamed third party? Should they be able to assign their rights under the agreement to another party? Should they be able to use fake names and addresses? Should they be able to reverse engineer the software or service? Often the answer to these questions is no. And the applicable agreement should make that clear.

Let’s see what happens when one company allegedly gains access to a competitor’s software by signing up under a fictitious user and company name.

CCC Intelligent Solutions Inc. and Tractable Inc. provide customers with estimates of the cost to repair damaged automobiles using software with purportedly confidential algorithms.

CCC’s lawsuit against Tractable alleges as follows. Tractable had one of its employees obtain a license to use CCC’s software. The employee used a false name, physical address, and email address to sign up purporting to represent “JA Appraisal.” The employee described JA Appraisal, as a small, independent appraiser. CCC issued the requested license.

CCC’s license forbids assignment of the license without CCC’s consent and represents that JA Appraisal is not a front for anyone else. In particular, it provides, “CUSTOMER [JA Appraisal] represents that it is acting on its own behalf and is not acting as an agent for or on behalf of any third party, and further agrees that it may not assign its rights or obligations under this Agreement without the prior written consent of CCC.” Further the license forbids disassembly of the software or its incorporation into another product.

Tractable’s employee gave Tractable CCC’s software package. Tractable disassembled the software and incorporated some of its algorithms and features into Tractable’s product.

CCC filed suit against Tractable alleging the forgoing, and Tractable responded by requesting an order to refer the dispute to arbitration, noting a clause in the agreement between CCC and JA Appraisal.

How could Tractable claim to enforce a term of the license that it was not a named party to? Tractable asserted that (1) “JA Appraisal” is just a name that Tractable uses for itself, so it was a party to the agreement, and (2) if using a pseudonym and describing the business as “independent” is fraud, the arbitrator can consider that defense.

Yet, JA Appraisal was not an assumed name or otherwise publicly used or known to the public as a name that Tractable did business. The court said:

“Asked at oral argument whether CCC could have discovered that Tractable uses the name ‘JA Appraisal,’ counsel for Tractable acknowledged that this was not possible. As Tractable’s own little secret, it does not affect anyone else. Contractual meaning reflects words and signs exchanged between the negotiators, not unilateral and confidential beliefs… In other words, meaning is produced by an objective process. Signing a contract with your fingers crossed behind your back does not add to your rights or subtract from anyone else’s.”

CCC relied on section 163 of the Second Restatement of Contracts, which provides: “If a misrepresentation as to the character or essential terms of a proposed contract induces conduct that appears to be a manifestation of assent by one who neither knows nor has reasonable opportunity to know of the character or essential terms of the proposed contract, his conduct is not effective as a manifestation of assent.”

Tractable relied on the exception in comment a of section 163, which provides, “The mere fact that a party is deceived as to the identity of the other party, as when a buyer of goods obtains credit by impersonating a person of means, does not bring the case within the present Section, unless it affects the very nature of the contract.”

The court said: “The problem for Tractable is not that CCC failed to know ‘the full truth about its trading partner’—the issue that Restatement §163 Comment a covers—but that CCC did not know that Tractable would claim to be its trading partner.”

The general rule of section 163 applied, not the exception of comment a. Therefore, Tractable was not a party to the agreement and could not demand arbitration. The language of CCC’s license prohibiting agency and assignment was helpful in achieving the result.

Cite: CCC Intelligent Solutions Inc. v. Tractable Inc., 36 F.4th 721 (2022)

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Expressly State the Right to Recover for Past Infringements in a Patent Assignment

In order for a patent assignee to recover damages for infringement occurring before the assignee obtained ownership of the patent, the assignment must expressly so state. The Supreme Court said “it is a great mistake to suppose that the assignment of a patent carries with it a transfer of the right to damages for an infringement committed before such assignment.” Moore v. Marsh, 74 U.S. (7 Wall.) 515, 522 (1868).

This is illustrated in the case of Messagephone, Inc. v. Svi Sys., Nos. 99-1471, 99-1478, 2000 U.S. App. LEXIS 19976 (Fed. Cir. 2000). Messagephone sued Svi Systems and Holiday Inn Express alleging infringement of U.S. Patent Nos. 5,323,448 and 5,475,740. These patents were directed to a system that enables hotel guests to order certain amenities, such as movies, in their hotel rooms without incurring charges on their hotel bill.

When the patents where granted in 1994 and 1995, they were assigned to Spectradyne, Inc. On November 7, 1996, Spectradyne assigned title in the patents to Messagephone. This assignment granted Messagephone the “entire right, title, and interest” in the patents. But the assignment was silent regarding Messagephone’s right to sue for infringement that occurred before that date. The Court found that since the assignment did not expressly grant Messagephone’s right to sue for infringement occurring before the date of the assignment, Messagephone could not do so.

The court said, “As a general rule, only a party that possessed legal title to a patent at the time the infringement occurred can bring suit to recover damages for such infringement.” It continued, “A narrow exception to the foregoing rule is that a party may sue for infringement transpiring before it acquired legal title if a written assignment expressly grants the party a right to do so; that right, however, must be articulated explicitly in the assignment and will not be inferred by the court.”

Messagephone tried to fix this, after the lawsuit was filed, by executing a nunc pro tunc (retroactive) assignment of the right to sue for past infringement. But the court said executing it after the lawsuit was filed was too late.

The lack of express language assigning the right to sue for past infringement and damages cost Messagephone one or two years worth of damages, which could be substantial.

If the assignee desires to pursue claims for past infringement occurring before the date of the patent assignment, the patent assignment should include expressly the right to sue and recover for past infringements and damages.

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Language for Assigning Patents and Patentable Inventions in Employment or Consulting Agreements

An agreement to assign is not the same as a present assignment of a patent or patentable invention and does not have the same effect. An agreement to assign often requires the execution of an additional assignment to transfer legal title, whereas a present assignment does not. It is possible to assign rights to future patentable inventions with the proper language.

In many cases, one will want to avoid executing a further assignment to gain legal title, and prefers the assignment to occur on the execution of one document. Why? Because what if the inventor / intended-assignor is later unavailable or uncooperative? The situation is then more complicated, expensive, and time consuming. In some cases, litigation may be necessary to force the inventor/assignor to execute an assignment or to otherwise vest an intended-assignee with legal title.

While the applicable state law usually determines the interpretation of an agreement regarding patent ownership, Federal Circuit law determines whether an agreement effects a present assignment of a patent. Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 583 F.3d 832 (Fed. Cir. 2009). The following cases demonstrate the difference between the language of: “shall be …exclusive property of”, “agrees to assign,” “will assign,” and “hereby assigns.”

“Shall Be and Remain Exclusive Property Of“

Two inventors were named on US Patent 6,075,451: Mayer Micheal Lebowitz and James Seivert. Without an agreement or rule of law otherwise, the co-inventors are presumptive joint legal owners of the patent. 35 USC 116, 262.

After the inventors died, Tobi Gellman as trustee of the Mayer Micheal Lebowitz Trust sued Telular Corporation among others for infringing the patent in the case of Gellman v. Telular Corp. 449 Fed. Appx. 941 (Fed. Cir. 2011). Gellman claimed the Trust was the sole owner of the patent. The defendant(s) claimed the case had to be dismissed because the Trust was not the full owner of the patent.

Gellman claimed that Mr. Seivert was an employee of Mr. Lebowitz at Cellular Alarm and that the terms of his employment included full transfer of rights to any resulting inventions. However, the evidence of this comprised an unsigned agreement titled “agreement for consulting services.” That agreement provided as follows:

“[A]ny and all ideas, discoveries, inventions, [etc.] . . . developed, prepared, conceived, made, discovered or suggested by [Mr. Seivert] when performing services pursuant to this Agreement . . . shall be and remain the exclusive property of Cellular Alarm. [Mr. Seivert] agrees to execute any and all assignments or other transfer documents which are necessary, in the sole opinion of Cellular Alarm, to vest in Cellular Alarm all right, title, and interest in such Work Products.” (emphasis added).

The court found that even if the agreement had been signed, the language of the agreement did not effect a present transfer of ownership. The language of “shall be and remain the exclusive property” is not the same as “hereby assigned.”

Gellman argued the “remain” language indicated the invention had been fully conveyed previously. However the court found that Mr. Seivert’s contributions to the inventions remained only in equitable status until such time as Mr. Seivert “execute[d] any and all assignment or other transfer documents which are necessary . . . to vest in Cellular Alarm all right, title and interest in such inventions.” The agreement at most created an equitable obligation of Mr. Seivert to assign to Cellular Alarm. That equitable title could be converted to legal title (legal ownership) if and when Mr. Seivert actually assigned or, if necessary, through a law suit to force Mr. Seivert to execute an assignment. This did not happen. And the case was dismissed because the Trust did not have full legal title to the patent.

“Hereby Assign” v. “Agree to Assign”

It is possible for an employee to assign any and all of his or her rights to future patentable inventions. But the assignment must expressly undertake the assigning act at the time of the agreement, and not leave it to some future date.

In Board of Trustees of the Leland Stanford Junior Univ. v. Roche Molecular Sys., 583 F.3d 832 (Fed. Cir. 2009), Holodniy, a researcher that was employed by Stanford, arranged to spend time at Catus, as a visitor, to learn laboratory techniques as a part of a Standford-Cetus collaboration related to HIV.

Before visiting Catus Holodniy signed a Copyright and Patent Agreement (“CPA”) with Standford. The CPA provided, “I agree to assign or confirm in writing to Stanford and/or Sponsors that right, title and interest in . . . such inventions as required Contracts or Grants.”

Later, when visting Catus, Holodniy signed a visitor confidentiality agreement (“VBA”) which provided, “I will assign and do hereby assign to CETUS, my right, title, and interest in each of the ideas, inventions and improvements.”

Standford secured patents naming Holodniy as an inventor. Standford sued Cetus’s successor, Roche, for infringement. Roche defended on the ground that it owned the interest of Holodniy in the patent based on the assignment provision of the VBA.

The court found that the “agree to assign” language of the first CPA to Standford was not a present assignment. Instead, it was only a mere promise to assign rights in the future. It was not an immediate transfer of expectant ownership interests. Standford might have an equitable claim against Holodniy, but Standford did not immediately gain legal title to Holodniy’s inventions as a result of the CPA.

In contrast, the court found that the “do hereby assign” language of the VBA to Cetus effected a present assignment of Holodniy’s future inventions to Cetus.

Therefore, at the time of the lawsuit for infringement, Roche–Cetus’s successor– had Holodniy’s rights in the patents and Standford did not. This demonstrates a big difference between “agrees to assign” and “do hereby assign”. The former requires additional step(s), such as the signing of another assignment document, to carryout the transfer of title/ownership, whereas the latter does not require any further step to transfer legal title in the invention.

Other cases where the language did not provide a present assignment are:

  • Advanced Video Techs. LLC v. HTC Corp., 879 F.3d 1314, 1317-18 (Fed. Cir. 2018) (“will assign to the Company” does not create an immediate assignment);
  • IpVenture, Inc. v. ProStar Computer, Inc., 503 F.3d 1324, 1327 (Fed. Cir. 2007) (employment agreement providing that the employee “agree[s] to assign” was not a present assignment); and,
  • Arachnid, Inc. v. Merit Indus., 939 F.2d 1574, 1580-81 (Fed. Cir. 1991) (“will be assigned” does not constitute a “present assignment of an existing invention” or “a present assignment of an expectant interest”).

Other cases where the Federal Circuit found the language of “does hereby assign” or “hereby grant” sufficient to effect an automatic transfer of later arising patent rights, include:

  • DDB Techs., L.L.C. v. MLB Advanced Media, L.P., 517 F.3d 1284, 1290 (Fed. Cir. 2008) ( “does hereby grant and assign”);
  • Speedplay, Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed. Cir. 2000) (“hereby conveys, transfers and assigns”);
  • FilmTec Corp. v. Allied-Signal Inc., 939 F.2d 1568, 1570, 1573 (Fed. Cir. 1991) (“does hereby grant”).

Conclusion

The hereby assign language effects a present assignment, according to the Federal Circuit, and should better avoid the need of executing further documents to transfer legal title to a patent or patentable invention. Even though an additional assignment or assignment conformation is often executed when a patent application is filed, including the present assignment language in an earlier employment or consulting agreement is a prudent step in case the inventor / intended-assignor is later unavailable or uncooperative.

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First Amendment Defense to Trademark Infringement Claim: MTV Floribama Shore Does Not Infringe FLORA-BAMA Trademark

The First Amendment can be a defense to a trademark infringement claim when the accused work is an artistic work. There, in many cases, trademark rights must yield to the public interest in free expression protected by the First Amendment.

This is demonstrated in the case of MGFB Properties Inc. V. 495 Productions Holdings LLC, No. 21-13458 (11th Cir. 2022). In that case MGFB and its related entities sued 495 Productions and Viacom alleging that the title of the MTV Floribama Shore reality TV show infringed its FLORI-BAMA trademark.

The Plaintiffs operate the Flora-bama Lounge, Package and Oyster Bar on the Florida-Alabama boarder, and have done so since 1964. MGFB owns federal trademark registration no. 4,272,440, for FLORA-BAMA for bar and restaurant services as well as several entertainment services including hosting social entertainment events, live musical performances, and competitions for fish throwing.

The defendants produced and aired a reality TV show titled MTV Floribama Shore. It was modeled on its prior reality show, Jersey Shore. With the MTV Floribama Shore show, the defendants wanted to highlight “young [S]outhern folks” who go to “shore houses” or “spend summers” on the Gulf of Mexico, extending from the Florida panhandle into Alabama and Mississippi.

1. The First Amendment Roger’s Test Applied

The Second Circuit’s Rogers test balances the trademark owner’s rights against the rights under the First Amendment in connection with artistic works. Rogers v. Grimaldi, 875 F.2d 994 (2d Cir. 1989). It provides that the title of an artistic work does not violate the trademark act, “[(1)] unless the title has no artistic relevance to the underlying work whatsoever, or, [(2)] if it has some artistic relevance, unless the title explicitly misleads as to the source or the content of the work.”

In the MGFB case, the court applied the Roger’s test finding that MTV’s use of Floribama was artistically relevant to the show. The court said:

“‘Floribama’ describes the subculture profiled in the series and the geographic area exemplified by the subculture. To break it down even further, the former part of ‘Floribama,’ i.e., ‘Flori,’ refers to Florida and the beach culture the series sought to capture, while the latter part, i.e., ‘bama,’ refers to Alabama and the Southern culture the series sought to capture. … ‘Floribama’ gave viewers ‘a very distinct sense of what part of the country and subculture the series was about.”

On the second part of the Rogers test, the court found that title of MTV’s show was not explicitly misleading. The court said that the relevant question under this part is “whether (1) the secondary user overtly ‘marketed’ the protected work as ‘endorsed’ or ‘sponsored’ by the primary user or (2) ‘otherwise explicitly stated’ that the protected work was ‘affiliated’ with the primary user. ” And the court found no evidence of this. On the contrary, Viacom “chose a title that includes its own house mark (MTV) and the name of one of its iconic franchises (Shore).”

Therefore, Defendants’ use of Floribama in its television series title—MTV Floribama Shore—did not infringe the FLORA-BAMA trademark .

2. Some Confusion Is Allowed When First Amendment Applies

The court found MTV’s show title did not infringe even though MGFB presented some evidence that the title of the show caused confusion. MGFB conducted a survey that found that 34% of those surveyed had heard of the term “Flora-bama,” and half of that 34% identifying it as the Lounge. However, this was irrelevant because the evidence must relate to the nature of the defendant’s behavior under part 2 of the Rogers test, not the impact of the defendant’s use. Further, MGFB “submitted emails, letters, and declarations from their bartenders and regular musical acts stating that there have been multiple instances of confusion between the series and the Lounge.” Yet, this did not lead to a different result.

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Transparency and Design Patents; Design Patent with Computer Generated Images Claims Only Opaque Design

The way that a design is presented in a design patent is critical. Design patent drawings are often line drawings. But photographs are also allowed. And some patents use computer generated images.

Yet, while photographs and computer generated images may provide more details than line drawings, they are likely to be more limiting. The more details in the design drawings the more possible differences a competitor could develop. Details in a design patent are a double edged sword, more details provide increased options for distinguishing prior art, but may result in more narrow protection as shown in the case below.

Think Green Ltd. sued Medela AG asserting that Medela’s breast pump infringed its design patent US D808,006 (the ‘006 Patent). Below is figure 9 (first/left) from the ‘006 patent and Medela’s pump (second/right).

Medela’s pump is transparent. The images of the ‘006 patent are computer generated images. Think Green argued that the ‘006 patent covered transparent objects. The court disagrees.

According to MPEP rules, surface shading lines are used to “indicate “character and contour,” including “to distinguish between any open and solid areas of the article.” On the other hand, the court notes that other “courts have held that when a patent fails to specify a limitation, in other words, when it is blank and does not include surface shading, the patentee is entitled to the broadest reasonable construction.” For example, in an older case from the 6th Circuit, that court found a blank surface without oblique lines could claim a transparent, translucent, or opaque surface, or both. Transmatic, Inc. v. Gulton Indus., Inc., 601 F.2d 904, 912-13 (6th Cir. 1979).

The court in the Think Green case concluded “an inventor intending to claim a generically opaque surface, and not any particular material type, would use a line drawing with a blank surface, free of anything but contour lines, thereby claiming both an opaque and transparent surface.” Therefore, the court found the ‘006 Patent computer generated images “must be interpreted to claim an opaque object to the exclusion of translucent or transparent objects.”

The court then found that Medela’s pump was not substantially the same as the design of the ‘006 Patent and did not infringe. The court said:

“Even if Medela’s product were exactly the same as Think Green’s design in all other aspects, the Court finds that an ordinary observer would not find the translucent object to be substantially the same as the opaque object. Opaque and translucent objects are categorically different such that they are “plainly dissimilar” and could not be confused by an ordinary observer. … Indeed, whether an object is opaque or translucent is one of the most obvious and prominent characteristics of any object.” Think Green Ltd. v. Medela AG, No. 21 C 5445, 2022 U.S. Dist. LEXIS 184040 (N.D. Ill. Oct. 7, 2022)

Now, compare the drawings of the ‘006 patent to the following drawings from two patents owned by Lego A/S.

US Patent D951366
US. Patent D951365

The first drawing (left) from US Patent D951366 (‘366 patent) shows a toy building element presented in a traditional black and white line drawing. The second drawing (right) from US Patent D951365 (‘365 patent) is a photograph, showing the toy building element is transparent or at least translucent.

The ‘365 patent clearly covers a transparent or translucent toy building element, but probably does not cover an opaque product under the reasoning in the Think Green case.

But does the ‘366 patent cover transparent or translucent products? The reasoning in the Transmatic, Inc. and Think Green cases indicates it does.

Yet, the MPEP provides that “oblique line shading must be used to show transparent, translucent and highly polished or reflective surfaces, such as a mirror.” MPEP 1503.02(II).

What is oblique line shading? The following is an example of oblique line shading for black and white line drawings showing transparent surfaces, from the USPTO Design Patent Application Guide:

.

Does the failure to use oblique line shading in line drawings limit the claimed design to opaque surfaces? A number of district courts have said no and followed Transmatic.

One court said: “the relevant section [1503.02(II)] of the MPEP only specifies that an inventor wishing to limit a particular surface to a transparent, translucent, or reflective material must indicate the surface through the use of oblique lines. It does not state that failure to include oblique lines necessarily excludes the use of a transparent surface.” Apple, Inc. v. Samsung Elecs. Co., No. 11-CV-01846-LHK, 2012 U.S. Dist. LEXIS 105125, at *24-25 (N.D. Cal. July 27, 2012). Other district courts have agreed in Water Tech., LLC v. Kokido Dev. Ltd., No. 4:17-cv-01906-AGF, 2019 U.S. Dist. LEXIS 42420, at *42-44 (E.D. Mo. Mar. 15, 2019) and Lifted Ltd., Ltd. Liab. Co. v. Novelty Inc., Civil Action No. 16-cv-03135-PAB-GPG, 2020 U.S. Dist. LEXIS 92102, at *19-20 (D. Colo. May 27, 2020).

The drawings of design patent D556396 in the Water Tech case that were construed to encompass both opaque and transparent surfaces includes:

Why would Lego file for the ‘356 patent with photos of the transparent product if the line drawing version in the ‘366 patent is sufficient to cover transparent and opaque surfaces according to the cases above? There are at least a few reasons. First, if the prior art invalidates the broader line drawing version of the ‘366 patent, possibly the ‘365 patent would survive on the basis of the specifically claimed transparency (there is some uncertainty on this issue as well but see In re Haruna, 249 F.3d 1327 (Fed. Cir. 2001)). Second, it appears the Federal Circuit has not ruled directly on whether line drawings cover transparent and opaque surfaces. Therefore, if the Federal Circuit would decide line drawings do not cover transparent surfaces or the law would otherwise change in this direction, Lego would be covered by the patent specifically showing transparency. Third, possibly it makes it easier marginally to succeed on a patent infringement case because the transparency in the design patent drawings makes them look more like the accused transparent product. In theory this last aspect should not matter if a judge instructs that the design patent covers transparent and opaque surfaces. Yet, it nevertheless may be marginally easier.

Appropriate line drawings provide a better chance of covering transparent surfaces as compared to photos or computer images of products with opaque surfaces. Yet, if transparent surfaces are important to the design, they can be specifically indicated in the drawings by the use of oblique line shading and accompanying text description or a photo showing a transparent product such as in Lego’s ‘365 patent above.