Trademark licensing agreements are not distinguishable from other types of contracts – the contracting parties are generally held to the terms for which they bargained
| March 23, 2021
Authentic Apparel Group, LLC, et al. v. United States
March 4, 2021
Lourie, Dyk, Stoll (opinion by Lourie)
Summary
The Court of Appeals for the Federal Circuit (“the CAFC”) upheld the grant of summary judgement by United States Court of Federal Claims (“the Claims Court”), finding the plaintiff’s arguments unpersuasive. The CAFC found trademark licensing agreement to not be any different from other types of contracts, and there was no legal or factual reason to deviate from a plain reading of the exculpatory clauses in the trademark license agreement between the plaintiff and the defendant.
Details
Department of the Army (“Army”) and Authentic Apparel Group, LLC (“Authentic”) entered into a nonexclusive license for Authentic to manufacture and sell clothing bearing the Army’s trademarks in exchange for royalties. The license agreement stated that prior to any sale or distribution, Authentic must submit to the Army all products and marketing materials bearing the Army’s trademark for the Army’s written approval. The license also included exculpatory clauses that exempted the Army from liability for exercising its discretion to deny approval.
Between 2011 and 2014, Authentic submitted nearly 500 requests for approval to the Army, of which 41 were denied. During this time period, several formal notices were sent to Authentic, stating Authentic’s failures to timely submit royalty reports and pay royalties. Authentic eventually paid royalties through 2013, but on November 24, 2014, but expressed its intention of not paying outstanding royalties for 2014, and that it would sue the government for damages.
On January 6, 2015, Authentic and Ruben filed a complaint in the Claims Court for breach of contract. The allegations of breach were based on “the Army’s denial of the right to exploit the goodwill associated with the Army’s trademarks, refusal to permit Authentic to advertise its contribution to certain Army recreation programs, delay of approval for a financing agreement for a footwear line, and denial of approval for advertising featuring the actor Dwayne ‘The Rock’ Johnson.” The Claims Court dismissed Ruben as a plaintiff for lack of standing. Authentic subsequently amended its complaint to include an allegation that “the Army breached the implied duty of good faith and fair dealings by not approving the sale of certain garments.”
One November 27, 2019, the Claims Court granted the government’s motion for summary judgment, determining that Authentic could not recover damages based on the Army’s exercise of discretion in view of the express exculpatory clauses included in the license agreement. With regard to Authentic’s amended complaint, the Claims Court also found that the Army’s conduct was not unreasonable, and in line with its obligation under the agreement.
The plaintiffs appealed, challenging dismissal of Ruben as a plaintiff, and the Claims Court’s grant of summary judgment.
With regard to the dismissal of Ruben as a plaintiff, the CAFC ruled that the Claims Court properly dismissed Ruben for lack of standing, as he was not a party to the license agreement, and there is no indication of Ruben as an intended beneficiary of the agreement.
The CAFC then turned to the Claims Court’s grant of summary judgment. The CAFC stated that the license agreement expressly stated that the Army had “sole and absolute discretion” regarding approval of Authentic’s proposed products and marketing materials.
Authentic argued that even if the Army has broad approval discretion under the agreement, that discretion cannot be so broad as to allow the Army to refuse to permit the use of its trademarks “for trademark purposes.” However, the CAFC ruled that the Army’s conduct was not at odd with principles of trademark law. Authentic’s argument appeared to distinguish trademark licenses from other types of contracts, but the CAFC stated that underlying subject matter of the contract is not an issue, and contracting parties are “generally held to the terms of which they bargained.”
The CAFC found Authentic’s argument to be problematic also in that it relies on an outdated model of trademark licensing law, where, at one point, “a trademark’s sole purpose was to identify for consumers the products’ physical source of origin,” and therefore, trademark licensing was “philosophically impossible.” Under the current law, trademark licenses are allowed as long as the trademark owner exercises quality control over the products associated with its trademarks. Here, Army fulfilled its duty of quality control with an approval process.
The CAFC considered Authentic’s arguments and found them unpersuasive, thus affirming the Claims Court’s grant of summary judgment in favor of the government.
Takeaway
- Review carefully the terms of any licensing agreement and negotiate for terms prior to signing. Trademark license agreements are not any different from other types of contracts, and the parties are generally held to the terms of the contracts.
LICENSING AGREEMENTS AND TESTIMONIES COULD BE USED AS EVIDENCE OF SECONDARY CONSIDERATIONS TO OVERCOME OBVIOUSNESS ONLY WHEN THEY PROVIDE A “NEXUS” TO THE PATENTS
| October 10, 2020
Siemens Mobility, Inc. v. U.S. PTO
September 8, 2020
Lourie (author), Moore, and O’Malley
Summary:
The Federal Circuit affirmed the PTAB’s final decision that claims of Siemens’s patents are unpatentable as obvious. The Federal Circuit found that the PTAB’s findings in claim construction of “corresponding regulations,” and evaluation of Siemens’s evidence of secondary considerations are clearly supported by substantial evidence.
Details:
Siemens Mobility, Inc. (“Siemens”) appeals from two final decisions of the PTAB, where the PTAB held that claims 1-9 and 11-19 of U.S. Patent No. 6,609,049 (“the ‘049 patent) and claims 1-9 and 11-19 of U.S. Patent No. 6,824,110 (“the ‘110 patent) were unpatentable.
The ‘049 patent and ‘110 patent
Siemens’s ‘049 and ‘110 patents are directed to methods and systems for automatically activating a train warning device, including a horn, at various locations. The systems include a control unit, a GPS receiver, and database of locations of grade crossings, and a horn. Siemens’s two patent disclose that if that grade crossing is subject to state regulations, the horn is activated based on those state regulations. If that grade crossing is not subject to state regulations, Siemens’s system considers that crossing as subject to a Federal Railroad Administration regulation and sounds the horn when the train is 24 seconds or fewer away from the crossing.
Independent claim 1 of ‘110 patent:
1. A computerized method for activating a warning device on a train at a location comprising the steps of:
maintaining a database of locations at which the warning device must be activated
and corresponding regulations concerning activation of the warning device;
obtaining a position of the train from a positioning system;
selecting a next upcoming location from among the locations in the database based at least in part on the position;
determining a point at which to activate the warning device in compliance with a
regulation corresponding to the next upcoming location; and
activating the warning device at the point.
The claims of the ‘049 and ‘110 patents substantially similar.
PTAB
Westinghouse Air Brake Technologies Corporation (“Westinghouse”) petitioned for IPR, challenging claims of both ‘049 and ‘110 patents under §103.
The PTAB found that all challenged claims would have been obvious over two references (Byers and Michalek). In addition, the PTAB did not found Siemens’s evidence of secondary considerations to be persuasive. Finally, the PTAB found that a skilled artisan would have combined the teachings of both references.
Siemens appealed.
CAFC
Three aspects of the PTAB decisions at issue in the appeal:
- The board’s claim construction of “corresponding regulations”;
- The board’s evaluation of Siemens’s evidence of secondary considerations; and
- The board’s findings of a person of skill in the art would have combined both references.
As for the second issue, Siemens presented two license agreements to both patents. Also, Siemens provided evidence regarding Westinghouse’s request to license and testimony from Westinghouse employees regarding the strength of two patents.
Siemens argued that the PTAB improperly discounted this evidence for lack of nexus.
The CAFC did not find those license agreements to be persuasive.
The CAFC noted that the license agreement with Norfolk Southern was presented to the PTAB with royalty information redacted and that another license was provided only for a nominal fee. Also, the CAFC noted that a license request from Westinghouse was for avoiding the cost of a pending patent infringement suit.
Furthermore, the CAFC agreed with the PTAB’s position that testimony from Westinghouse “provided a scant basis for accessing the value of the ‘110 patent” because while the testimony referred to a “horn sequencing patent” or “automatic horn activation,” it did not provide any connection to the language of the claims.
Therefore, the CAFC held that the PTAB’s findings were clearly supported by substantial evidence.
Takeaway:
- In the obviousness analysis, a nexus is required between the merits of the claimed invention and the offered evidence.
- Licensing agreements and testimonies could be used as evidence of secondary considerations to overcome obviousness only when they provide a “nexus” to the patents at issue.
Tags: employee testimony > evidence of secondary considerations > licensing agreement > nexus > obviousness
