The Powley & Gibson Blog

Developments in Intellectual Property Law

Supreme Court to Determine Constitutionality of Ban on “Immoral” And “Scandalous” Trademark Registrations

By Jason H. Kasner

The United States Supreme Court will soon hear arguments in a case that may significantly alter the face of trademark law for the second time in less than two years.

The case, Andrei Iancu, Under Secretary of Commerce for Intellectual Property and Director, Patent and Trademark Office v. Erik Brunetti, addresses a portion of Section 2(a) of the Lanham Act which authorizes the U.S. Patent and Trademark Office (“USPTO”) to refuse registration of “immoral . .  or scandalous” marks.

The USPTO refused to register the trademark “FUCT” for various clothing items on this basis, and Erik Brunetti, the owner of the “FUCT” mark, appealed the refusal to the U.S. Court of Appeals for the Federal Circuit.  The appeals court struck down the ban on “immoral” and “scandalous” marks, noting that, despite the “vulgar” nature of the “FUCT” trademark, “[t]he First Amendment, however, protects private expression, even private expression which is offensive to a substantial composite of the general public.”  The U.S. government appealed this decision to the Supreme Court which must now determine whether the USPTO may continue to refuse registration to marks it considers “immoral” and/or “scandalous.”

Many will recall the repercussions of the 2017 Supreme Court case, Matal v. Tam, which found a section of the statute allowing the USPTO to refuse trademark registration for “disparaging” marks (Section 2(a) of the Lanham Act) to be an unconstitutional violation of the First Amendment.  Although that particular case addressed the USPTO’s refusal to register the mark “The Slants” by members of a rock band (who are Asian-American) by the same name, the fallout from that decision famously brought to a close the long-standing battle between the Washington Redskins and the USPTO by removing the statutory ban on registration for the term REDSKINS.

In sum, the government’s position in the current case is that “immoral” and/or “scandalous” marks can be treated differently than “disparaging” marks and the Slants decision is not conclusive of whether the statutory ban on “immoral” and/or “scandalous” marks is facially unconstitutional. Brunetti argues that the same principles of free speech that led to the removal of the ban on “disparaging” marks should likewise apply to “immoral” and/or “scandalous” marks.  That is the question now before the Supreme Court.

If the U.S. loses the appeal, the long-standing ban on registration of “immoral” and/or “scandalous” marks will be lifted, and a flood of trademark applications to register sexually explicit, vulgar and profane marks will likely follow. Trademark owners should be aware that a backlog of the examination of pending trademarks is likely while the USPTO deals with this influx.  The decision may open the door for trademark owners with arguably “immoral,” “scandalous” or “vulgar” marks to finally enjoy the full benefits of a federal trademark registration and enhance their ability to protect their brands.

The Music Modernization Act

Shifting the Licensing Burden Onto Songwriters and Publishers

By Matthew F. Abbott
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On October 11, 2018, the Music Modernization Act (“MMA”) was signed into law following bipartisan passage in the House and Senate. The MMA has immediate and significant consequences for songwriters and publishers whose musical compositions are or will be distributed through a digital music provider such as Spotify or Apple Music.

Digital music providers no longer required to license directly from rights holders

While previously digital music providers licensed these “mechanical” rights directly from songwriters and publishers, the MMA now provides digital music providers the option to license any and all musical works using a compulsory blanket license administered by a newly-created intermediary organization, the “Mechanical Licensing Collective” (“MLC”). The MLC will be designated by Congress and is authorized to (i) administer the blanket license and pay royalties; (ii) create and maintain a public database of musical compositions and ownership information; and (iii) hold unclaimed royalties for three years, at which time they will be distributed to MLC participants based on their market share.  The MLC will be funded through voluntary contributions and an administrative assessment set by the Copyright Royalty Judges who have been designated to set licensing rates under the MMA.

Songwriters, publishers encouraged to register with the Mechanical Licensing Collective

The MMA’s blanket license covers every musical composition distributed by a digital music provider. Each digital music provider will pay a fixed blanket rate for each distributed composition to the MLC, which will then distribute royalty payments to each participating member.  Songwriters and publishers that are not participating members will not receive any royalties – instead, the MCL will designate the royalties collected on their behalf as “unclaimed” royalties and will redistribute them among participating members after three years.  Thus, the burden is placed on each songwriter and publisher to make sure he or she is in compliance with the requirements of the MMA in order to receive a portion of mechanical royalties collected under the blanket license.

The MMA is scheduled to be phased in over the next two years and many of the details are still being worked out. For example, the MMA requires that all musical works administered by the MLC must be registered with the MLC in order to receive their share of royalties.  However, it has not yet been determined what this procedure is and what information will be required.  Consequently, songwriters and publishers should keep abreast of when and how this procedure develops, and should register their musical compositions with the MCL as soon as it is possible to do so.  There are several important reasons for this.

Unclaimed royalties to be distributed by market share

First, since any unclaimed royalties will be held for three years, and thereafter will be distributed to MLC members based on market share, all unclaimed royalties will be split primarily among the major publishers and their highly successful songwriters who do register. To avoid their royalties becoming “unclaimed” and redistributed to others, songwriters and publishers should register their musical works promptly and take special care to avoid providing incomplete or inaccurate data to the MLC that may hinder registration.

Participating digital music providers immune from copyright claims

Second, the MMA grants immunity from claims of copyright infringement to digital music providers that obtain and comply with the blanket license. Songwriters and publishers who are not registered with the MLC will have no legal redress if their musical works are being distributed by a digital music provider.  Their only option will be to register with the MLC and follow the procedures for collecting unclaimed royalties.  This further reinforces the need for songwriters and publishers to register their musical works with the MLC as soon as possible to avoid their royalties becoming “unclaimed.”  Once unclaimed royalties have been redistributed, the entitled rights holder will have no further redress.

Redistribution applies to existing, as well as new, unclaimed royalties

Finally, songwriters and publishers should make every effort to recover any unpaid mechanical royalties to which they are entitled to date. The MMA’s provisions concerning unclaimed royalties apply to all previously unclaimed royalties that have been collected but not paid since the beginning of streaming music distribution. These old unclaimed royalties are reported to exceed $900 million.  The MMA requires this older unclaimed amount to be redistributed by market share at the end of one year.  Songwriters and publishers are strongly urged to identify what, if any, amounts have not been paid to them to date by reviewing their streaming music statements from digital music providers or by looking at the stream counts for their musical works for each digital music provider.  Any discrepancies should be brought to attention of the applicable digital music provider as soon as possible, so otherwise payable royalties do not become unclaimed and eventually redistributed under the MMA.

While the MMA may indeed streamline the mechanical licensing process, it does so by offloading much of the burden onto songwriter and publishers, who must be proactive in making sure that they receive the mechanical royalties collected on their behalf.

Trademark Considerations: What is incontestability, and do you need it?

By Suzanna M. M. Morales
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If you or your company owns a U.S. trademark registration, eventually you may hear that you have the opportunity for the registration to become “incontestable.” “Incontestable” sounds impressive, but what does it mean? And is it worth it for you to pay the extra filing fee to the U.S. Patent and Trademark Office (“USPTO”) to obtain that designation?

First, what is incontestability? In the United States, trademark rights are established through use. This differs from many other countries, where it is necessary to have a registration to enforce the brand owner’s rights. That said, registration plays an important role in enforcement of trademark rights, as well as to put others on notice of the company’s trademark rights.

When the USPTO acknowledges a claim of incontestability, the registration is then conclusive evidence of the owner’s exclusive rights in the mark, subject to some specific conditions and defenses. 15 U.S.C. § 1115(b) This can be quite valuable if the trademark owner needs to go to court to enforce its rights. (In contrast, a registration that has not become incontestable is prima facie evidence, which means it can be rebutted.) An incontestable registration also cannot be challenged on the basis that the mark merely describes the goods or services. Park ‘n Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189 (1985).

Requirements

So how does your registration become incontestable? The registrant must submit a signed declaration stating: a) that the registered mark has been in use for the goods or services covered by the registration continuously for a period of five years immediately preceding the declaration; b) that there has been no decision in court or before the USPTO adverse to the owner’s rights in the mark; and c) that there are no pending cases before the USPTO or a court that would affect the owner’s rights.  There is an additional USPTO fee for filing the declaration of incontestability, which is currently $200 per each class of goods and services in the registration.

Unlike other filings before the USPTO that are required to maintain one’s registration, incontestability is not mandatory. In addition, there is no deadline for filing for incontestability. Although the declaration of incontestability frequently is filed between the fifth and sixth year of registration to coincide with a mandatory maintenance deadline, the trademark owner may claim incontestability any time the registration meets the requirements.

Conclusion

Incontestable status can be beneficial if you ever need to enforce your rights against an infringer. For a relatively low USPTO filing fee (the current USPTO fee for claiming incontestability is $200), you’ll have these protections in your pocket should you ever need them, along with the right to call your registration “incontestable.”

Recent Federal Circuit Decision Applies Alice Test to Invalidate Patent

By Fritz Klantschi
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On November 13 the Federal Circuit Court of Appeals affirmed the district court’s ruling (Gaelco S.A. v. Arachnid 360, LLC, 293 F.Supp.3d 783 (N.D. Ill. 2017) (“Gaelco”)) that patent claims directed to a system and method for remotely refereeing dart games were invalid under the U.S. Supreme Court’s Alice test. The independent claims of U.S. Patent No. 7,361,083 (the “083 patent”) were directed to a remote monitoring or refereeing method for one or more dart machines where at least one refereeing center receives multimedia captured from the dart machines for evaluating whether a player complies with the rule of play and transmitting the results.  That is, the claims were directed to collecting information, analyzing the information and displaying the results.

The Alice test is a two-step process for determining whether claims recite patent-eligible subject matter, and is based upon a 2014 Supreme Court decision that had a dramatic effect on the validity of so-called software patents and business-method patents.  Hundreds of patents have been invalidated under Section 101 of the Patent Act.  The first step requires the court to determine whether the claims at issue are directed to a patent-ineligible concept. Alice Corp. v. CLS Bank Int’l, 134 S.Ct. 2347 at 2355, 189 L.Ed.2d 296 (2014).  “[C]ourts ‘compare claims at issue to those claims already found to be directed to an abstract idea in previous cases.’” Gaelco at *789 (citing Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1334 (Fed. Cir. 2016)). The District Court found that the ’083 patent claims (directed to collecting information, analyzing the information and displaying the results) to be abstract-idea processes under the first step of the Alice test. Gaelco at *790.

The second step of the Alice test requires the court to “examine the elements of the claim to determine whether it contains an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application.” Alice, 134 S.Ct. at 2357.  The District Court found that the ‘083 patent’s claims recited conventional uses of conventional technology (the Internet, cameras, dart machines and a display) and thus do not rise to an inventive concept. Gaelco at *794.  Further the steps of the ‘083 patent claims are recited in an ordinary order which similarly does not rise to an inventive concept. Id. at *795.  Still further, claiming improved speed or efficiency inherent with applying the abstract idea on a computer is not sufficient to provide an inventive concept. Id. at *796.  The District Court found that “the asserted claims do not contain an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application under § 101.” Id.

Trademark Considerations: Nominative Fair Use

By David A. Jones
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Trademark infringement, briefly, is the unauthorized use of a trademark or service mark of another in a manner that is likely to cause consumer confusion. In some cases, affirmative defenses may excuse the otherwise infringing actions of a later user, and permit that later user to continue its use of the protected mark. One of the more common defenses is “fair use.”

In general, fair use can fall into one of two categories. Descriptive fair use, as the name suggests, occurs where a later user makes use of a trademark to describe the user’s products or services, rather than for the purpose of indicating the source or origin of a particular good or service. This is often referred to as “classic” fair use. For a real-world example, SWEETARTS is a registered trademark for candy. The then-owner of the mark sued Ocean Spray for using the term “sweet-tart” to describe the taste of its cranberry juice. The court found Ocean Spray’s use of the term “sweet-tart” to be descriptive fair use and thus not an infringement. See Sunmark, Inc. v. Ocean Spray Cranberries, Inc., 64 F.3d 1055 (7th Cir. 1995).

What is nominative fair use?

The second category is nominative fair use. In the case of nominative fair use, the second user deliberately uses the registered trademark of another, but does so for the purpose of referring to the goods or services of that trademark owner. For instance, it would be odd and cumbersome for every football fan to have to refer to “the football team from New York that wears red, white and blue uniforms” when you can just say the New York Giants. This type of fair use also encompasses things such as comparative advertising, media reporting, commentary and parody.

Nominative fair use generally is permissible as long as (1) the product or service in question is not readily identifiable without use of the trademark, (2) only so much of the mark as is reasonably necessary to identify the product or service is used and (3) use of the mark does not suggest sponsorship or endorsement by the trademark owner. See, e.g. New Kids on the Block v. News Am. Publishing, Inc., 971 F.2d 302 (9th Cir. 1992).

Limitations on nominative fair use

Nominative fair use does have its limitations, however. It is a doctrine that was created through case law. In other words, there is no law or statute that specifically carves out a nominative fair use exception. As a result of being a judicially-driven concept, the doctrine is not universally applied across all federal courts.

For example, disclaimers are often used to state that the party naming another’s trademark is not associated with the trademark owner, i.e., “NEW YORK GIANTS is a registered trademark of New York Football Giants, Inc.” or “XYZ company is not affiliated with the NEW YORK GIANTS football team.” Most courts view the use of disclaimers favorably, but even that is by no means a “Get Out of Jail Free” card. How prominent is the disclaimer? What does it say? Where is it placed? Is it legible? These are all things to consider when analyzing whether any particular use qualifies as a nominative fair use. (Both types of trademark fair use differ from fair use of copyrighted creative works, which we discussed in a prior blog post.)

In our current global-commerce society, it is also important to remember that fair use is not a universal concept that all countries recognize and treat the same. For instance, a comparative advertising campaign being launched in Europe must comply with the European Union directive governing comparative and misleading advertising.

In sum, if you are intending to make use of the trademark of another, you must tread carefully. Do not use any more of the mark than is necessary. If at all possible, try to use the trademark in a narrative form rather than “as a trademark.” This includes things such as making sure that if you are using someone else’s mark, it is not in a different color or font size or style than the surrounding text. As described above, disclaimers can help, but be careful how they are drafted, and remember that a disclaimer alone is not guaranteed to save an otherwise infringing use.

If you have questions regarding a use you intend to make of someone else’s trademark, or if you feel that someone else has made an improper use of your trademark, please feel free to contact our office. We will be happy to review it with you and discuss any relevant issues and potential pitfalls.

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