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Top Ten “Hits”
~~~ Key Considerations In Drafting And Interpreting
U.S. Intellectual Property Agreements
Gary J. RinkermanDrinker Biddle & Reath LLP
1500 K Street, N.W.Washington, D.C. [email protected]
202 321 9179October 23, 2008
© 2008 Gary Rinkerman. All Rights Reserved.
Note: The images in this presentation are solely for use in the teaching context in which they are offered. Please do not assume that you can further reproduce, distribute or otherwise use any of the images. Sample contract provisions are for illustration purposes only and may be unsuitable for a particular use or transaction.
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Co-Existence, Licensing and TransfersThe Tip of the Iceberg Presentation
Before After (maybe)
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Some Introductory & Cautionary Words
Sam Phillips Loses The Elvis Contract By Ignoring Licensing Requirements
Rollin White PatentGoing Broke Enforcing Patents
The Licensee “Bait & Switch”
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Strategic ThinkersAvoiding “IP Tunnel Vision”
Copyright “Trumps” Trademark(?)
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Walls & BridgesConvergence and Synergies in IP Strategies
Trademarks and Trade DressRights of Publicity
“Kim’s Wall”
Design Patents
Copyrights
Utility Patents
Trade Secrets & Know How
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Innovative Intellectual Property Strategies
Modern Licensing Explosion New Images and Ready-Made
Target Audiences
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No. 1Determining Core Grants
I need more….Iggy Pop
CD: Soldier
Scope – e.g., Field of Use Limitations, Listing of Specific Rights
Territory – e.g., “Throughout the Universe … and Beyond!!!”
Time – e.g., Milestones, Triggers and Breach
Exclusivity – Non-Exclusivity
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Co-Existence Field of Use – Part I
1.2 “Apple Computer Field of Use” means (i) electronic goods, including but not limited to computers, microprocessors and microprocessor controlled devices, telecommunications equipment, data processing equipment, ancillary and peripheral equipment, and computer software of any kind on any medium; (ii) data processing services, data transmission services, broadcasting services, telecommunications services; (iii) ancillary services relating to any of the foregoing, including without limitation, training, education, maintenance, repair, financing and distribution; (iv) printed matter relating to any of the foregoing goods or services; and (v) promotional merchandising relating to the foregoing.
1.3 “Apple Corps Field of Use” means (i) the Apple Musical Artists; the Apple Catalog; personalities or characters which appear in or are derived from the Apple catalog; the names, likenesses, voices or musical sounds of the Apple Musical Artists; any musical works or performances of the Apple Musical Artists; (ii) any current or future creative work whose principal content is music and/or musical performances; regardless of the means by which those works are recorded, or communicated, whether tangible or intangible; (iii) promotional merchandise relating to any of the foregoing; …
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Co-Existence Field of Use – Part II
1.3 “Apple Corps Field of Use” means (i) the Apple Musical Artists; the Apple Catalog; personalities or characters which appear in or are derived from the Apple catalog; the names, likenesses, voices or musical sounds of the Apple Musical Artists; any musical works or performances of the Apple Musical Artists; (ii) any current or future creative work whose principal content is music and/or musical performances; regardless of the means by which those works are recorded, or communicated, whether tangible or intangible; (iii) promotional merchandise relating to any of the foregoing; …
4.3 The parties acknowledge that certain goods and services within the Apple Computer Field of Use are capable of delivering content within the Apple Corps Field of Use. In such case, even though Apple Corps shall have the exclusive right to use or authorize others to use the Apple Corps Marks on or in connection with content within subsection 1.3(i) or (ii), Apple Computers shall have the exclusive right to use or authorize others to use the Apple Computer Marks on or in connection with goods or services within subsection 1.2 (such as software, hardware or broadcasting services) used to reproduce, run, play or otherwise deliver such content provided it shall not use or authorize others to use the Apple Computer Marks on or in connection with physical media delivering pre-recorded content within subsection 1.3(i) or (ii) (such as a compact disc of the Rolling Stones music).
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Defining “Non-Exclusive” And Accompanying Restrictions
3.2 Without limiting the generality of the term “non-exclusive” as used in Section 3.1, nothing contained in this Agreement shall be deemed to impair, restrict or limit, in any manner whatsoever, (i) Licensor’s or its Affiliates’ right or ability to enter into promotional license agreements with third-party promotion partners for the manufacture, sale or distribution of premium items of merchandise that promote the Properties or utilize the Branding provided that such activities are not likely to cause consumers to believe that there is any relationship between Licensee and third-party promotion partners, or (ii) the right or ability of any theme parks, live entertainment production, retail stores, specialty stores, catalogs, websites or other facilities or venues that transact business with consumers using the “Licensor” name or any other trademarks or copyrights or other intellectual property owned by or licensed to Licensor and/or any Licensor Affiliate as part of its retail name, including, without limitation . . . Nothing herein shall be deemed to give Licensor or any Licensor Affiliates the right to infringe or make an unauthorized use of any intellectual property owned by Licensee, or to permit Licensor or its Affiliates to, with respect to a purchase order placed by Licensee with Licensee’s vendors, purchase Products pursuant thereto.
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No. 2Determining Royalty –
Part 1 (Basic Character)
Up Front
Minimum
Escalating
Decreasing
Money … It’s A GasPink Floyd
CD: Dark Side of the Moon
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No. 3Determining Royalty –
Part 2 (How Determined)
Net Sales Per Unit Gross Manufactured Cost Metered Use Extent of Use Bundled or Unbundled
Do You Really Want to Hurt Me?
Culture Club (Boy George)CD: Kissing to be Clever
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Defining “Net”
As used in this Agreement or in any Schedule(s), “Net Retail Sales” shall mean the number of units of each Product actually sold to the public by Licensee multiplied by the actual price paid by the customer for each unit of Product, exclusive of VAT or any other applicable taxes levied at the point of sale and which are separately identified on the customer receipt or invoice, at Licensee’s retail stores or through its catalogs and website or as otherwise permitted under this Agreement, less any refunds or credits for actual returns of any Products to Licensee, and less applicable sales taxes.
All amounts payable to Licensor under this Agreement shall be made in full without reduction for taxes (including, without limitation, income, consumption, withholding, sales, use, value added, excise or other similar tax) or customs, duties, claims, counterclaims, deductions and demands against Licensor.
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No. 4Determining Royalty –
Part 3 (When Triggered)This Magic Moment….
Jay and the AmericansCD: Come a Little Bit Closer
Manufacture & Inventory Dates
Actual Sale
Invoice?
Delivery?
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No. 5 Audits
Duty to Preserve Records
How Long? Put in Litigation Extension Exception
Right to Inspect Records How Frequent?
Put in Exception for Cause
Inspect and Copy
On Site or Delivered?
Who Pays for the Audit? Watch out for contingency issue
Every Breath You Take … Every Vow You Break … I’ll Be Watching You
The PoliceCD: Synchronicity
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Reporting Royalty Base
Except where a different procedure is identified on any Schedule, within thirty (30) days after the end of each calendar quarter (i.e., March 31, June 30, September 30 and December 31 of each year) (each calendar quarter being a “Royalty Payment Period”) during the Term, Licensee shall pay to Licensor all Royalties owed in connection with the Products and shall furnish to Licensor a full and accurate statement showing all information requested by Licensor, detailed on a monthly basis, including, but not limited to, quantities of Products received, total Landed Cost of Product received with stock number and Product name, any corresponding Licensor assigned product number, the Royalties payable, the royalty rate, quantities sold and total sales and returns of Product. . . . Licensee’s statements shall also include all relevant information concerning any foreign tax withheld, including the dates, amounts withheld, countries where such tax has been withheld, and under what Schedule(s) such tax was withheld. All information and documents provided to Licensor by Licensee or its Affiliates pursuant to this Section are subject to the confidentiality provisions set forth in of this Agreement.
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Records & Audits
Licensee agrees to keep accurate records of all transactions relating to this Agreement, including, without limitation, shipments to Licensee of Products from factories, production service orders, purchase orders and invoices pertaining to such shipments, records of sales and shipments by Licensee, and records pertaining to any foreign tax withheld in connection with Products, and to preserve such records for two (2) years after the expiration or termination of this Agreement. Licensor, or its representatives, shall have the right from time to time during the Term, but not more than one time during any twelve (12) consecutive month period, and for two (2) years after expiration or termination of the Agreement, during Licensee’s normal business hours and upon reasonable notice, but only for the purpose of confirming Licensee’s performance under this Agreement, to examine, copy and make extracts from all such records. The scope of any audit hereunder shall encompass any and all Schedules in effect for any part of the subject audit period. Licensee shall not be audited hereunder more than once for any given audit period. Licensor’s acceptance of statements or payments does not preclude Licensor from a subsequent challenge of the statement’s or payment’s accuracy. If in an audit of Licensee’s records it is determined that there is a shortfall of ten percent (10%) or more in Royalties reported for any calendar quarter, in addition to Licensee’s obligation to pay to Licensor the amount of any shortfall, Licensee shall reimburse Licensor for the out-of-pocket costs of the audit, including the cost of employee auditors calculated at $100 per hour per person for travel time during normal working hours and actual working time. All information provided by Licensee to Licensor pursuant to any audit shall be confidential information subject to the terms set forth in this Agreement.
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No. 6 Licensee’s Sales, Transfers and Ancillary
Activities
Defining “Sales”
Promotional Items
and Allowances
Sales to Affiliates
Trick
Suspicious MindsElvis
CD: Suspicious Minds
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No. 7 Obtaining Value from Licensee – Beyond
Royalties
Best Efforts
Grantbacks, Improvements,
Derivatives & Adaptations
Leveraging Trademark Value
Benefiting From Licensee’s
Goodwill
Naked Licensing
Social Concerns
You Better Be Good To MeTina Turner
CD: Private Dancer
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Best Efforts and Material Breach In challenging the district court's summary judgment decision, Rawlings argues that it was excused from complying with the contract's thirty day notice and cure provision because Matrix had already materially breached the contract by failing to use its best efforts. . . .
Here, the license agreement's thirty day notice and cure provision speaks directly to this dispute. The unambiguous text of that provision applies to “any” breach (other than those addressed in the immediate termination provision). The thirty day provision does not exclude “material” breaches from its required notice and cure period. If only nonmaterial breaches required notice, the word “any” would be nullified. Rawlings was thus not excused from giving Matrix notice and the period to cure.
Matrix Group Ltd., Inc. v. Rawlings Sporting Goods Co., 477 F.3d 583 (8th Cir. 2007)(Application of Delaware Law); See also, Fleetwood Folding Trailers, Inc. v. Coleman Co., Inc., 38 Kan.App.2d 30 (Kan. App. 2007) (Breach Need Not Be Material To Trigger Termination).
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Restrictions Beyond The Lanham Act
The various subclauses accompanying subparagraph (f) of the “Marks” definition provide additional confirmation that the parties intended their agreement to govern the use of marks that would not be protected under trademark infringement law alone. The contract defines “Marks,” for example, to include “any and all variations” of “Gloria Vanderbilt,” “all manner of representation” of “Gloria Vanderbilt,” and “any and all variations” on any “manner of representation” of “Gloria Vanderbilt.” (P.Ex. 3.) This language plainly sweeps more broadly than the Lanham Act's trademark infringement provisions, which restrict the use of marks that are “likely to cause confusion, or to cause mistake, or to deceive.” 15 U.S.C. § 1114(a). Regardless of whether Glo itself falls under any of the terms cited in this paragraph, the terms evidence a general intent to create a definition of “Marks” that is not confined by trademark rules of confusing similarity.
Netherby Limited v. Jones Apparel Group, Inc., 2007 WL 1041648 (S.D.N.Y. 2007) (Unpublished)
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Ownership Of Intellectual Property
Licensee shall not acquire or assert copyright ownership or any other proprietary rights in the Licensed Material or in any derivation, adaptation, variation or name thereof. Without limiting the foregoing, Licensee hereby assigns and agrees to further assign, or to cause to be assigned, to Licensor or its Designee for no charge or royalty all of Licensee’s worldwide right, title and interest in the Licensed Material and in any material objects containing, consisting of, or to the extent that they incorporate Licensed Material, or other adaptations, compilations, collective works, derivative works, or variations of Licensed Material, heretofore or hereafter created by or for Licensee (collectively, “new materials”). All such new materials shall be deemed to be works commissioned by Licensor and shall be included in the definition of "Licensed Material" under this Agreement, all copyrights and other proprietary rights in and to which are owned by and reserved to Licensor or its Designee. The foregoing assignment and agreement to assign to Licensor or its Designee new material shall not include that portion of Licensee’s displays, catalogs, or promotional material not containing Licensed Material, or the physical items constituting the Products, unless such items are in the shape or design of the Licensed Material.
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Restrictions on Product Technology
Licensee shall be, and be deemed to be, the sole and exclusive owner of all Product Technology that is exclusively invented by Licensee and does not contain any Licensor Design Element(s) or Licensed Material, and with respect to which substantially all development costs and expenses have been borne by Licensee (“Licensee Product Technology”), provided that: (i) during the Term or for a period of three (3) years from initial release of each Product for sale to the public utilizing the Licensee Product Technology, whichever is shorter, the Licensee Product Technology will be used only in connection with such Product; and (ii) following the Term or such three (3) year period, as applicable, Licensee shall be free to use and/or sublicense the use of such Licensee Product Technology as it determines in its discretion. However, to the extent that the subject Licensee Product Technology is embedded in component parts of a Product, Licensor shall have the right to purchase or to permit its Affiliate(s) or its third party designee to purchase such component parts, in commercially reasonable quantities, at Licensee’s direct cost for same, plus 10%, over the 12-month period following the termination or expiration of the Term or such three (3) year period, as applicable, to use as Licensor or its Affiliate(s) or designee determine. Except as licensed herein for use with the Products and except for Licensor’s purchase rights specified herein, Licensor hereby assigns to Licensee all right, title and interest it might otherwise have in and to such Licensee Product Technology owned by Licensee.
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Standards for Suppliers – Part I
Throughout the Term, Licensee shall purchase Products only from suppliers who meet the requirements of Licensee’s factory certification program. Licensee shall also, during the Term make commercially reasonable efforts to purchase or manufacture Products in accordance with Licensee’s Standards for Suppliers (as amended or replaced by Licensee from time to time (the “Standards”) a copy of those which are in effect as of the date of execution of this Agreement and appended to this Agreement as Attachment 12). The use of the term “Products” in this Section 13 also includes components of Products and any other item related to the Products if they bear or depict Licensed Material, but not otherwise. The Standards may be amended or replaced by Licensee from time to time; Licensee agrees to give prompt notice to Licensor of any amendment or replacement of the Standards. Licensor shall have the right to terminate this Agreement immediately upon written notice to Licensee if Licensee eliminates the Standards in whole or materially alters the Standards and/or chooses to discontinue its factory certification program. In the event of a termination under this Section, the applicable Sell-Off Period shall be ninety (90) days.
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Standards for Suppliers – Part II
Licensee acknowledges that Licensor is relying on Licensee’s commitment to enforce the Standards in factories and facilities used to produce the Products. Licensee agrees to investigate any claimed or observed violations of the Standards and, if it finds there have been material violations of the Standards, to take appropriate and prompt steps to correct the situation. If requested by Licensor, Licensee will reply to inquiries from the public and others that Licensee’s third-party manufacturers of the Products are contractually responsible to Licensee for adherence to its Standards, and that Licensor has, in good faith, relied upon Licensee to assure compliance with the Standards. Nothing in this section shall require Licensee to issue a press release in relation to the above matters. All communications between the parties relating to the matters subject to this Section of this Agreement shall be subject to the confidentiality provisions of Section X, except Licensor may report to third parties the compliance status of any particular factory or facility used to manufacture the Products hereunder provided Licensor does not disclose Licensee as the source of the compliance status information.
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Naked Licensing – Abandonment – Part I
“The only effective way to protect the public where a trademark is used by licensees is to place on the licensor the affirmative duty of policing in a reasonable manner the activities of his licensees.” Doeblers, 442 F.3d at 823, citing Dawn Donut Co. v. Hart's Food Stores, Inc., 267 F.2d 358, 367 (2d Cir.1959).“Failure to provide quality control may constitute naked licensing, leading to abandonment of the mark.” Doeblers, 442 F.3d at 823, citing Ditri v. Coldwell Banker Residential Affil., Inc., 954 F.2d 869, 873 (3d Cir.1992). In applying the standard above, the Court will be mindful of the fact that “abandonment, being in the nature of a forfeiture, must be strictly proved.” Philadelphia Jaycees, 639 F.2d at 139, citing P.A.B. Produits et Appareils de Beaute v. Satinine Societa in Nome Collettivo di S.A. e. M. Usellini, 570 F.2d 328, 332-33 (C .C.P.A.1978). Indeed, “[e]vidence of abandonment must be clear and convincing.”
Zinn v. Seruga, 2008 WL 482324 (D.N.J. 2008)
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Naked Licensing – Abandonment – Part II
The Court agrees with Defendants that there remain, at this stage, genuine issues of material fact as to whether the '276 Mark had been abandoned. In particular, there remain genuine issues of material fact with respect to any intent to abandon the mark, any perception by the public that the mark has been abandoned, and the existence of a quality-control system to monitor RK & Zinn's use of the ARTOFEX license prior to the parties' divorce. Plaintiffs have, at this stage in the proceedings, failed to set forth evidence sufficient to justify a summary judgment of abandonment.
Zinn v. Seruga, 2008 WL 482324 (D.N.J. 2008)
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No. 8 Representations, Warranties and
IndemnitiesSigned, Sealed, Delivered … I’m Yours
Stevie WonderCD: Signed, Sealed, Delivered
Absolute v. “To the Best of Knowledge”
Warranties of Merchantability, Fitness for a
Particular Purpose, Non-Infringement AND NO
INJURY (Remember: Dilution, Defamation, Etc.)
No Asserted Claims Against Licensee’s products
or Services
Indemnification – For Claims and/or Awards?
Disclaimer of Special, Consequential and Indirect
Damages – A Good Idea?
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Warranty and Indemnity
Licensor warrants to Licensee that it has the full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. Licensor shall defend and indemnify Licensee, and its affiliates, successors, and it and their officers, directors, employees and agents (“Licensee Indemnified Entities”) against and hold them harmless from any and all claims, actions, liabilities, losses, expenses of any nature (including without limitation reasonable attorneys’ fees), and costs arising out of any third party claim that Licensee’s use of any of the Licensed Material approved in accordance with the provisions of this Agreement infringes the copyright rights of any third party, or any right granted by Licensor to a third party, except those claims excluded under the following Section.
Licensor shall not be liable for any claim for indemnity under this Section which arises out of Licensee’s or its permitted sublicensee’s failure to obtain the full assignment of rights referenced in Section X or wherein Licensee knew or should reasonably have known that its use of the subject Licensed Material would infringe a third party’s rights by reason of any prior rights acquired by such third party (other than prior rights acquired from Licensor) or would otherwise violate such third party’s rights.
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No. 9Unenforceable and Void Provisions
Severability and Removal Modification to Retain as Much as Possible Effective Only Where Provision is Actually
Unenforceable or Void No Waiver of Appeal
I Can’t Go For That … No Can DoHall & Oates
CD: Flowers in the Attic
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Severability
If any provision(s) of this Agreement is deemed void, invalid or otherwise unenforceable in a determination by a body with proper jurisdiction, the Parties agree (without waiving rights of appeal) that the subject provision(s) shall be: (i) reconstituted to approximate as closely as lawfully possible the evident intent of the original provision(s); or (ii) if option (i) above cannot be implemented, the subject provision(s) shall be excised from the Agreement and the Parties shall negotiate in good faith with respect to their modification. If the Parties cannot agree to a modification, this Agreement shall be enforced, without the subject provision(s), in a fair manner and without undue prejudice to either Party. The void, invalid or otherwise unenforceable status of a provision in a particular jurisdiction, and its reconstitution or excision in that jurisdiction, shall not cause the provision to be reconstituted or excised from this Agreement as it applies in any jurisdiction in which the provision is not void, invalid or otherwise unenforceable.
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No. 10Dispute Resolution
Choice of Law Any Disclaimers? Potentially Ineffective?
Choice of Venue (Location) There must be jurisdiction
(If a court is designated) The “Who Filed It?”
Penalty Mediation and Arbitration Requirement for “Top Level”
Management Involvement in Negotiations
Damages Limitations – For Claims and/or Awards
We Can Work It OutBeatles
CD: Rubber Soul
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Choice of Law and Venue
This Agreement and all disputes arising from or related to it, its interpretation or its subject matters shall be governed by, resolved and remedied in accordance with the laws of the State of New York, USA (without resort to conflict of law principles) as it applies to agreements entered into and to be performed entirely within such State and to acts or omissions occurring wholly within the State. Any claims arising from or related to this Agreement or its subject matters shall be brought and resolved only in the appropriate State or Federal courts located in the Manhattan, New York and the Parties expressly consent to the jurisdiction and exclusive venue of said courts.
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New York Law – Contract Interpretation
Where, as here, the parties agreed in plain and unambiguous terms that the Contract could be terminated for cause for “any dissolution,” there is no place for inquiry into the materiality of the plaintiff's dissolution. Contract § 23(b)(iii). The plaintiff concedes that the law requires the Contract to be afforded its plain meaning. Yet, the plaintiff seeks to have this Court read into the Contract the word “involuntary” to qualify the term “any dissolution” and change the termination clause to permit termination based on dissolution due to insolvency. To support its position, the plaintiff argues that [t]he drafters [of the Contract] are sophisticated corporate attorneys. They know that a dissolution based on insolvency has the potential to devalue their clients' assets, while an asset sold or transferred to an affiliate as part of a voluntary dissolution does nothing to change its value. In short, they understand the difference between a voluntary and involuntary business reorganization.
Andrx Therapeutics, Inc. v. Mallinkrodt, Inc., 2007 WL 1362778 (S.D. Fla. 2007)(New York Choice Of Law In License)
