Law 227: Trademarks & Unfair Competition

1. Law 227: Trademarks &Unfair Competition Loss of Rights, Due DiligenceJune 27, 2009Jefferson Scher

2. TM & Unfair Comp — Day 9Agenda • Loss of Rights • Genericism/Genericide • Abandonment • Non-use, assignment in gross, naked licensing, failure to police • Transactional Due Diligence • Hypothetical acquisition of Rodeo Palms

3. Loss of Rights: GenericismThe End of the Spectrum • Some terms start out generic • Filipino Yellow Pages: “what-are-you” • HOG (large motorcycles) • Others become generic through usage (trademark owner’s fault??) • Shredded Wheat • Aspirin (with the general public)

4. Loss of Rights: GenericismJudging Genericism • Effect of third party non-trademark use: forced genericide of a mark? • Stix Products v. United Merchants • Public still recognized CON-TACT as a mark, so could not use the phrase descriptively • Freecycle Network v. Oey • Encouraging genericide isn’t “use” so it doesn’t violate the Lanham Act

5. Loss of Rights: GenericismProving Public Perception: Surveys • Key is the term’s primary significance • Asking about generic names for products • 75% call a vacuum bottle “a thermos” – OK • 70-86% would use TEFLON pan when referring to a nonstick pan – AMBIGUOUS • Do you know a brand name? or classify as brand name or common name • Better show “lack of trademark significance”

6. Loss of Rights: GenericismProving Public Perception: Indirect Evidence • Evidence of Advertising? • Welding Services Inc. v. Forman • Can’t own “Welding Services Inc.” but what about WSI? Possible if public perceives WSI as not merely equivalent to the generic • Advertising the acronym next to the phrase fails to prove independent meaning (if anything it hurts by spelling it out for customers)

8. Loss of Rights: Abandonment“Abandonment” of Trademark Rights • Involuntary abandonment • Cease use without intention to resume • Assign mark without goodwill • License the mark without maintaining control of the nature and quality of goods on which it is used • Failure to police third party use (infringements)?

9. Loss of Rights: Abandonment“Abandonment” of Rights via Assignment • Clark & Freeman v. Heartland Co.

10. Transactional Due DiligenceOverview • Assess risk of TM-related transaction • IP aspect of corporate mergers, acquisitions, and asset purchases • Trademark licenses • Merchandising, franchising, ingredient • Settlement deals • Acquisition (sometimes with “license back”) of a registered or common law trademark

11. Transactional Due DiligenceOverview • What is due diligence? • Verifying seller representations • Title to assets • Proper maintenance of assets • Understanding disclosed liabilities • Identifying undisclosed risks • Discharging a duty of care (Board to shareholders; experts to company)

12. Transactional Due DiligenceOverview • What is it really? • Endless rounds of questioning • Enumerating assets, encumbrances, disputes, other liabilities • Drilling down to specifics • Independent investigation • Evaluation: how does it affect the deal?

13. Registered Transactional Due DiligenceKey Trademark Inquiries • Identify trademark assets • Registrations and applications • Rights established through use • Rights obtained by license • Identify relevant agreements • Assignment and license • Coexistence, consent, and settlement

14. Transactional Due DiligenceKey Trademark Inquiries • Identify disputes • Past and present actual disputes • Potential disputes • Identify trademark-like properties • Trade names, advertising slogans • Trade dress/product design • Domain names

15. Transactional Due DiligenceKey Trademark Inquiries • Bottom line • Could you obtain title to the asset? • Would you be bound by contractual limitations on your use? • Could you use the asset without infringing the rights of others? • Could you stop others from using it? • Could you grow the business?

16. Transactional Due DiligenceKey Trademark Inquiries • The real bottom line: How much should you pay for it?

17. Transactional Due DiligenceHypothetical Scenario: Rodeo Palms • Acquisition of the RODEO PALMS business — or maybe just the brand • Buyer: Elegant Industries (your client) • Target: Rodeo Palms Fashions • Summary took many billable hours to compile, drew on a variety of sources, mined many unruly documents...

18. Transactional Due DiligenceDisclosures and Follow-on Investigation • Asset Portfolio • RODEO PALMS • 26 word mark applications in 16 different jurisdictions • Notes/Questions • Inconsistent country selection – why? • Refused in CH – why? • Consent in US – need a copy of the file

19. Transactional Due DiligenceDisclosures and Follow-on Investigation • Asset Portfolio • RODEO PALMS FASHIONS Logo • 8 special form applications in 8 different jurisdictions • Notes/Questions • Inconsistent country selection relative to RODEO PALMS – why?

20. Transactional Due DiligenceDisclosures and Follow-on Investigation • Asset Portfolio • TROPICAL SMARTS tag line • Common law rights based on use in the U.S. and on the company’s web site • Notes/Questions • Never filed for registration – why? • Could be descriptive – enough use for secondary meaning?

21. Transactional Due DiligenceDisclosures and Follow-on Investigation • Asset Portfolio • COOL BREEZE WINDOW • Common law rights based on use in the U.S. and on the company’s web site • Notes/Questions • Never filed for registration – why? • Descriptiveness/secondary meaning issues • Status on demand letter?!

22. Transactional Due DiligenceDisclosures and Follow-on Investigation • Asset Portfolio • Interior and Exterior Store Design • Common law trade dress rights based on use in the U.S.; registration refused • Notes: • Applications refused – why? • Anything distinctive here? • Secondary meaning?

23. Transactional Due DiligenceDisclosures and Follow-on Investigation • Asset Portfolio • Bottle and Dispenser Designs • Registered in the U.S. • Notes: • How was use established – was an appropriate license in place to the perfume manufacturer? • Ditto re: future control

24. Transactional Due DiligenceDisclosures and Follow-on Investigation • Asset Portfolio • General questions for each case • What is the prosecution history? • Are any applications “dependent” (for example, Madrid Protocol)? • Any disclaimers or exclusions? • Any oppositions or extensions of the opposition period?

25. Transactional Due DiligenceDisclosures and Follow-on Investigation • Asset Portfolio • More general questions for each case • Used as required to maintain rights in the relevant jurisdiction? • Recorded with the U.S. Customs service orother applicable anti-counterfeiting authorities?

26. Transactional Due DiligenceDisclosures and Follow-on Investigation • Asset Portfolio • Domain name notes • What about RodeoPalms.com? • Review whois records – show proper title and control? • Follow up on agreements/disputes (our questionnaire perhaps did not ask for these as explicitly as it should have)

27. Transactional Due DiligenceDisclosures and Follow-on Investigation • Agreements • RODEO PALMS CASUALS • FR, IT, UK for “clothing” • Licensed back to EuroFashion for “Europe” and “all other countries bordering the Mediterranean” • RPF not to use the identical mark in licensed territory

28. Transactional Due DiligenceDisclosures and Follow-on Investigation • Agreements • In-store-boutique “guidelines” • Restrictions on mini-store signage and layout may require changes to standard look and feel of the brand (word mark or Logo) and/or retail concept (trade dress) • Licenses • Shoes, leather goods, sunglasses, perfume

29. Transactional Due DiligenceDisclosures and Follow-on Investigation • Infringement • Inbound matters • Only Cool Breeze Fashions? Did we phrase our request broadly enough? • Outbound matters • Review counterfeiting cases/strategy • Review SMART TROPICAL files – is the “wait and see” approach justified?

30. Transactional Due DiligenceDisclosures and Follow-on Investigation • Infringement • Contact RPF’s outside TM counsel • Copies of relevant files • Independent investigation • Trademark searches in relevant jurisdictions: analysis & opinion • Case law and docket searches in relevant jurisdictions

31. Transactional Due DiligencePrioritizing and Focusing • A potential filter • History is on our side • Revenues first • Ensure that there will be a revenue stream, then worry about expenses • “80 - 20” • Disregard brand risk affecting less than 20% of revenues

32. Transactional Due DiligencePrioritizing and Focusing • Applying the filter • Focus on key marks • RODEO PALMS and the RODEO PALMS FASHIONS Logo • Focus on key markets • United States • Focus on key questions...

33. Transactional Due DiligencePrioritizing and Focusing • Key questions • Can Elegant acquire the rights? • RPF’s title to the marks • Encumbrances on title • Could Elegant use the marks? • Carry on the existing business • Could Elegant stop infringers? • Protect market for closely related goods

34. Transactional Due DiligenceUsing a Checklist • Positive functions of a checklist • Sets the research agenda • For the acquiror; some parts can be sent to the target • Aids memory • Digression is to be expected, getting back on course is essential • Enables coordinated delegation

35. Transactional Due DiligenceUsing a Checklist • Misuses of a checklist • Using it to conduct an interview • Use face time judiciously • Failing to customize it • Every deal, every target, is different • Failing to follow up on the responses • It’s not about checking off boxes! • Have a plan for dealing with revelations

36. Transactional Due DiligenceReal World Problems: “Hard Targets” • Unable or unwilling to provide info • Ignorance due to turnover • Files unavailable for acquired brands • Active resistance • Unable or unwilling to sign off • Won’t warrant ownership • Unable to bridge gaps in title due to departures

37. Transactional Due DiligenceReal World Problems: Mystery & Surprise • Expect the unexpected • Abandoned marks • Forgotten coexistence agreements • Unanswered demand letters • Accept real-world limitations • Lousy domain search tools • Start early and work fast, but expect lots of delays

38. Transactional Due DiligencePapering the Deal • Insist on “Goldilocks” paperwork • Merger agreement is too convoluted, the bill of sale is too skimpy... avoid confusion and disclosure of deal terms • What does seller need to provide? • Sign short form(s) of assignment • Ancillary authorizing documents, particularly for foreign marks

39. Transactional Due DiligencePapering the Deal • This can be a big deal... • Different rules in most jurisdictions • Witnesses to the assignment • Consideration • Some require corporate seal • Power of attorney for seller • Business/corporate authority certificates, etc.

40. Transactional Due DiligencePapering the Deal • Get seller’s signatures at closing! • Sellers may retire to a desert island • “Further assurances” don’t guarantee fast turnaround • But — be practical • Consolidate forms • Minimize notarization

41. TM & Unfair Comp — Up NextTopics and Reading for Day 10 • Trade Dress • Ch. 7, pp. 481-496, Supp. pp. 51-52 • Ch. 7, pp. 496-541, Supp. pp. 52-54 • Online • Kendall-Jackson • TMEP Excerpts (optional)