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A scandalous matter at the Supreme Court

Women in IP: Reviewing a "Scandalous Matter" at the Supreme Court

The U.S. Supreme Court’s ruling in Mission Product Holdings v. Tempnology, LLC  holds interesting implications for both trademark law and bankruptcy law. Also, in Iancu v. Brunetti, the Court confirmed that trademarks cannot be refused registration on the basis that they constitute "immoral" or "scandalous" matter. Meredith Wilkes, Jennifer Swize, and Anna Raimer review the ramifications of these decisions and preview two additional trademark cases the Court will hear next session.

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Read the full transcript below:

Dave Dalton:

We've been doing JONES DAY TALKS®: Women in IP for more than a year, but we've never had a program quite like today's. Our panel will discuss two recent US Supreme Court decisions relating to trademark law and follow that with a preview of two other cases the high court will hear during that session kicking off in October. We're glad you're here. You're going to like this one. I'm Dave Dalton. You're listening to JONES DAY TALKS®: Women in IP.

Dave Dalton:

Jennifer Swize is an experienced appellate advocate with particular focus on patent fuels before the Federal Circuit. Jennifer has argued Federal Circuit appeals and led and coauthored briefs. Anna Raimer works with clients to design and implement worldwide trademark protection programs, strengthen their IP portfolios, and resolve domestic and international trademark disputes. And Meredith Wilkes co-leads the firm's Global Trademarks, Unfair Competition, and Copyrights Group. She is focused on high stakes trademark, trade dress, trade secret, false advertising, and design patent litigation matters for global brands and federal and state courts throughout the US for more than 20 years.

Dave Dalton:

Anna, Jennifer, Meredith. Thanks for being here today.

Meredith Wilkes:

Thanks for having us Dave.

Jennifer Swize:

Thank you.

Anna Raimer:

Thank you.

Dave Dalton:

I really the way this is setting up today. We're going to talk about two recent Supreme Court decisions in trademark law and we're going to talk about looking ahead to cases the court likely will hear next session, which I believe kicks off in October. But let's start off with what's happened recently. Let's go to the courts May decision in Mission Product Holdings, Inc. v. Tempnology, LLC. Let's go to Anna first. Anna, give us some background on this matter. This involved both trademark law and bankruptcy law, correct?

Anna Raimer:

That's exactly right. In mission we're talking about the impact of bankruptcy on a trademark license. So we have Tempnology on the one hand, they own a brand called Coolcore for exercise clothing, and they entered into an agreement with Mission. It was a non-exclusive license to use these Coolcore trademarks. And while the license was set to expire in about July of 2016, Tempnology filed for chapter 11 bankruptcy. And so that was in 2015. And as part of that proceeding they asked the bankruptcy court to reject the license agreement that they had with Mission. Now the bankruptcy code does provide for a debtor to reject any executory contract, and that means one that neither party has finished performing, and then that rejection constitutes a breach. But the question for the courts in this case was that in the context of a trademark licensing agreement, does this rejection strip the licensee of its rights to continue using the trademark?

Dave Dalton:

Okay. So that was the question at issue. Let's go over to Jennifer Swize. Jennifer, this is your first podcast with us, is that correct?

Jennifer Swize:

It is. I'm very happy to join. Thank you.

Dave Dalton:

I was going to ask how you're liking it so far. Sounds so good, right?

Jennifer Swize:

It has been a lot of fun.

Dave Dalton:

Terrific. Terrific. Tell us how the court ultimately ruled in Mission.

Jennifer Swize:

Sure. The court ruled that a trustee, or a debtor if it's representing itself, when it rejects a trademark license in the context of bankruptcy, that's not going to strip the licensee of its rights under the license. Basically the court relied on the provision that a rejection constitutes a quote breach and that means a breach is a breach. It's not a rescission. So all of the rights that the trademark licensee has in a breach would still continue.

Dave Dalton:

Okay. Let's stay with Jennifer a second. In a Jones Day client alert published back in May, and listeners you can find that at jonesday.com, the firm wrote, I'm reading here, the Supreme Court's decision resolves the circuit split that grew from the bankruptcy codes definition of intellectual property, which includes patents and copyrights, but not trademarks. Jennifer, that sounds serious. Can you explain what that means exactly?

Jennifer Swize:

Sure. And it is a really important part of the case because there is a specific definition of intellectual property in the bankruptcy code that includes things like patents and copyright, but doesn't include trademark, which is the context of this case as Anna pointed out. And there was sort of a debate amongst some courts about when you have this provision that specifically talks about certain types of IP, but not trademark and then there's another provision that specifically addresses those IP licenses and what happens in a rejection and says that the rights under those licenses continue for the licensee, subject has a certain set of caveats, how do you read those provisions as related to trademark licenses? So we have the First Circuit on the one hand that relied on this sort of typical rule of law called negative inference and said, well, we have these provisions that are about specific IP, not trademarks so we're going to draw the negative inference that any other type of IP license doesn't get to have the licensee's rights continue. The Seventh Circuit disagreed. So that's where we get the circuit split.

Jennifer Swize:

And the Supreme Court agreed with the Seventh Circuit and it said, look, there's a general provision about these executory contracts and what happens when there's a rejection of them. The general provision, and I like Justice Kagan's very plain language, she says the general provisions speak well, generally. So even though there's some other specific IP provisions, we're going to treat trademark licenses like any other type of license under the general provision. And that means a breach is a breach and the licensee's rights can continue.

Dave Dalton:

Okay, let's finish up this case with Meredith Wilkes. Meredith, talk about how this impacts trademark licensees and license negotiations moving forward from here, this ruling.

Meredith Wilkes:

Wow, that's a terrific question Dave. The Mission Product Holdings decision eliminated some uncertainty that prior to the decision was plaguing licencors and licensees. And that was the question of, is this a breach or is it a rescission? But I think Justice Sotomayor's concurring opinion points out that that doesn't necessarily translate into a licensee always being able to continue to use post bankruptcy. So what this means for folks at the negotiating table is this. You are going to want to spell out very carefully number one, what constitutes a breach, number two, what constitutes a material breach such that future performance may be excused by the other party or that license rights terminate immediately. And that's not uncommon in a variety of different type of license arrangements, the things that will automatically terminate a licensee's rights to continue to use. But that's going to be the pivotal point going forward. What constitutes a breach and what are the rights of each party at the time of the breach? And of course, folks will want to be mindful of state laws that may impact licensee rights upon termination as well.

Dave Dalton:

Okay. Breach, isn't this something that you think would have been kind of confirmed or figured out a long time ago? This is a recent case, right? I mean breaches are pretty apparent I think in most types of agreements or contract law, isn't it? Or why is this different?

Meredith Wilkes:

Well that's exactly right. And part of it touches on the language that Jennifer was talking about in the bankruptcy code where you had patent and copyright specifically called out, but trademark law hadn't been specifically called out. So that left licencors and licensees really kind of grappling with what happens. And the court has answered that question for us.

Dave Dalton:

Very nice. All right, let's move on. I called this, when we were circulating notes around earlier preparing for this program, I called this the main event. In full disclosure Meredith warned me this was coming weeks ago and she used the word scandalous in her email. We don't get a lot of scandalous emails around here. But anyway, main event. Iancu v. Brunetti. On June 24 the Supreme court confirmed that trademarks cannot be refused federal registration on the basis that they constitute immoral or scandalous matter. All right Meredith, let's stay with you since you started all this. Okay. This is trademark law meets first amendment, right? Give us some background.

Meredith Wilkes:

Well in all candor Dave, IP lawyers usually don't meet up with anything scandalous in our day to day activities.

Dave Dalton:

You thought trademark law was going to be boring? No way.

Meredith Wilkes:

So it's a big day for trademarks. This is the decision, the Bernetti decision is a great one. I can't help but think that somewhere George Carlin's laughing or smiling. And I think you hit the nail right on the head, it's trademark law meets the first amendment. If we take a step back, trademarks really can extend to any name, word, symbol, device, or combination thereof as long as the source is identified. That's really kind of a very broad reaching subject matter for trademarks. And then the statute sets out some different categories that are completely off limits. Descriptive marks, confusingly similar to other trademarks, miss-descriptive marks. But then we have these other categories. Disparaging trademarks, scandalous, immoral trademarks. And we know from the Matal vs. Tam decision last year that disparaging was found to be unconstitutional. And as it turns out, we learned through the Brunetti decision that the scandalous and immoral provision was also stricken on the basis of constitutionality.

Meredith Wilkes:

And what had happened was it involved this guy named Erik Brunetti who was a graffiti artist and he had a clothing company called FUCT, not pronounced altogether, FUCT. And it stood for, I think the acronym was something about fringe you can't trust. And he had been using this FUCT brand on his clothing since the 90s and in 2011 filed the United States trademark application to register FUCT and the examiner rejected the application on the grounds that it was scandalous and immoral. And so as it went through the various stages of appeal it finally did get to the United States Supreme Court. And this term that the court held that the restriction on scandalous or moral trademarks violated the 1st Amendment to the Constitution because it constituted viewpoint discrimination and that's unconstitutional.

Dave Dalton:

Viewpoint discrimination. Okay. Let's go back to Anna for a second. Now again, we throw some notes around preparing for this program. I'd said something like The Patent and Trademark Office doesn't lose, this isn't considered a loss. But I've got to believe somebody over there when they were reviewing this had to have known they were on shaky ground relative to the 1st Amendment. Or am I over simplifying? Anna, what's your take on that?

Anna Raimer:

Dan I think that's right. Meredith just mentioned that it was only recently that the Supreme Court decided the Matal vs. Tam case and you may recall that case. It was the one involving the band called The Slants and the court considered whether the ban on the registration of disparaging marks, with The Slants considered a disparaging mark, was unconstitutional. And so as Meredith mentioned that it came down to whether this bar on registration was viewpoint based and if so, then it's unconstitutional. So here we're not looking at whether the scandalous provision, which is all part of the same provision of the Lanham Act as the disparaging bar was, and whether this is also viewpoint based.

Anna Raimer:

And so as you mentioned, the Trademark Office knew what it was in for because they had just had this disparaging marks case. And so it was looking for a way to try to get around this viewpoint based reading. And by asking the court to have a more narrow reading of the statute and to consider scandalous marks to only be those that are offensive because of their mode of expression, independent of the views that were expressed. So we're talking about like lewd, sexually explicit, profane types of marks. But the court rejected this argument because while it would eliminate the 1st Amendment problems, it's not what the statute says. And their role is to interpret the statute as enacted and not to fashion a new one. So basically the court said that there's just a lot of immoral and scandalous ideas out there. The Lanham Act covers them all and because of that, it's going to be a violation of the 1st Amendment.

Dave Dalton:

Makes sense now that you kind of crystallize it that way for me. Let's go back to Jennifer Swize Who's doing great by the way in her first ever podcast. Jennifer, what do you see as the main takeaways or effects of this decision moving forward?

Jennifer Swize:

Sure. So first there's obviously just the immediate effect that the immoral or scandalous provision can't be used as a get around for the prior determination by the Supreme Court that disparaging marks are not constitutional. So the PTO is not going to be able to reject trademark applications on the basis there that they are immoral or scandalous. But second, and Dave you may be happy to hear this because this may not be the end of the conversation about scandalous marks, there was a big debate among the justices about whether a narrower basis, a narrower ground for rejecting these kinds of trademarks might be upheld under the 1st Amendment. And so you've got some justices saying, well, if it had only said scandalous and not immoral or scandalous or if we focus on vulgur terms, these sort of terms that Anna said are really more about modes of expression than viewpoint, then maybe that would withstand 1st Amendment scrutiny. So we may see some legislative efforts to reinsert some similar language, but more narrowly focused that would give the PTO this avenue for rejecting marks that may be the kind that society wouldn't wouldn't want registered.

Dave Dalton:

So while this case has been decided, maybe the larger issue in a sense, the jury still may be out longer term. Back to Meredith. I was intrigued by what Justice Alito wrote in his concurring opinion. He said that this decision does not prevent Congress from adopting a more carefully focused statute that precludes the registration of marks containing vulgar terms that play no real part in expression of ideas. Now here's what caught my eye in this. Is the play no real part in the expression of ideas phrasing just asking for trouble later on? Is that an open door still?

Meredith Wilkes:

You know Dave, it's a very interesting question. And Anna and Jennifer both touched on this a little bit when they were talking about how the government was essentially trying to save the constitutionality of the statute by saying, no, this is really more about the expression as opposed to a viewpoint to get it out from under sort of that 1st Amendment umbrella. And clearly Justice Alito is, in my view, encouraging congressional action in this regard, that this discussion is not over yet.

Meredith Wilkes:

But the can of worms point I think is one that's really well taken. Going way way back I think to like the early 1970s, the United States Supreme Court heard a case involving the past participle of a well known profanity, and that's the way they referred to this FUCT immoral argument in this case, Cohen versus California. And it involves a jacket that said F the draft. And the court in that decision said one man's vulgarity is another man's lyrics. So we have to be careful about broad categories of what constitutes vulgar or immoral, these types of vague terms that are susceptible to a lot of different meanings. I mean here you have nine Supreme Court justices, very, very, very, very smart people and you have a lot of debate as to what some of these words could or might mean. The Chief Justice points out in his concurring opinion that obscenity is not protected speech. And so maybe we get around the viewpoint issues with the 1st Amendment with legislation that drafts around obscenity. But I think there's still more scandal to be discussed.

Dave Dalton:

You said that maybe Alito was kind of nudging Congress towards legislation perhaps. I've never heard this store thing before. Does this happen? Forget IP law or trademarks or 1st Amendment stuff. Have you seen the court do this before? They come down with a decision or part of an opinion reads that, hey Congress, we need you to get something a little more I guess definitive? Is this common?

Meredith Wilkes:

It's happened absolutely in the trademark context. When the dilution statute was first added to the Lanham Act, it had to go up and back to the Supreme Court with the victors little secret decision where the court had taken a certain path with respect to interpreting statute and Congress then reacts. So it's not unheard of in the IP context, it's not unheard of in the trademark context, and I think particularly here and possibly in the next term too we may see the court encouraging Congress to take some action. The Lanham Act has taken a couple of hits in the last couple of years. So although not the sexiest of thing to get reelected on as a sitting senator or congressperson, definitely I think in my view the need for some legislation.

Dave Dalton:

Interesting. That's interesting. Okay. With our remaining time in this edition of JONES DAY TALKS®: Women in IP let's talk about a couple of trademark cases the court is likely to hear next term. Let's go to Anna first. Let's talk about Romag Fasteners, Inc. v. Fossil, Inc. Now here are a number of high end retailers including Macy's dealers and Nordstrom are also named as co-defendants. Anna, what's the story? What's at issue here?

Anna Raimer:

What's at issue here is a damages issue, and specifically what is required to show that you should recover an infringer's profits in a trademark infringement case. So let me back up a little bit. Romag is a company that sells magnetic snap fasteners. So we're talking about the things that help close your handbags and wallets. And they own a trademark for Romag for those types of snap fasteners as well as some patent rights. And they had an agreement with Fossil for Fossil to use these fasteners in their various handbag products. Then in about 2010 Romag discovered that certain handbags made by Fossil had counterfeit snaps. So they had the Romag mark on them, but they were not legitimate Romag products. So because of that they sued Fossil and a number of retailers that were selling Fossil's products for trademark and patent infringement.

Anna Raimer:

And now a jury found that Fossil had engaged in trademark and patent infringement, but it determined that those violations weren't willful. So what this meant is there was an impact on damages. And under the Lanham Act there are certain remedies that you can obtain for violating section 43, which is the false designation of origin and unfair competition statute. And one of those damages is the defendant's profits. But in order to do that in the circuit where this case was, Romag had to prove willful infringement. And so the court determined that they were entitled to that profit award because they hadn't shown willful infringement here by Fossil.

Dave Dalton:

Let's go to Jennifer. You mentioned the term willful infringement and I've heard that before researching this case. Jennifer, what does willful infringement mean if someone's not familiar and why is that relevant here?

Jennifer Swize:

Sure. So in general it's going to mean a higher degree of culpability. It's more than negligence. It's even more than callous disregard. It's been described by a bunch of different terms, things like deliberate, willful deception, wanton, malicious, or bad faith. But it is this higher degree of wrongdoing. And so as Anna says, that's going to be a higher burden of proof which is going to make it more difficult to prove and obtain infringer profits as a remedy for infringement. It's relevant because you also have another option of your own actual damages, the plaintiff's damages. And while that doesn't have the willful infringement attached to it, that has its own problems. It can be hard to prove your own damages. The petition in this case makes it really crystal clear by saying that if you're not allowed to get infringer's profits, that can be the difference between a meaningful recovery for trademark infringement and no recovery at all. And so this higher burden that's imposed on infringer's profits is a really big deal in trademark law.

Dave Dalton:

Meredith, how do you see this one playing out when the court hears this? What's your prediction if you will?

Meredith Wilkes:

This is a tough one Dave and I would never presuppose that I'm anywhere near as smart as the justices who are going to hear this case. We've had basically a circuit split. I mean it's split right down the middle, you're six six. Half the circuit's saying willfulness is a necessary prerequisite to the disgorgement of profits and the balance of the circuit saying it's a factor to be considered. It's an equitable remedy disgorgement and so it's a factor that could be considered in connection with all the other relevant factors with respect to monetary relief. You've got a majority of the court right now that is arguably conservative and the conservative viewpoint would be let's let Congress do the law writing and we'll do the law interpreting. And there's nothing in the statute that says willfulness is a prerequisite.

Meredith Wilkes:

And it reminds me of the eBay MercExchange case on when the court decided injunctions in patent infringement cases. And the court said, hey listen, there's nothing in the statute that says there's a presumption of irreparable harm. We will allow the traditional principles of equity govern and then under those traditional principles that will be how the case is decided. So I'm inclined to say that this court is going to come down on the side of willfulness being a factor, but not a prerequisite to discouragement. And now we'll just kind of wait and see if I... I have a 50, 50 chance.

Dave Dalton:

All right. I'll take the other 50. Let's get some action going here. Okay. We have a couple minutes left. Let's talk about Lucky Brand Dungarees Inc. v. Marcel Fashions Group Inc.. Is this another apparel industry related case? Another one?

Anna Raimer:

It is.

Dave Dalton:

Why doesn't the court just move to Rodeo Drive and get it over with? I'm looking at this. It's like we're talking about four cases, three of them somehow involve fashion accessories. Anyway. Sorry.

Anna Raimer:

They might be as befuddled as you Dave.

Dave Dalton:

That wouldn't be hard. Okay. Jennifer, tell us about this case. I guess these two companies have been going at each other over trademarks for the better part of two decades. But this particular action involves Marcel's get lucky trademark. What's going on here?

Jennifer Swize:

Yeah, that's right. So this cases date back to 2001. They've been in this dispute, and frankly they've had claims going both directions about Lucky and related marks that can be used by either side. And they've had serial litigation over this, so it hasn't just been one case. But they've been coming back to court, seeking relief for who gets to use these marks. And part of it was settled. So back in the 2001 case, in 2003 the parties ended that case by a settlement. And what's been going on in the later cases has largely involved or significantly involved, what is the scope and effect of that settlement agreement? Does it resolve the parties issues? Is it not open? They don't agree at all on how to read that settlement agreement. So the real heart of the issue, what the Supreme Court took the case on is this. It's the concept of defense preclusion in serial litigation. So just like this case where the parties keep coming back to court in multiple suits, what is the availability of litigation defenses for a defendant that could have raised the defense in a prior dispute between the same parties or maybe even did raise the defense, but then dropped it or never pursued it?

Jennifer Swize:

We're familiar with these concepts of claim preclusion and issue preclusion. Those are longstanding doctrines about claims or issues that can or cannot be brought again. And the Second Circuit gave this new term defense preclusion. And so what's really at stake is the viability of this doctrine. Can a defendant be precluded from asserting a defense against a new claim that's been asserted against it on the basis that it could have raised that defense before against the same party, but didn't?

Dave Dalton:

I see. So those are implications. Anna, anything you'd add to that in terms of what might be at stake here depending on how the court might rule?

Anna Raimer:

Oh I think Jennifer just summarized that perfectly for us. And really this could have an impact on defendants, how they actually litigate their case and the necessity to think about all possible defenses and make sure that those are all being litigated, in particular for Lucky Brands. Here they had actually had success on their defense, which was that there was this release that had been signed to Marcel's trademark infringement claims. And so if the court does rule that this doctrine of defense preclusion applies, then they're not going to be able to raise that defense that they were successful on and they're going to have to keep litigating the trademark infringement claims.

Dave Dalton:

Sure. Okay. Meredith, any other closing thoughts on the ramifications of Marcel Fashion Group?

Meredith Wilkes:

I agree 100% with what Anna and Jennifer have both said about this case. It's an interesting one because it's a different twist on the claim preclusion principles that we're also very familiar with. And it's just I think a nice reminder to defense counsel to pick up rule eight when you're going through that complaint and making sure that you've looked at all those defenses that are there because if you don't raise them, you weigh them and sit down and have that conversation with clients about, is there any way, shape, or form that we can develop this one, this one, this one, and be mindful of those rule eight defenses throughout the case.

Dave Dalton:

Hey, one more thing before we wrap up for today. Meredith, give us an update on what Women in IP has planned for the rest of 2019.

Meredith Wilkes:

We've got two really exciting programs coming up for the balance of the year Dave. Starting in October we're doing a Trade Secrets Program out of our Los Angeles office. And that'll be on October the 29th. And then at year end out of our Washington DC office we're doing another of our Women In The Courtroom offerings. And this one is different than ones that we've offered in the past in that we're now doing a view from the appellate bench. So we're really, really excited about the balance of these two CLE programs. They'll be available live in the various Jones Day locations and then they will also be broadcast over the internet and available to be accessed through a web based platform. So you can show up in person, we would love to have you there in person, but if you can just dial in and participate, we would love that as well.

Dave Dalton:

Okay. So October 29th is which one is that again?

Meredith Wilkes:

That would be the Trade Secret Program in Los Angeles.

Dave Dalton:

Very close to Halloween so trick or treat. And event number two is what again?

Meredith Wilkes:

That would be the Women In The Courtroom program. And this one's going to be a view from the appellate bench. And that will be in our Washington DC office on December the 11th.

Dave Dalton:

Okay. Where can we get information on both of those?

Meredith Wilkes:

Information will hopefully be available on the Jones Day website. And we will also be sending out invitations to all of our clients and friends.

Dave Dalton:

Awesome. And there's another edition of JONES DAY TALKS®: Women in IP. Jennifer, Anna, Meredith, thanks. We will do this again next quarter, if not sooner. But always great talking to you guys. And these programs are very, very popular with our listeners. So thanks so much for being here today.

Meredith Wilkes:

Thanks for having us.

Jennifer Swize:

You too. Thanks so much.

Anna Raimer:

It was a pleasure.

Dave Dalton:

All right. See you soon. Take care. You can find complete bios for Jennifer, Anna, and Meredith at jonesday.com. While you're there be sure to check out our new Women in IP video which talks about how the initiative started and what it does. Subscribe to JONES DAY TALKS® on Apple Podcasts. I'm Dave Dalton. Thanks for listening. We'll talk to you next time.

Dave Dalton:

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