Sunday, November 30, 2008

Yield Dynamics Delivers Dynamic Trade Secret Defense

In Yield Dynamics, Inc. v. TEA Systems Corp. 154 Cal.App.4th 547, 66 Cal.Rptr.3d 1 (007), the court of appeal concluded that a claim for misappropriation of trade secrets could not be found absent a showing of independent economic value. In Yield, plaintiff claimed that its former employee had wrongly misappropriated plaintiff’s proprietary source code by placing a sequence string of that code into defendant’s newly released product. The trial court granted defendant’s motion for nonsuit on the basis that the plaintiff company failed to demonstrate that the allegedly misappropriated source code had an independent economic value.

California’s Uniform Trade Secrets Act (”UTSA” or “Act”) defines a trade secret as certain types of information (e.g. formulas, plans, designs) that a company has taken reasonable steps to protect, and which is valuable because it has been kept secret. See Civil Code section 3426.1. The Act defines “misappropriation” as the acquisition by improper means, and subsequent use or disclosure of such trade secrets. Id.; Morlife, Inc. v. Perry, 56 Cal.App.4th 1514, 1526 (1997) (former employee’s use or disclosure of confidential customer information to solicit new accounts on behalf of a new employer constitutes the misappropriation of a trade secret); Merrill, Lynch, Pierce, Fenner & Smith, Inc. v. Garcia, 127 F.Supp.2d 1305, 1306 (C.D. Cal. 2000) “Improper means” includes “theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means.” Civil Code section 3426.1(a).

While most defense lawyers focus on establishing that the purported trade secrets fail to qualify for protection because the plaintiff neglected to take reasonable steps to secure their secrecy, or because the defendant either does not use the “secrets” or the “secrets” are in the public domain, few take the tact that the information taken lacks value to anyone beyond the parties themselves. This is precisely the argument levied by Terrence Zavecz, the founder and, as relevant here, sole employee of defendant TEA Systems Corporation in the Yield case. Zavecz argued that where the defendant cannot exploit the information allegedly misappropriated in order to gain a competitive advantage over (or to the disadvantage of) the original owner, then despite any reasonable efforts to maintain the secrecy of the information at issue, the plaintiff’s trade secret claim must fail.

The Court of Appeal agreed. Upholding the lower court’s conclusions, the Sixth Appellate District held that the allegedly misappropriated items were properly defined as “trade secrets” because plaintiff had not established any independent economic value associated with their secrecy. Specifically, the Court ruled that Yield had failed to establish that the segments of computer code at issue in Yield possessed independent economic value entitling the plaintiff to trade secret protection in that code. The Yield Court held that in order to establish the independent economic value element necessary to maintain a trade secret misappropriation claim, the plaintiff must prove more then simply secrecy and usefulness. The plaintiff must establish a discrete competitive advantage to the persons who could utilize the information to the economic disadvantage of the plaintiff, thus creating an economic value in the plaintiff maintaining secrecy over the information. The Court stated that a trade secret misappropriation claim will fail where the defendant cannot exploit the information, and thereby gain a competitive advantage, to the disadvantage of the original owner. 154 Cal.App.4th at 560-572.

In reaching its ruling, the Court adopted the definition of a trade secret found in the Restatement (Third) of Unfair Competition (1995). The Restatement defines a trade secret as business or technical information “that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.” (Rest.3d, Unfair Competition, sec. 39.) The Court acknowledged that this advantage “need not be great,” but must be “more than trivial.” (Rest.3d, Unfair Competition, sec. 39, com. e, p. 430.) That is, merely stating that information was helpful or useful to another person in carrying out a specific activity, or that information of that type may save someone time, does not compel a factfinder to conclude that the particular information at issue was “sufficiently valuable . . . to afford an . . . economic advantage over others.” (Rest.3d, Unfair Competition, § 39.) Rather, the factfinder is entitled to expect evidence from which it can determine how useful the information is, e.g., how much time, money, or labor it would save, and that these savings would be “more than trivial.” (Rest.3d., Unfair Competition, sec. 39, com. e.)

Thus, the Yield case ruled that where the information taken lacks value to anyone beyond the parties themselves, and provides no genuine competitive advantage to others, it will not qualify as a trade secret under the UTSA. This ruling provides another viable attack for invalidating a plaintiff’s alleged trade secrets. Not only should the defense attack the plaintiff’s efforts to protect its purported secrets, and argue that the information was in the public domain (or never actually employed by the defendant), but where appropriate, it should strongly consider an attack based on demonstrating that the information lacks “independent economic value.”

Jonathan Pink can be reached at or 949-223-7173

Thursday, October 23, 2008

Get Movin'!

This blog has moved to and so should you.

Wednesday, October 8, 2008

Blogging: Benefits, Barriers and Bombshells

Blogging: Benefits, Barriers and Bombshells.
by Jonathan Pink

Blogging: Benefits & Barriers

"I’m going to start a blog," said a friend. When I asked why, her answer was simple: "I have a lot of things to get off my chest."

Seems a lot of people do. According to blog search engine, Technorati, there were nearly 113 million blogs as of June 2008. And according to the Blog Herald, that number may not include 72 million blogs coming out of China. (See "How Many Blogs Are There? Is Someone Still Counting?" by Ann Helmond, February 11, 2008.)

With numbers like these, chances are you know what a blog is. Wikipedia defines a "blog" as "a Web site, usually maintained by an individual, with regular entries of commentary, descriptions of events, or other material such as graphics or video. Entries are commonly displayed in reverse-chronological order. ‘Blog’ can also be used as a verb, meaning to maintain or add content to a blog."

Blogs have given millions of people a voice in a global conversation. They have also emerged as a cutting edge communication tool for attorneys, providing a fast, scalable and cost-efficient way of establishing an expertise, building a reputation, and connecting with clients worldwide. Those who learn to use blogs effectively are most likely to thrive in this modern world.

With all this opportunity, you’d think that launching a blog would be tough. It isn’t. In fact, you can have one up and running in about ten minutes. But barriers do exist. Most fundamentally, a blog is a digital relationship between author and reader. Like any relationship, it requires constant nurturing and attention. For a blog, this means frequently adding new posts. A blog that goes stale shows disinterest, and that isn’t helpful when trying to build a global connection.

Some ideas for keeping the digital relationship healthy: Set up a time to write each day. Commit to posting three times a week, no matter how short that post might be. Impose a word limit, like legal haiku, and write about a new case in five lines or less. Or, using no more than three lines, pass on a tip for younger lawyers. Or in one very long (but well punctuated) sentence, "get something off your chest." If these ideas don’t work, hire a ghost-writer, conduct an interview or invite a guest blogger to write for a while. And if none of this works, don’t sweat it. Do something else. Blogs can be great, but they’re no match for countless other things in life.

Blogging Bombshells:

There is no question that blogs can cut both ways: marketing goldmines and minefields of lurking liability. And understanding this is critical to exploiting their essence. A look at the artillery, and how to avoid it:

Copyright Infringement:

Stuffing your blog with high quality, original content is an excellent way to increase readership, web traffic and search engine ranking. Stuffing it with content poached from another site will only lead to trouble.

Copyright protects a wide range of works, including literary, musical, pictoral and audiovisual pieces from being reproduced without the permission of the copyright owner. 17 U.S.C. § 102. Subject to caveats and limitations we lawyers love, the owner of a copyright has the sole right to authorize a reproduction of the work, create a derivative work, distribute copies of the work, or display it publicly. 17 U.S.C. § 106.

In other words, just because it’s on the Web, doesn’t mean it’s free.

Then again, with blogging, nothing copied, nothing gained. Blogs by their nature are often snarky, dishy and critical. They may lift – or quote from -- copyrighted content just for the purpose of discussion. Does this type of copying amount to infringement? Remember the fair use doctrine? As the U.S. Supreme Court observed in Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, "some opportunity for fair use of copyrighted materials [is] necessary to fulfill copyright’s very purpose, ‘[t]o promote the Progress of Science and useful Arts. . .’."

This was the issue in an incident involving the Associated Press and the Drudge Report. The Drudge Report posted excerpts from several Associated Press articles, along with links to the original stories. The AP cried copyright infringement and sent the Drudge Report "take down notices" pursuant to the Digital Millennium Copyright Act (17 U.S.C. §§ 512(c), the "DMCA").
Drudge Report argued that its use was protected by the fair use doctrine because the text was there to spur discussion and debate. Under that doctrine, short quotations used "for purposes such as criticism, comment, news reporting, teaching … scholarship or research [are] not an infringement of copyright." 17 U.S.C. § 107.

But the analysis doesn’t stop there. Courts evaluate fair use by considering four factors: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of copying, and (4) the market effect. The most significant is the last one. If the copy lessens the demand for the original work, it’s difficult to claim fair use. On the other hand, if the copy is used strictly for purposes of parody, criticism, or news reporting, it’s more likely to be deemed "fair."

So if you want to post pics of "Hello Kitty" on your blog, be prepared to rant about how you’d like to see this cat wearing concrete shoes and a sign reading "Goodbye Kitty."
What About Secondary Liability?

Recall that secondary liability exists with respect to copyright law under two scenarios: contributory infringement and vicarious infringement.

Contributory copyright infringement is defined as either actively inducing, causing, or materially contributing to the infringing conduct of another person, or providing the goods and means necessary to help another person infringe. Black's Law Dictionary 796 (8th ed. 2004). Vicarious copyright infringement, instead, is a person's liability for an infringing act of someone else, even though that person has not directly committed an act of infringement. Id.

Let’s say you scrupulously avoid padding your blog with text, music or images you’ve lifted from other sites on the Web. What happens when your readers post copyrighted material to your blog? In a traditional print publication, you’d have a problem. In the cyber world, you have a defense.

The safe harbor provision of the DMCA may apply to protect you from liability, provided you comply with the Act’s requirement of designating an agent for notification with the Copyright Office, and establish – and post -- a policy against repeat infringement by your readers. See Io Group, Inc. v. Veoh Networks, Inc., 2008 WL 4065872 (N.D.Cal. Aug. 27, 2008).

In Io the plaintiff discovered ten short clips of its copyrighted skin flics running on Veoh’s website. (Like YouTube, Veoh hosts videos uploaded by users.) Rather than sending a DMCA take down notice, the plaintiff filed suit alleging copyright infringement. Veoh claimed that had it received a take down notice, it would have removed the allegedly infringing content and terminated the poster’s account. Based on this, Veoh moved for summary judgment, arguing that the DMCA’s Safe Harbors provides protection for: (1) transitory digital network communications; (2) system caching; (3) information residing on systems or networks at the direction of users; and (4) information location tools. The Court agreed.

Finding that Veoh was a Service Provider under the DMCA, the Court held that Veoh’s hosting of user-provided content was protected by the DMCA safe harbor provision. It ruled that "a service provider is eligible for safe harbor under section 512(c) if it (1) does not know of infringement; or (2) acts expeditiously to remove or disable access to the material when it (a) has actual knowledge, (b) is aware of facts or circumstances from which infringing activity is apparent, or (c) has received DMCA-compliant notice; and (3) either does not have the right and ability to control the infringing activity, or – if it does – that it does not receive a financial benefit directly attributable to the infringing activity."

Applying this ruling to the blogosphere, bloggers do not have a duty to police their blog for potential copyright infringement on behalf of third-parties, but must act to remove infringing content when put on notice.

What if the take down notice Gets it Wrong -- And the Work is Actually Entitled to Stay?
The flip side of the DMCA take down notice occurs when the original poster believes he or she had the right to post, and sends notice demanding the work be reinstated. Is there an obligation to determine whether the work is entitled to reinstatement? Yes, by the person who sent the original take down notice.

A person sending a take down notice under the Digital Millennium Copyright Act is required to affirm that he or she "has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law." 17 U.S.C. §512(c)(3)(A). If the sender knowingly makes a material misrepresentation in this regard, or is deliberately ignorant as to whether the material is authorized to remain, the party whose content is taken down can sue under 17 U.S.C. §512(f). Lenz v. Universal Music Corp., No. 07-3783 (N.D. Cal. August 20, 2008)

In Lenz, a mother videotaped her daughter dancing to Prince’s "Let’s Go Crazy," then uploaded the masterpiece onto YouTube. Shortly after the tyke’s debut, Universal Music Group put an end to it by sending YouTube a DMCA take down notice. Never mess with a mom: she argued that her use of the music was protected by the fair use doctrine, and sued Universal under §512(f). Universal moved to dismiss, asserting that a copyright owner cannot be required to evaluate the fair use question prior to sending a take down notice. The court disagreed, holding that the copyright owner must evaluate whether the material makes fair use of the copyright before sending the take down notice.

Trademark Infringement

Bloggers also run the risk of being hit with trademark infringement actions. This happened when Las Vegas nightclub, "Privé," sued Vegas-based blogger, Michael Politz.
Politz writes about the Vegas club scene on his blog, TheVegasEye. In July 2008, he made some unflattering comments about Privé, and included a copy of Privé's trademark. Privé alleged that Politz had "infringed upon, disparaged, diluted and tarnished" Privé's trademark by using it alongside defamatory statements about the club.

Politz will likely turn to the nomitive fair use doctrine in hopes of a defense. This doctrine permits the use of another’s trademark to identify the plaintiff’s goods or services provided there is no likelihood of confusion based on that use. Playboy v. Welles, 279 F.3d 796 (9th Cir. 2002). In Playboy, the House-of-Hef sued its former top bunny, Terri Welles, for using the words "Playboy" and "Playmate of the Year" in her website’s metatags. Welles won, arguing that these terms were necessary to describe her as "Playboy Playmate of the Year 1981."
With respect to Privé's claim that Politz disparaged the Privé trademark, the club is not likely to score points there. Although a party may be liable for disparaging another party’s goods or services, the Ninth Circuit has ruled that disparagement cannot apply to a trademark. See Freecycle Network, Inc. v. Oey, No. 06-16219, slip. op. at 13244-45 (9th Cir. Sept. 26, 2007). see also 15 U.S.C. § 1125(a)(1)(B).


The Internet has opened new channels of communication and self-expression. The individual’s ability to have a voice in the world has never been greater. While this is good, it also presents risks to those who publish first and think later. As with traditional print media, laws related to defamation apply in cyberspace as well.

Defamation is a false and unprivileged statement of fact that is harmful to someone's reputation and published to a third party as a result of negligence or malice. It can appear in three ways: written defamation (libel); spoken defamation (slander); and the defamation of a business’ goods or services (trade libel).

Recall that truth is a complete defense. Also, the First Amendment protects statements of opinion. See Milkovich v. Lorain Journal Co., 497 U.S. 1 (1990). A statement is an opinion when it is expressed in a manner that is not provably true or false, and cannot reasonably be interpreted as conveying actual facts. Id. at 17 -21.

The Anti-SLAPP Statute

Blogs have been a breeding ground for libel claims. Just think of my friend itching to get something off her chest. With 113 million bloggers, uncharitable things are going to be said, feelings are going to be hurt, and people are going to sue. See Tendler v., No. H031130, 2008 WL 2352497 (Cal.App. 6th Dist. June 10, 2008).

In Tendler, anonymous bloggers posted remarks about Rabbi Tendler. Finding their remarks farkakt and the bloggers meschuge, the good Reb sought subpoenas requiring Google (which owns the site on which the comments appeared) to disclose the IP addresses of the people who created the posts. The defendants showed a fair amount of chutzpah and moved to strike pursuant to California Code of Civil Procedure section 425.16. Section 425.16 provides that "[a] cause of action against a person arising from any act of that person in furtherance of the person’s right of . . . free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike . . . ." Siding with the defendants, the hochem judge granted their motion, and it was gute nacht for the Rabbi! Id. See also GTX Global Corp. v. Left, No. B192626, 2007 WL 1300065 (Cal.App. 2 Dist. May 4, 2007), (GTX sued after Left said on his blog that GTX was headed by a convicted felon, and engaged in stock fraud; court granted motion to strike and ruled that, for purposes of the Anti-SLAPP statute, Left’s blog was a public forum).

The Telecommunications Act of 1996, 47 USC § 230(c).

Bloggers may also have protection for allegedly defamatory statements made by others on their site. Providers of interactive computer services are immune from liability for content created by third parties when sued "as the publisher or speaker of any information provided by" someone else. 47 U.S.C. § 230(c).

Courts have applied Section 230(c) to a broad mix of "computer service providers," strongly suggesting a blog would also be covered. For example, courts have found that this Section shielded the publisher where third party content was posted on a roommate matching site (See Fair Housing Council v. Roommate.Com, 489 F.3d 921 (9th Cir. 2007)); an on line newsletter (Batzel v. Smith, 333 F.3d 1018, 1031 (9th Cir. 2003)); and a blog entitled "" that warned consumers about unscrupulous practices and bad service. Section 230(c) has also been used as a defense to claims of negligent misrepresentation, interference with prospective advantage, unfair business practices.

Invasion of Privacy

Invasion of privacy is a potential danger to bloggers for the unwarranted public disclosure of private facts and the unauthorized use of another person's name or likeness.
The unwarranted public disclosure of private facts

Private facts are those details that most people would not appreciate finding published on a blog. For example, in Steinbuch v. Cutler (DC D.C., filed May 18, 2005), plaintiff sued after Jessica Cutler included personal facts on her blog about Plaintiff when describing their intimate sexual relationship. OK, it wasn’t just him she was having a relationship with. She was having affairs with five other guys in her office, all at the same time, and she provided specific details about each of them. Plaintiff didn’t appreciate the disclosure – or at least Ms. Cutler’s unflattering exposè of his performance.

One defense to this type of privacy claim is that the facts disclosed are "newsworthy." A private fact is newsworthy if some reasonable members of the community would entertain a legitimate interest in it. Courts generally recognize that the public has a legitimate interest in almost all recent events, even if they involve private information about the participants. In Ms. Cutler’s case, that defense would have been worth trying. It turns out she didn’t work in any office. It was the office of a U.S. Senator, and one her lovers was a high level Bush appointee whom she described as "a married man who pays me for sex." Newsworthy? I’m interested.
The unauthorized use of another person's name or likeness.

Most states impose liability for the unauthorized use of another person’s name, likeness, or other attributes for exploitative purposes. In California, this typically involves the use of someone's name or likeness in a commercial setting, such an advertisement. California Civil Code § 3344 provides that "Any person who knowingly uses another's name, voice, signature, photograph, or likeness, in any manner, on or in products, merchandise, or goods, or for purposes of advertising or selling, or soliciting purchases of, products, merchandise, goods or services, without permission is liable for damages."

This language is likely broad enough to prohibit the unauthorized use of another person’s image on a blog, even if only to spruce up a site used to promote professional services. See e.g. Blair v. Nevada Landing Partnership, 859 N.E.2d 1188, 1192 (Ill. App. 2 Dist., December 8, 2006) (casino worker sued claiming the casino used his photograph on website without his permission; dismissed on statute of limitations defense); see also Lehman v. Discovery Communications, Inc., 332 F.Supp.2d 534, 539 (E.D.N.Y.2004) ("[A] republication of the plaintiff’s likeness can constitute a new cause of action if altered so as to reach a new audience or promote a different product.").

Again, most states have an exception to liability for news reporting and commentary on matters of public interest. For example, this defense would likely have applied if Ms. Cutler had posted the name or likeness of the politician who kept her on payroll.

Other Bombshells Worth Mentioning

While a totally comprehensive list of bombshells is nearly impossible, the following areas could also prove problematic to the unwary blogger.

Misappropriation of Trade Secrets -- The disclosure of someone else’s trade secrets is never a good idea. Plastering them on a blog is even worse. And the flipside: When intending to assert trade secret protection, it is a good idea to make sure the protected information is not posted on the company blog.

Unfair Competition -- California Business and Professions Code §17200 and 15 U.S.C. §1125(a) broadly protect against unfair competition. These statues can apply to such "unethical" conduct as inundating blogs with return hyperlinks.

Securities Fraud – Posting false information about a publicly traded company for the purpose of influencing investors’ purchase or sale decisions is a violation of the federal securities laws. See Stoneridge Investment Partners v. Scientific-Atlanta 552 U.S. ___ (2008). Despite what those bigwigs on Wall Street say, minimum security federal prisons are not just like summer camp for adults.

Obscenity Laws -- Federal statutes which prohibit the distribution of obscene material remain constitutional. See e.g. 18 U.S.C. 1461 and 1465; U.S. v. Extreme Associates, 431 F.3d 150 (3d Cir. 2005) (overturning lower court’s dismissal of indictment against operator of adult website for distributing obscene material); U.S. v. Bagnell, 679 F.2d 826 (11th Cir. 1982) ("[i]t is constitutionally permissible to subject defendants in obscenity prosecutions to varying community standards of the various judicial districts into which they transmit obscene material."). But c.f. Lawrence v. Texas, 539 U.S. 558 (2003) (pro-privacy decision which some interpret as calling into question constitutionality of federal statutes prohibiting distribution of obscene material).

The First Amendment -- Even after the Bush-Cheney Administration, the law remains that "Congress shall make no law . . . abridging the freedom of speech, or of the press. . ." Of course, that doesn’t mean anyone can say anything, anytime. See State v. A.B., No. 67A01-0609-JV-372 (Ind. App. April 9, 2007) (when middle school student posted obscenity-laced comment critical of school’s principal and criticized school’s policy against body piercings, appellate court held student’s web-based statements were political speech protected by the First Amendment); but c.f. Doninger v. Niehoff, 527 F.3d 41, (2nd Cir. 2008) (following high school student’s blog post referring to school administrators as "douchebags" and encouraging others to "piss off" school principal, school blocked student’s run for Senior Class Secretary; Second Circuit affirmed, reasoning offensive language did not comport with the standard of conduct expected of a school government participant).

The Reporter’s Privilege to Keep Sources Secret -- The "reporter's privilege" is the right, in some jurisdictions, that journalists have to keep their sources secret. This privilege should apply to bloggers who gather and disseminate news, especially in California, where it protects all persons "connected with or employed upon" a media organization. Cal. Const. art. I, § 2(b); Cal. Evid. Code § 1070. Indeed, at least one California case has expressly held that this law extends to bloggers. In O'Grady v. Superior Court, 139 Cal.App.4th 1423 (Cal.App. 2006), Apple Computer filed suit after bloggers disclosed confidential information about a device intended to facilitate digital sound recordings on Apple computers. When Apple sought to discover the source of this leak by subpoenaing information from the web sites on which it appeared, the defendants moved to quash. The trial court denied their motion, and the Court of Appeal reversed. It held that "any subpoenas seeking unpublished information from petitioners would be unenforceable through contempt proceedings in light of the California reporter’s shield (Cal. Const., art. I, § 2, subd (b); Evid. Code, § 1070); and . . ." Id. (citing Mitchell v. Superior Court (1984) 37 Cal.3d 268.) The court reasoned that the reporter's privilege applied to on line journalists because the law "is intended to protect the gathering and dissemination of news and that is what petitioners did here." Id.


Technorati estimates that there are two new blogs created every second. With figures like these, it’s easy to see how blogs are changing the face of media by giving a voice to millions, but also creating new opportunities for trouble. Still, for those eager to take advantage of this cutting edge communication tool, it isn’t hard. Just watch out for the bombshells and follow these easy steps:

1. Go to and follow the links to set up a down-and-dirty blog. (Estimated time: 10 minutes; estimated cost: $0).

2. Alternatively, go to and follow the links for the appropriate download. Why Wordpress? In two words: power and control. Wordpress has emerged as a leader in the field of blogging, attracting talented designers and programmers that are producing, usually for free, a large array of Themes (the templates that control the blogs appearance), Plugins (web-based applications written in PHP and Javascript that extend the capacity of what your blog can do) and Widgets (more advanced plugins that take advantage of the inherent structure to add features to your blogs Sidebars).

3. If you go with Wordpress, you will also have to: (a) purchase a domain name ($7.95 a year at; ignore GoDaddy with its constant sales pitches); (b) Purchase hosting: $6.95 a month; and (c) Install Wordpress' latest version.

4. Begin posting and don't stop.

Jonathan Pink is a member of the Intellectual Property Group at Bryan Cave LLP. His practice is focused on intellectual property and commercial litigation. Resident in the firm’s Irvine, California office, Mr. Pink represents clients nationwide.; (949) 223-7173.

Bryan Cave LLP is a full-service law firm with nearly 1,000 attorneys worldwide.

Sunday, June 22, 2008

Move to Bryan Cave

Just to let you know, as of June 20, 2008, I have joined the Intellectual Property Group at Bryan Cave, LLP. Bryan Cave is one of the nation's oldest and largest law firms, and I am thilled to be a part of it. My new email address is I am resident in the firm's Orange County office, where my direct dial is 949-223-7173. Keep in touch. JP

Wednesday, June 4, 2008

Something to Sing About?

Imagine receiving licensing payments for your interest in a copyrighted musical work. Imagine that those payments are substantial. I'm talking hundreds of thousands, or even millions of dollars a year. Not bad, you say. Now imagine that, although you've been collecting these royalties for years and years, you don't actually have a defensible claim to the copyright! It’s almost like "pennies from heaven.".

This may sound great when you’re on the receiving end of this boondoggle, but imagine you’re on the other side. Paying a bundle to a putative copyright owner who doesn’t deserve a dime should cause you to whistle another tune. Shhhhh. Don't tell, but this may happen more often than you think. Certainly, it has come up in the last few years with regards to several songs: "This Land is Your Land," "Happy Birthday" and "Guantanamera."

During the 2004 presidential contest, web animation studio JibJab Media Inc. distributed an animated parody of President George W. Bush and Senator John Kerry that lifted a few lines from the classic Woody Guthrie song, "This Land is Your Land." Guthrie’s publisher, Ludlow Music, Inc. (which presumably makes a bundle off of the publishing and mechanical licenses to the song) threatened JibJab with a copyright infringement action. While JibJab's initial defense was founded on the "fair use" doctrine (makes sense), its counsel discovered facts to suggest that "This Land is Your Land" entered the public domain in the 1970s. Specifically, they found that Woody Guthrie wrote "This Land is Your Land" in 1940 and first sold versions of it as sheet music in 1945. Under the 1909 Copyright Act (which was applicable in 1940), a copyright owner was granted an initial copyright term of 28 years, and the opportunity for a one-time 28 year renewable.

According to JibJab, the song’s initial copyright term was triggered when Guthrie sold it as sheet music in 1945. This would mean that the original copyright term expired 28 years later, in 1973. While the copyright could have been renewed that year, it was not. This appears to have been because Ludlow Music believed that the copyright term began to run in 1956, and thus renewed the copyright twenty-eight years later, in 1984. When JibJab's attorneys brought this issue to Ludlow's attention, Ludlow's thirst for litigation subsided. Without conceding that it had no legitimate right to further royalty payments, Ludlow agreed to quietly put this issue to bed by allowing JibJab to continue distributing the "This Land" short . . . without any payment to Ludlow.

"Happy Birthday" is another excellent example of an owner collecting a bundle for a song that may be firmly ensconced in the public domain. While I never pay a dime for singing this song around my dinner table, somebody is shelling out some shekels for it. "Happy Birthday" is reported to generate $2 million in profits per year. I won’t spend a lot of time talking about this song because Professor Robert Brauneis of The George Washington University Law School just wrote an excellent piece about it entitled "Copyright and the World's Most Popular Song." (If I knew how to link to that article, "Copyright and the World's Most Popular Song," you would find it here. Alas, being the Luddite that I am, I’m unable to create that link. If you Google Professor Brauneis and the work’s title, you’ll easily find it.)

In a nutshell, Professor Brauneis dissects the song’s genesis, and analyzes its current copyright legitimacy. He demonstrates that "Happy Birthday to You" almost certainly is not currently entitled to copyright protection due to a variety of defects. Among them: there is no evidence as to who wrote the words to that famous song, there is no evidence that the copyright holder ever provided adequate copyright notice of the work as would have been required under the 1909 Act, and – perhaps most significantly – there appears to have been a failure to file a proper renewal of the copyright. Simply put, if you follow Professor Brauneis’s analysis, the work is in the public domain, and the $2 million paid annually for the right to license might as well be paid to Professor Brauneis – given that the current recipient of that largess has no greater claim on those proceeds does he.

Finally, not long ago, a Mexican-themed, national fast food chain was sued for having allegedly used the song "Guajira Guantanamera" (or its more famous American derivative, "Guantanamera") in its television commercials. My firm represented that chain, and although that case ultimately settled, our defense was poised to turn on a challenge to the copyrights. Specifically, with respect to the underlying work, "Guajira Guantanamera," we took the position was that even if that work was currently covered by U.S. copyright law (an debatable issue), the copyright was not enforceable by the song’s purported "owner," Spanish music publishers, Ediciones Quiroga, S.L. We based our argument on two statutes: (1) Section 104A of the Copyright Act (recognizing the principle of restoration of copyrights in certain qualifying foreign works); and (2) the Cuban Embargo, as codified in 31 C.F.R. § 515.201 (b) and (d).

Section 104of the Copyright Act was important if -- as appears -- "Guajira Guantanamera" fell into the public domain in the mid-1990s due to a failure to timely file a renewal. Specifically, 17 U.S.C. §104A(h)(3), (6) would have allowed the work to regain U.S. copyright protection provided certain conditions were met, but the restoration of such rights would have vested "in the author or initial rights holder of the work as determined by the law of the source country." 17 U.S.C. §104A(b) (emphasis added). As Ediciones Quiroga was neither (it had obtained its interest from the work's creator, Jose Fernandez Diaz, in 1942 and 1943), those rights would have gone to Diaz’s heirs. Why not then have Diaz’s heirs enforce the copyright? First, assuming those heirs reside in Cuba, they may not even know that they have a claim. Secondly, if they do know, and want to enforce their rights, any damages awarded or rights declared by them would likely be confiscated by the Cuban Government. (It is doubtful that any U.S. court would permit this to happen.)

The Cuban Embargo would come into play if Diaz’s heirs then decided to simply assign their rights to, e.g. Ediciones Quiroga. That embargo prohibits transactions, including transfers of ownership in real and personal property with the Cuban government or Cuban nationals, with certain limited exceptions. 31 C.F.R. § 515.201 (b) and (d); see also Havana Club Holding, S.A. v. Galleon S.A., 203 F.3d 116, 53 USPQ2d 1609 (2d Cir. 2000). Thus, the defense was prepared to show that, although Ediciones Quiroga continued to assert an ownership interest in"Guajira Guantanamera" (and collect significant royalties in connection therewith), its right to do so was less than certain.

With respect to the more widely known derivative work, "Guantanamera," the defense was poised to dismantle its copyright as well. "Guantanamera" was originally recorded in the early 1960s by music legend Pete Seeger, and remains controlled – to this day – by Seeger's music publisher, Fall River Music, Inc. Had the lawsuit not settled, the defense intended to focus considerable scrutiny on the copyright certificates filed by Fall River (including the amendments thereto). While many cases have held that unintentional mistakes on a copyright certificate are of no legal significance, intentional misrepresentations made in an effort to secure a copyright are typically treated differently. Material misrepresentations that are designed to secure a copyright certificate will typically render the copyright unenforceable. Whimsicality, Inc. v. Rubie's Costume Co., Inc., 891 F.2d 452, (2d Cir. 1989); Eckes v. Card Prices Update, 736 F.2d 859, 861-62 (2d Cir. 1984) ("knowing failure to advise the Copyright Office of facts which might have occasioned a rejection of the application constitute[s] reason for holding the registration invalid and thus incapable of supporting an infringement action." (quoting Russ Berrie & Co., Inc. v. Jerry Elsner Co., Inc., 482 F. Supp. 980, 988, (S.D. N.Y. 1980)).

The 9th Circuit has held that when it comes to invalidating a copyright based on intentional misrepresentations on the copyright certificate, one must also establish prejudice. Harris v. Emus Records Corp., 734 F.2d 1329, 1335, (9th Cir. 1984) ("Absent intent to defraud and prejudice, inaccuracies in copyright registration do not bar actions of infringement.") It seems fair to say that prejudice exists where one pays to license a work which is, in fact, in the public domain. This is especially so where the licensee acts due to the false representations the licensor made on the copyright certificate themselves.

One thing each of these cases have in common is the none made it to a jury: each settled long before this could happen. I suspect that the purported rights holders prefer it this way because they would stand to loose much more than they might gain. While these examples are illustrative, but they are by no means exclusive. There are very likely a large number of songs generating income for individuals and entities that have no right to such funds.

So what is the solution? I propose creating a database to expose such works. "This Song is Your Song . . . This Song is My Song." If you know of others, sing it out, bring them to light! After all, while "Pennies from Heaven" may be great . . . pennies from my pocket is another tune altogether.

Saturday, February 9, 2008

Copyright Quake Hits California

The United States District Court for the Southern District of California ruled on February 5, 2008 that the Copyright Remedy Clarification Act ("CRCA") "is not a valid exercise of Congress's power under Section 5 of the Fourteenth Amendment", thereby holding that a State, employee of a State (acting within his or her official capacity) or instrumentality of a State cannot be held liable for copyright infringement. See Marketing Information Masters, Inc. v. The Board of Trustees of the California State University System, et. al. (06cv 1682 JAH, SDCA February 5, 2008).

In Marketing Information Masters, Marketing Information Masters, Inc. ("MIM") sued the Trustees of the California State University and their employee, San Diego State University (SDSU) professor Robert Rauch, for copyright infringement. MIM alleged that Rauch had copied large portions of MIM's 2003 Pacific Life Holiday Bowl report in creating SDSU's 2004 Holiday Bowl report.

The SDSU defendants filed a motion to dismiss, claiming that the Eleventh Amendment provided them with immunity to such a claim. The plaintiff argued that the Eleventh Amendment did not apply because Congress passed the CRCA, which expressly provided that "[a]ny State, instrumentality of a state... or employee of a State or instrumentality of a State... shall not be immune, under the Eleventh Amendment" to a suit for copyright infringement. 17 U.S.C. Section 511(a). The defendants took the position that the CRCA was an invalid exercise of Congress's power, and thus did not constitute a valid waiver of the Eleventh Amendment.

The District Court agreed, finding that the CRCA "was not passed pursuant to a valid exercise of [Congress's] Fourteenth Amendment enforcement powers," and holding that "the CRCA does not constitute a valid abrogation of state sovereign immunity." See Order Granting in Part and Denying in Part Defendant's Motion to Dismiss ("Order"), page 5.

In reaching this ruling, the Court noted that the "Eleventh Amendment provides a state immunity from suit unless the state consents to be sued or Congress validly overrides the state's immunity." Id. at p. 3 (citing Green v. Mansour, 474 U.S. 64, 68 (1985)). To determine if Congress validly overrode a state's immunity, the Court said that it "looks to two factors: (1) whether Congress expressed a clear intent to override the state's immunity and (2) whether Congress acted pursuant to a congressional grant of authority." Id. (citing Seminole Tribe of Florida v. Florida, 517 U.S. 44, 55 (1996)).

Moreover, to determine whether an act constitutes a valid exercise of Congress's power under Section 5 of the Fourteenth Amendment, the Court said that it must find that Congress identified "'conduct transgressing the Fourteenth Amendment's substantive provision, and... tailor[ed] its legislative scheme to remedying or preventing such conduct.'" Id. at pages 3-4 (citing City of Boerne v. Flores, 521 U.S. 507 (1997), and quoting Florida Prepaid v. College Savings Bank, 527 U.S. 627 (1999)).

After setting forth this framework, the Court noted the relative dearth of case law addressing this issue. It observed that "[n]either the Supreme Court, nor the Ninth Circuit has addressed the issue of whether the CRCA is a valid abrogation of state sovereign immunity." Order at page 4. Nonetheless, it added that "the Supreme Court struck down as unconstitutional two similar 'remedy clarification' acts involving intellectual property rights." Id. (citing Seminole Tribe, supra (invalidating the Patent and Plant Remedy Clarification Act) and College Savings Bank v. Florida Prepaid Postsecondary Education Expense Fund, 527 U.S. 666 (1999) (invalidating the Trademark Clarification Act)).

Further, the Court observed that the only other case to directly address this issue following the holding in Seminole was Chavez v. Arte Publico Press, 204 F.3d 601, 608 (5th Cir. 2000). Applying the analytical framework of Florida Prepaid, the Chavez court said that "the relevant inquiry for determining whether the CRCA constitutes a valid exercise of Congress's Fourteenth Amendment powers is: (1) whether there is a pattern of copyright infringement by the states; (2) whether adequate state remedies for copyright infringement exist; and (3) the coverage of the legislation." Order at page 5 (citing Chavez, 204 F.3d at 605). Based on its analysis of the CRCA as discussed in Chavez, the Fifth Circuit found that Congress had "failed to uncover a pattern of constitutional violations by states regarding infringement of the copyright act, failed to consider alternative methods of obtaining relief, and failed to limit the reach of the CRCA in any manner." Id. (citing Chavez, 204 F.3d at 605-608).

Following the path set forth in Chavez, the Marketing Court then embarked on an analysis similar to that of the Chavez court. It expressly embraced holding in Chavez, stating that "[t]his Court concurs with the Fifth Circuit's application of the analytical framework presented in Florida Prepaid to the CRCA." Order at page 6. Specifically, the Marketing Court considered whether the evidence and testimony that Congress studied prior to enacting the CRCA demonstrated a pattern of copyright infringement by the states. The Marketing Court concluded that the evidence Congress considered did not "demonstrate a pattern of unremedied copyright infringement by the states." Id. at page 6. At most, the Court said, the evidence demonstrated "sporadic violations, not widespread violations by the states.... Additionally, [the] Register of Copyrights, reported during his testimony that states are 'respectful of copyright law' and he believes they will remain so." Id.

Next, the Marketing Court considered whether Congress had adequately examined the adequacy of state remedies for copyright infringement prior to enacting the CRCA. Id. Again, it concluded that it had not, finding that Congress had only "minimally considered" the adequacy of such state remedies. Id. Finally, the Court considered whether the coverage of the CRCA was sufficiently narrow to address conduct that violates the due process clause of the Fourteenth Amendment. Order at page 5 - 6. Again, the Court responded in the negative. Id. In reaching this conclusion, the Court harkened back to the ruling in Florida Prepaid, 527 U.S. at 645, where the Supreme Court had held that provisions of the Patent Remedy Act which did not require any showing of intent to infringe were not sufficiently tailored to remedy unconstitutional behavior. "The discussion in Florida Prepaid teaches 'that a deprivation, to fit the meaning of the due process clause, must be intentional....'" Order at page 7 (quoting Chavez, 204 F.3d at 607).

Thus, the Marketing Court held that because copyright infringement does not require a showing of intent, Congress had "failed to limit the reach of the CRCA to infringement which violates the due process clause." Order at page 7. As such, the Court concluded that "the CRCA is not proportionate to ends legitimate under ' 5 of the Fourteenth Amendment." Id. Based on this, the Court ruled that "Defendant Board of Trustees and Robert A. Rauch, in his official capacity, are entitled to immunity." Id.

It is worth noting that the Marketing plaintiff tried to avoid the Seminole effect by relying on two cases in support of its position that the CRCA was indeed a valid a exercise of Congressional power: Unix System Laboratories, Inc. v. Berkeley Software Design, Inc., 832 F. Supp. 790 (D.N.J. 1993) and Lambert v. City of Kenner, 1993 WL 99188 (E.D. La. 1993). In both instances, the courts that heard those cases relied on the Supreme Court's holding in Pennsylvania v. Union Gas Co., 490 U.S. 1 (1989) in arriving at their decision. See Unix, 832 F. Supp at 798; Lambert, 1993 at WL 99188 at *3. What Marketing Information neglected to mention, however, was that Union Gas was overruled by Seminole Tribe, and thus no longer good law. Indeed, in Seminole, the Supreme Court expressly overruled Union Gas by noting that that case had "deviated sharply from [the Court's] established federalism jurisprudence." Seminole Tribe, 517 U.S. at 45.

Certainly the history and the timing of the CRCA demonstrates how -- and why -- the plaintiff's reliance on Union Gas was misplaced. As Professor David Nimmer details in Nimmer on Copyright Section 12.01, the Register of Copyrights had in fact suggested to Congress that it wait until the Supreme Court ruled on Union Gas before passing the CRCA, suggesting that if the Supreme Court validated Congress's authority to abrogate sovereign immunity in that case, Congress should amend the Copyright Act to permit states to be sued. When the Supreme Court handed down its ruling in Union Gas, Congress passed the CRCA the following year. See also H.R. Rep. No. 101-305, 101st Cong., 2d Sess. 8 (1990) ("The recent decision in ... Union Gas Co., affirmatively answered the question that Congress does have the power to abrogate when it legislates under the Commerce Clause. The same reasoning applies to the Copyright Clause that also grants Congress plenary power to enact Federal Legislation.").

Judge John A. Houston's ruling in Marketing that the CRCA does not survive constitutional scrutiny under the enforcement clause of the Fourteenth Amendment may gain some support from the proposition (although unstated in the Marketing ruling) that the Supreme Court would invalidate the CRCA if confronted with that issue today. The reason for this is three-fold.

First, the Supreme Court has already invalidated the efforts of Congress to subject the States to suit for patent and trademark infringement based on statutes nearly identical to the CRCA. See Florida Prepaid, supra, 527 U.S. 507 (1999); and College Savings Bank v. Florida Prepaid, supra, 527 U.S. 666 (1999). Second, the Supreme Court expressly intimated a ruling that the CRCA does not pass constitutional muster in Chavez, supra, 517 U.S. 1184 (1996). Specifically, in Chavez, the Supreme Court granted a petition for writ of certiorari to consider the Fifth Circuit's ruling in Chavez v. Arte Publico Press, 59 F.3d 539 (1995). That lower court case had held the CRCA to be valid exercise of Congressional power. The Supreme Court vacated that judgment and remanded Chavez for consideration in light of Seminole Tribe. The resulting opinion in Chavez v. Arte Publico Press found the CRCA to be unconstitutional.

Third, as discussed in the Marketing opinion, the CRCA does not comply with the analytical framework as set forth in City of Boerne v. Flores, 521 U.S. 507 (1997). In Boerne, the Supreme Court held that Congress acts validly pursuant to Section 5 of the Fourteenth Amendment only when it crafts legislation to enforce its provisions. Id. at 519. Further, the Court said that the means Congress chooses to enforce Section 5 must be congruent and proportional to the injury to be remedied. Id. at 520. As Judge Houston noted in Marketing, the CRCA does not comply with Boerne because there is scant evidence of a pervasive pattern of copyright infringement by the States, and because Congress apparently disregarded the available alternative state remedies for would-be plaintiffs. Therefore, because Congress identified no pervasive pattern of infringement by the states, and because other adequate remedies exist to address such infringement, the Supreme Court would likely find that the CRCA was not "proportionate and congruent," and thus does not pass muster.

Based on this, the current trend (and certainly the state of the law in the Southern District of California and in the Fifth Circuit) is that a plaintiff cannot prevail in a copyright infringement claim brought against a State or State-actor when the latter is acting in his or her official capacity. See also Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 101 (1984) ("the Eleventh Amendment bars a suit against state officials when the state is the real, substantial party interest"); D'Angelo v. Crofts, 162 Fed. Appx. 728,729 (9th Cir. 2006) (the "Eleventh Amendment prevents recovery against the state or against state officers in their official capacity for retroactive money damages").

The defendants in Marketing Information Masters were represented by Jonathan Pink, a partner in the Orange County, California office of Lewis Brisbois Brisbois Bisgaard and Smith, LLP. Lewis Brisbois is a national law firm with more than 600 lawyers and thirteen offices across the nation. Mr. Pink is Vice Chair of the firm's Intellectual Property Group. He may be contacted at

Thursday, January 24, 2008

Who Wants to be an IP Attorney?

So, I’m in my office yesterday when the telephone rings. A frantic voice on the other end is desperate to find out how she can patent the copyright in her trademark.

I hang up on her.

Now, while I realize that a client’s inability to draw fine distinctions between sometimes overlapping areas of intellectual property law is not quite as bad as right wing nuts wearing patriotic lapel pins, I was nonetheless irked by such blissful ignorance.

O.K., so maybe I drink too much coffee and don’t get enough sleep. And maybe I should save my hostility for infuriatingly slow motorists driving cars way more expensive than mine. Or maybe – just maybe – it is my duty to educate the masses.

Let’s go with the latter. And just to make this fun, let’s pretend we’re on a television game show called "Who Wants To Be An IP Attorney?" Ready? (Que: music.) Begin!

Question No. 1:

What is a trademark?

A. A specific form of copyright protection that applies only to patents.

B. A word, symbol or devise intended to prevent consumer confusion with regard to the origin of goods or services sold.

C. This thing that’s growing on the side of my neck which looks oddly like Elvis Presley and may be worth something on Ebay.

The answer is B. Trademarks are intended to prevent mistake, deception and consumer confusion with regards to the origin of goods sold. See Time, Inc. v. Motor Publications, Inc., (4th Cir. (M.D.), Dec 15, 1955) 227 F.2d 954, 108 U.S.P.Q. 4. Before any infringement can be found, the plaintiff must typically establish that there is a likelihood of consumer confusion as to the product's source - or origin - due to a similarity between the parties' trademarks. E & J. Gallow Winery v. Gallo Cattle Co. (9th Cir. 1993) 967 F.2d 1280, 1290; see also 15 U.S.C. §§ 1114(a)(a), 1125(a)(1). This usually requires an application of a multi-factor test that looks at the strength of the plaintiff's mark, the similarity of the marks at issue, the area of commerce in which the products at issue are sold, the sophistication of the potential buyers, evidence of actual confusion, and the likelihood that the defendant intends to expand into the plaintiff's market. AMF Inc. v. Sleekcraft Boats, (9th Cir. 1979) 599 F.2d 341, 348-349.

Give yourself one point if you got the correct answer. Give yourself two points if you shouted out "DING, DING, DING!" when you got it right. If you chose answer C, put down this article and log onto to Ebay immediately.

Question No. 2:

True or false, trademark infringement occurs any time someone swipes your mark for use on their product or service.

A. Ooh ooh, a "true or false" question. I just love these! It’s the only time I have a 50/50 shot at being right about anything. I knew it was worth wasting time on this article. Ok, here goes: I’m going with true!

B. Oh, I hate these questions. Look at this, a 50% change of being wrong . . . again! Alright, fine, I’m going with false.

C. Wait a minute, before I answer, let me ask you this: If it’s called "pattern baldness" why doesn’t it come in paisley, check or gingham?

The answer is.... B! Trademark infringement requires the commercial use of the same or similar mark by another with respect to goods or services that is likely to cause confusion with respect to the actual or potential customers of the trademark owner’s goods or services. 15 U.S.C. § 1125
(a). The focus here is on the confusion of actual or potential customers, and not on whether the holders of competing marks are in fact competitors. Id.; see also Charles E. McKenney, Federal Unfair Competition: Lanham Act § 43(a), 2.04 (1993). An infringers product or service need only be sufficiently related to the trademark owner’s goods or services so that it is reasonably likely that both goods/services are sold or advertised to common costumers. AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979).

Just remember, a "likelihood of consumer confusion" is the hallmark of trademark infringement. This means, just because I have a company named "BigGass" that sells legume-based confectionary products ("designed to fill your tank"), and you have a company named "BigGass" that sells petroleum-based pantaloons to the super-sized crowd, there will be no finding of infringement unless there is a likelihood that a consumers would mistakenly believe that my candy company is the source of your haute couture. This is because trademarks are obtained for distinct classes of goods and services. United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90 (1918); see also 15 U.S.C. § 1052(d). Using this same example, clothes for fat people are not in the same class of goods as are candy bars. Although, wouldn’t it be ironic if they were?

One point if you got the answer right. Two points if you ran down the hall screaming "DING, DING, DING!" Three points if you’ll do it now.

Question No. 3:

What’s with that ®?

A. It means you’re claiming a trademark. Isn’t that what this insipid article is all about?

B. It’s stands for "Robin." Those IP folk are such Batman fans.

C. It means that the trademark holder has obtained a federal registration in the mark.

The answer is C. Only those who have obtained a federal registration in their mark are entitled to use the ®. See Copelands’ Enterprises Inc. v. CNV, Inc., 945 F2d 1563 (Fed. Cir. 1991). Those who have not obtained a federal registration may claim a common law trademark, but are relegated to the ™ symbol. What’s the difference? Trademarks are geographic in nature. This means that if I use my BigGass mark exclusively in California, and do not obtain a federal registration in it, you can come along and use that same mark in the same class of goods or services for geographic regions where I am not using it. Like New York, Illinois, Arizona, Washington. Conversely, by obtaining a federal registration in my mark, I acquire a nationwide constructed usage of it. 15 U.S.C. § 1072. This means that even though I don’t sell in New York, Illinois, Arizona and Washington, I have the same rights there as if I did, and those rights date all the way back to the filing of my trademark application. Id.; Allard Enterprises, Inc. v. Advanced Programming Resources, Inc., 249 F3d 564 (6th Cir. 2001). Technically speaking, this means that I have a basis for asserting trademark infringement against subsequent users of the mark in my class.

Moreover, a federal registration is prima facie evidence of ownership. But use of the ® without a federal registration will defeat the applicant’s right to registration where "it is conclusively established that the misuse of the symbol was occasioned by an intent to deceive the purchasing public or others in the trade into believing that the mark was registered." Copeland’s Enterprises, Inc. v. CNV, Inc. 945 App.2d 1563, 1566, (Fed.Cir. 1991). The last thing you want is to have a mark invalidated by a competitor because you jumped the gun and used ® prior to actually obtaining a federal registration.

If you got that answer right, give yourself a point. If you are willing to phone up your managing partner and scream "DING, DING, DING!" . . . it’s time to look for another job.

Question No. 4:

What is a "primary user" and a "secondary user?"

A. Drug talk.

B. The co-dependent relationship I had in college.

C. Given that this is a trademark article, I’m going to bet that it has something to do with trademarks.

The answer is A. Just kidding!! The answer is C. Primary mark holders are the first users of the trademark in any geographic location. Secondary users are ... well, just as the name implies. Now you might think that a secondary mark user is automatically an infringer. Not so. Let’s go back to my common law trademark in "BigGass." Sure, I’ve been selling my candy under that mark since the early ‘80's, and you just entered the market with your own confusingly similar mark. While you are undisputedly the secondary user, you are still free to use the mark in those geographic regions where I have yet to venture. In that instance, you become the primary mark user in those locations, relegating me the secondary user (if I ever attempt to go there). Absent various exceptions, caveats and loop holes that we lawyers specialize in, the secondary user who uses the mark in the primary user’s geographic location will be subject to a trademark infringement suit. This is so even if the secondary user obtained a federal registration in the mark after the primary user began using it but before going into that territory. See National Association for Healthcare Communications, Inc. v. Central Arkansas Area Agency on Aging, Inc., 257 F3d. 732 (8th Cir. 2001).

If you got this answer wrong, take away all your points.

Question No. 5:

How long will my trademark last?

A. The life of the author plus 70 years.

B. Possibly forever.

C. The Rule Against Perpetuities.

The answer is B. Provided you comply with certain minimal renewal requirements, a trademark lasts as long as it is in continuous use. See 15 U.S.C. §§ 1127, 1058, 1065. Continuous use simply means that there has been no intent to abandon the mark, and the mark has not been out of use for three or more years. A failure to use the mark for three or more years constitutes prima facie evidence of abandonment, even without any intent to do so. 15 U.S.C. § 1127.

Give yourself a point regardless of your answer. I’m feeling benevolent, and my twelfth cup of coffee is just starting to kick in.

Question No. 6:

Which of the following is not a trademark?

A. The roar of the MGM lion.

B. The phrase "Just Do It."

C. Kleenex.

The answer is ... all three are trademarks, although it is questionable as to how much longer Kleenex can hold onto that right. (Stop complaining. I just gave you a free point.) In addition to abandonment, trademark protection may be lost where the mark becomes generic. In a way, this is penalty for becoming too popular. Kleenex provides a perfect example, as does Xerox. How many times have you asked someone to make you a Xerox, or for a Kleenex? Both marks have become colloquial for the products they represent: a Kleenex is a soft facial tissue, and a Xerox is a photocopy. Once a mark becomes so widely associated with the generic product itself that people start referring to all products of that type by the mark (i.e. photocopies as Xerox’s and facial tissues as Kleenex), the mark runs the risk of losing out to the common lexicon. See In re Dial-A-Mattress Operating Corp., 240 F.3d 1341 (Fed. Cir. 2001).

This is because the level of protection a mark provides – and its concomitant ability to serve as a mark at all – depends on where it falls on a continuum that ranges from "descriptive" to "suggestive" to "fanciful and arbitrary."

What’s a descriptive mark? A name that describes the goods or service, such as "Tom the Plumber." Japan Telecom, Inc. v. Japan Telecom America, Inc., 287 F.3d 866 (9th Cir. 2002). A suggestive mark leaves a little more to the imagination, e.g. "Fastpress" for basketball shoes. Id.

On the far end of the spectrum is fanciful and arbitrary marks. Think Kodak. What does that mean, "Kodak"? Well, nothing. It is merely a word that good Mr. Eastman created many years ago by taking the word Kodiak – as in the bear – and eliminating a letter to create the name of his new company. The more arbitrary and fanciful the mark, the stronger it is. The more the descriptive the mark, the weaker it becomes. Ironically, both Kleenex and Xerox started out fanciful, but because of their popularity have gone nearly to the other end of the spectrum. Who says popularity doesn’t have its price?

Give yourself a point if you can explain this: Why, if breakfast is the most important meal of the day, doesn’t it come with dessert? Give yourself two points if you’re in the dark about this like the rest of us.

Question No. 7:

What is the initial interest confusion doctrine?

A. It is how I feel after having read this article.

B. It relates to confusion the Patent and Trademark Office must feel when reviewing zillions of trademark applications from people with companies called BigGass.

C. It is a little known judicially created hangnail that exists under the trademark law.

The answer is C. The initial interest confusion doctrine looks at whether the defendant’s use of the plaintiff’s mark was done "in a manner calculated to capture initial consumer attention even though no actual sale is finely completed as a result of the confusion." Dr. Seuss Entrs. v. Penguin Books (9th Cir. 1997) 109 F.3d 1394, 1405; Brookfield Communications, Inc. v. West Cost Entertainment Corp. (9th Cir. 1999) 174 F.3d 1036, 1061-66; See generally 15 U.S.C. §§ 1114, 1125.

Some people have criticized the initial interest confusion approach as a departure form the core principal of trademark law because if allows a finding of infringement where there is only a fleeting confusion that is dispelled before any purchase occurs. Others have observed that, because it relies on an amorphous standard that falls far short of a reasoned analysis, it has the potential of being used as a potent weapon for keeping legitimate competitors out of the market. For example, the doctrine has been used to curtail parodies, (See Dr. Seuss, supra.) criticism about the trademark owners, (OBH, Inc. v. Spotlight Magazine, Inc. (W.D.N. 4 2000) 86 F.Supp.2d 176; J.K. Harris & Co. v. Kassell (N.D. Cal. 2002) 2002 WL 1303124, rev'd (N.D. Cal.2003) 253 F.Supp.2d 1120)), directory information about used equipment dealers, (Caterpillar Inc. v. Telescan Techs, LLC ((C.D. Ill. 2002) 2000 U.S. Dist Lexis 3477; PACCAR Inc. v. Telescan Techs, LLC (6th Cir. 2003) 319 F.3d 246), and promotions by third party vendors of after-market servicing. See Promatek Indus. Ltd. v. Equitrac Corp. (7th Cir. 2002) 300 F.3d 808.

The basis upon which many courts have applied the initial interest confusion doctrine probably is better categorized as "unfair competition." See Section 43 (a) of the Lanham Act (which permits an injured party to bring a federal unfair competition claim). In a nutshell, Section 43 (a) is designed to promote fairness and honesty in business dealings by prohibiting, among other things, the use of any false or misleading description of fact, designation of origin, or misrepresentation as to characteristic, quality, affiliation, association, or geographic origin. Id.

Examples of unfair competition include confusingly similar corporate, business and professional names, and the use of confusingly similar titles of literary works. It also includes "bate and switch" selling tactics.

Give yourself a point if you got the answer right. Give yourself two points if you will mercilessly lobby the 9th circuit to get rid of the initial interest confusion doctrine.

Question No. 8:

OK, I’ve listened to your rant, so tell me: Why can’t I patent the copyright in my trademark?

A. Because it would be too damn expensive.

B. Because every IP attorney I call hangs up on me.

C. Because patents, copyrights and trademarks are three different legal rights.

The answer is C, although just to add to your confusion, these distinct rights sometimes overlap.

A trademark, as we saw above, includes any word, name, symbol, device, or any combination thereof, used or intended to be used in commerce to identify and distinguish the goods of one manufacturer or seller from the goods manufactured or sold by others, or to otherwise identify the source of the goods. 15 U.S.C. §§ 1114, 1125. A copyright is a legal protection afforded to literary, artistic, musical and architectural works exhibiting a modicum of originality that are fixed in any tangible medium. 17 U.S.C. § 102(a). Patents come in several different forms, including design, utility and mechanical. Generally, the subject of a patent application must be sufficiently original, non-obvious and useful. See 35 U.S.C. § 100 et. seq. A patent affords the holder the right to exclude others from making, using, offering for sell, selling or importing into the United States the patented invention. Id. So don’t even try to copyright it.

Give yourself 10 points for reading this dribble. Give yourself another 10 points if you understood any of it. Give yourself 10 points if you are willing to hang up on the next client who calls with a silly question. Tally up your points, contestants. Game’s over.

Jonathan Pink is a partner at Lewis Brisbois Bisgaard & Smith, LPP. He heads the Intellectual Property and Technology Group in the Orange County office of that firm. He may be reached at

Considering a Recovery of Attorneys’ Fees

When Considering a Recovery of Attorneys’ Fees, The Contract Language Tells All
By Jonathan Pink

Your So Called Life

Your client has been sued for more money than you’ll earn in thirty years of practice. After you recover from your depression over this simple fact, you pour three years of your life into defending the case-from-hell. You work hard. You rack up enough fees to support a small African village for decades.

Two weeks worth of a jury trial, and it’s over. The good news is . . . you won!

Now for the tough part. Your client was sued for breach of contract (and a slew of semi-related torts: fraud, intentional interference, unfair business practices, take your pick), and the contract had an attorneys' fees clause.

As the victor, you seek a recovery of your fees. Will you get them?

The Legal Framework

A. California Civil Code § 1717 – The Basics

California Civil Code § 1717 provides that the prevailing party in an action on a contract may recover its attorneys' fees. Subdivision (a) provides: “In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded ... to the prevailing party, then the party who is determined to be the party prevailing on the contract ... shall be entitled to reasonable attorney's fees in addition to other costs.”

Thus, when one party obtains a simple, unqualified victory by completely prevailing on or defeating all contract claims, and the contract contains a provision for attorney fees, the successful party is entitled to recover reasonable attorney fees incurred in prosecution or defense of those claims. Jackson v. Homeowners Association Monte Vista Estates-East (2001) 93 Cal.App.4th 773, 789. Where neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party – if either – “prevailed on the contract.” Scott Co. of California v. Blount, Inc., 20 Cal.4th 1103, 1109 (1999) (rehearing denied, 107 Cal.App.4th 197)

In your case, the court finds that your client was the “prevailing party” on the contract, and the contract contained an attorneys fees clause which provides that the “prevailing party” in any action “to enforce any rights arising out of or relating to this Agreement shall be entitled to recover its reasonable attorney’s fees.”


Your client is entitled to recover its attorneys’ fees on the breach of contract claim pursuant to Cal. Civ. Code § 1717.

Now, not to be greedy, but your client spent hundreds of thousands of dollars defending against the other, non-contract claims. And neither you nor your client wants to leave that money on table. So can you get it?

That depends on just how perspicacious the author of the agreement was when drafting it. You see, attorneys’ fees provisions are not all created equally. This is a point to remember when seeking a recovery under a fees clause – and the next time you’re drafting one.

B. Going for Gold -- Beyond Section 1717

1. “Arising out of . . .”

An attorneys’ fees provision that is applicable to “any dispute under the agreement,” may be sufficiently broad to permit a recovery of fees associated with the defense of claims for, among other things, fraud and breach of fiduciary duty. See, Gil v. Mansano, 121 Cal.App.4th 739, 743 (2004).

In Gil, two individuals purchased a third individual's share of a business venture. In connection with this transaction, all three entered into a written purchase agreement and a separate written release. Id. at 741. The release included an attorneys' fee provision which stated: “In the event action is brought to enforce the terms of this [Release], the prevailing party shall be paid his reasonable attorney [ ] fees and costs incurred therein.” Id. at 742. When the deal went sour, plaintiff sued one defendant for the tort of fraud. Id. The trial court entered summary judgment in favor of the defendant, and awarded him attorney fees pursuant to the fee provision in the release. Id.

On appeal, the court held that the fee provision at issue was too narrow to permit a recovery for fees incurred when defending against the tort of fraud. It held that the fees provision did not encompass the tort claim as it expressly applied only to actions “brought to enforce the terms” of the contract. Id. at 742. The court reasoned that “[i]n this case, the attorney fee provision in the release is very narrowly drawn. It required action brought to enforce the terms of the release. Plaintiff did not bring an action on the release; he sued in tort for fraud.” Id. at 745. However, the court noted that a broader fees provision might have allowed such a recovery, such as if it “had been made applicable to any action . . . involving the release” instead of “only where action was brought to enforce the release.” Id.

Unlike the fee provision in Gil which limited a recovery to an action brought to “enforce the terms of” the provision in your case contains the “arising out of or relating to” language that is given extremely broad interpretation under California law. See, e.g. Santisas v. Goodin, 17 Cal.4th 599, 607-8 (attorney fee clause for all claims “arising out of the execution of th[e] agreement or the sale” was broad enough to embrace both tort and breach of contract claims).

In Santisas , the defendants sought an award of fees pursuant to a fee provision in a real estate purchase agreement. That agreement provided: “‘In the event legal action is instituted by . . . any party to this agreement, or arising out of the execution of this agreement . . . the prevailing party shall be entitled to receive from the other party a reasonable attorney fee to be determined by the court. . . .’” Santisas v. Goodin, supra, 17 Cal.4th at p. 607 (emphasis added). The court held that this language “embraces all claims, both tort and breach of contract, in plaintiffs' complaint, because all are claims ‘arising out of the execution of th[e] agreement or the sale.” Id. at p. 608 (citing to Lerner v. Ward, 13 Cal.App.4th 155,160-61 (1993); emphasis added). The court reasoned that “[i]f a contractual attorney fee provision is phrased broadly enough, as this one is , it may support an award of attorney fees to the prevailing party in an action alleging both contract and tort claims” Id. (citing to Xuereb v. Marcus & Millichap, Inc., 3 Cal.App.4th 1338, 1341 (1992)).

Xuereb v. Marcus & Millichap, supra , also involved an agreement that provided for the recovery of fees if “this Agreement gives rise to a lawsuit or other legal proceeding . . . .” 3 Cal.App.4th at.1340. The Court of Appeal held that the “gives rise to” language “must be interpreted expansively, to encompass acts and omissions occurring in connection with the [agreement] and the entire transaction of which it was the written memorandum.” Id. at 1344. The court reasoned that defendants were entitled to recover fees incurred defending both contract and tort claims because those causes of action “must be said to have arisen from the [agreement] . . . they arose from the underlying transactional relationship between the parties.” Id. (citations omitted.)

In Lerner v. Ward, supra, the parties’ agreement provided that attorney fees were recoverable by “the prevailing party ‘[i]n any action or proceeding arising out of this agreement. . . . ’” Lerner, supra, 13 Cal.App.4th at 158-159. The prevailing defendants urged the court to construe the phrase “arising out of this agreement” broadly, thus permitting a recovery of fees incurred defending against plaintiff’s contract and tort claims. Id. at 160. Relying on Xuereb, the court agreed, holding that the “arising out of” language was entitled to broad interpretation. It ruled that the fees provision “was not limited merely to an action on the contract, but to any action or proceeding arising out of the agreement.” Id. As in Xuereb, the court reasoned that the “tort cause of action arose out of the written agreement.”

The “arising out of” language in your client’s agreement is nearly identical to the expansive language at issue in Santisas, Xuereb, and Lerner. Given this, you are cautiously optimistic that the same result should apply to your client, provided the non-contractual fees you seek can all be traced to your client’s alleged breach of contract.

Oh please, what are the chances of that?

OK, just to keep your blood pressure down, let’s assume that the president of the plaintiff corporation in your case has said in a sworn declaration that “[t]he duties and obligations contained in the Agreement, and the breach thereof, represent the essential events which give rise to the claims raised in this action.” Does that help? Yes, but it’s not the last word.

2. “Or Relating to . . .”

You are truly blessed. The drafter of the agreement in your case included the words “or relating to.” (SFX: Chorus of angles singing.) These three words, beautiful and simple, are almost as good as “Make my day.”

Blacks Law Dictionary defines the term “related” as "Standing in relation; connected; allied; akin." Blacks Law Dictionary 1288 (6th ed.1990).

A clause that includes “relating to” is broader than one that covers only claims “arising out” of a contract. See Mediterranean Enter., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir.1983) (arbitration clauses using the phrase “arising out of or relating to” are intended to cover a much broader scope than clauses containing only the “arising out of” language) (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 398, 87 S.Ct. 1801, 18 L.Ed. 1270 (1967) (noting that “arising out of or relating to this agreement” had been labeled a “broad arbitration clause”)).

In Mediterranean, the parties entered into a written agreement to form a joint venture. The agreement contained an arbitration clause which provided: “Any disputes arising hereunder . . . shall be settled through binding arbitration . . . .” 708 F.2d at 1461. After the relationship soured, plaintiff filed suit alleging breach of contract and various torts claims, and moved to compel arbitration. The defendant opposed, arguing that the “arising hereunder” language was not designed to cover arbitration of any dispute between parties, but rather only those relating to interpretation and performance of contract itself. Id. at 1463.

The appellate court agreed, finding that “when an arbitration clause ‘refers to disputes or controversies ‘under’ or ‘arising out of’ the contract,’ [the] arbitration is restricted to ‘disputes and controversies relating to the interpretation of the contract and matters of performance.’” Id. at 1464 (citing In re Kinoshita & Co., 287 F.2d 951, 953 (2d Cir.1961)). Relying on Kinoshita, the court held that “the phrase ‘arising under’ is narrower in scope than the phrase ‘arising out of or relating to.’” Id. The court reasoned that there is a “significant” difference between broad arbitration clauses, which direct to arbitration disputes “arising out of or relating to [an] agreement,” and clauses limited to disputes or controversies “under” or “arising out of” the contract. Id. at 1464. The court found that the latter type of clause “is intended to cover a much narrower scope of disputes.” Id.

You’re into the home stretch. Here, your attorneys fees clause provides for a recovery of fees “arising out of or relating to” the contract on which you kicked butt. As in Mediterranean, this clause is much broader than one containing only the “arising out of” language. Even if the “arising out of” language was not expansive enough, the “arising out of or relating to ” language covers fees incurred defending against plaintiff’s tort and contract claims.

Thus, your fees provision, with its extremely broad “relating to” language permits your to recover fees incurred defending against all the claims asserted by plaintiff that are “connected; allied; akin” or stand in some relation to the contract.

Not bad. Thanks to the thoughtful drafting of the attorney who prepared the contract long, long ago in an office far, far away, you – and your client – now really have something to celebrate.

Closing Up For the Night

The take-away from all of this is that a broadly phrased contractual attorneys fees provision can support an award to the prevailing party in a tort action.

The court will interpret the intent and scope of the agreement by focusing on the usual and ordinary meaning of the language used. See Civ. Code, § 1644; see also Lloyd's Underwriters v. Craig & Rush, Inc., 26 Cal.App.4th 1194, 1197-1198 (1994). In other words, clearly state everything you intend to cover in the fees provision. Just because the fees provision says “arising out of” does not mean it also covers matters “relating to” the agreement, unless you say so.

If your intent is to permit a recovery of fees incurred in the entire lawsuit, make the fees provision broad enough to support such a recovery. Now that’s winning.

Jonathan Pink is co-Vice Chair of the Intellectual Property Group at Lewis Brisbois Bisgaard & Smith, LLP. He is resident in the firm’s Orange County office and can be reached at or 714-668-5589

Making the Best of a Best Efforts Clause

Divining the Meaning of "Best Efforts"

By Jonathan Pink

A "best efforts" clause must be one of the most misunderstood provisions to consistently worm its way into an agreement. To put such a claim to the empirical test, take a moment to define for yourself what is required by a party who promises to use best efforts to fulfill a contract obligation.

OK, have you given it your best effort?

A common assumption is that "best efforts" means exercising the highest level of duty required. In some cases, this isn't far off. For example, when the best efforts obligation is coupled with an exclusive agreement, the level of diligence is akin to a fiduciary obligation. (See Daniel J. Coplan, When Is "Best Efforts" Really "Best Efforts": An Analysis of the Obligation to Exploit in Entertainment Licensing Agreements, an Overview of How the Term "Best Efforts" Has Been Construed in Litigation, 31 Sw. U. L. Rev. 725 (2002).)

As you already know, a fiduciary obligation is the highest duty found in the law, comparable to what an attorney owes a client or a doctor owes a patient. (See Stanley v. Richmond, 35 Cal. App. 4th 1070 (1995).)

But what happens when a contract is not exclusive?

Consider this example: The year is 1992. Aside from being a really bad year in music, this is the year then-Federal Reserve Board Chairman Alan Greenspan testifies that the economy should pick up "within weeks." IBM introduces a digital tape–based computer data-storage business to handle vast storehouses of corporate information. And predictions of a reelection victory for the first President Bush are evaporating as unemployment rises.

With personal computers in their relative infancy, you enter into a services agreement to distribute software designed to allow companies to print their own checks and invoices with the push of a button—or maybe two. Your agreement with the software manufacturer does not contain an exclusivity requirement, but it does require you to use your "best efforts" to market and promote the manufacturer's software within a defined territory.

You sell the software for several years before advances in technology make the product less desirable. Customers demand the ability to email information and make their own revisions to the preprogrammed data contained on the software. And your competitors are offering products with these very features.

At this point, you beg the manufacturer to create a product with these add-ons, but to no avail. The manufacturer simply claims customers don't need those features, and maintains that it's your job to educate them about this.

In truth, the customers don't want educating. They want email. If your product doesn't contain it, they will buy from someone else. You don't want to violate the best efforts provision, but you also don't want to go out of business. You could use the software to print a bunch of checks to you from the manufacturer and then retire to the Bahamas. But that's another hypothetical.

Instead, you decide to split the difference: offering a competitor's product while continuing to promote the manufacturer's product to customers who will buy it. Unfortunately, as sales of the manufacturer's product plummet, the manufacturer decides to sue you. According to the manufacturer, you could not have used your best efforts if you were also selling a product made by its competitor.


Whether you are in actual legal breach of your agreement depends on what is required of a party who promises to use its best efforts. Your answer might be: doing everything in your power to achieve the contract's objective.

Statutory requirements. Though your interpretation may sound reasonable, it is also true that every contract already contains an implied covenant of good faith and fair dealing. (See RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981): "Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement.") If best efforts means nothing more than this, why include the clause at all? Such obtuse redundancy does nothing to increase the contract's clarity.

Moreover, the presence of a best efforts clause can't convert a nonexclusive agreement into an exclusive one. Statutory controls also require that the court interpret the best efforts clause consistently with the general intent of the agreement. Thus, to avoid any repugnancy, one may not insert an exclusivity obligation into a best efforts clause if doing so would render repugnant the nonexclusive nature of the agreement. (See Cal. Civ. Code § 1652: "Repugnancy in a contract must be reconciled, if possible, by such an interpretation as will give some effect to the repugnant clauses, subordinate to the general intent and purpose of the whole contract.")

Contractual language.

The next lawyerly instinct you might have is to look at the letter of the agreement to discern exactly what you are required to do under the best efforts clause. Unfortunately for you, all it says is that you are required to use your best efforts to market and promote what is now an outdated product. It gives no indication about how those efforts will be measured. (Hey, you want "easy," then read People.)

Case law.

Grasping at straws, you look at the case law. (People is looking more attractive by the second.) This doesn't help much. Surfing through the dusty tomes now memorialized on the Internet, you find that the law discussing the level of diligence required by a party who promised to use its best efforts is almost as unsettled as you feel right about now.

Some courts have defined best efforts by comparing it to other recognized diligence standards. For example, in National Data Payment Systems, Inc. v. Meridian Bank, the court held: "The duty of best efforts 'has diligence as its essence' and is 'more exacting' than the usual contractual duty of good faith." (212 F.3d 849 at 854 (2000).)

And United Telecommunications, Inc. v. American Television & Communications Corp. (536 F.2d 1310 (1976)) held that, as between commercial parties, a best efforts clause is intended to impose a duty beyond a good faith, duly diligent performance of the contract. Hardly the clear-cut rule of law that tells you whether you are in breach of your agreement. (It would be a lot easier to become a celebrity and read about yourself in People.)

Nearing desperation in your research efforts, you reach out to find the unpublished decision of Krinsky v. Long Beach Wings (2002 Cal. App. Unpub. LEXIS 9026) and digest its ruling. In construing best efforts, the court in that case observed that "the plain meaning of the term denotes efforts more than usual or even merely reasonable."

Code provisions.

Throwing the case holdings aside, you read the Uniform Commercial Code. It requires "best efforts" by a seller in an agreement for exclusive dealing unless "otherwise agreed," and defines the elusive term no more precisely than a "more rigorous standard than 'good faith.' " (2 CORBIN ON CONTRACTS (REV. ED. 1995) § 6.5, p. 246 (discussing U.C.C. § 2-306, subdivision (2).)

Think these legal kingpins took a pass? Consider this: At least one court has held that determining whether a party has made sufficient efforts under a best efforts clause necessarily depends on "the factual circumstances" surrounding the agreement. (Martin v. Monumental Life Ins. Co., 240 F.3d 223 at 233 (2001).)

I don't know about you, but this tells me nothing. This court spent hours reviewing briefs and researching case law only to conclude that it couldn't define the term, but it knows it when it sees it.

At least when it considered the issue earlier, the court in Triple-A Baseball Club Associates v. Northwestern Baseball, Inc. came clean and held that best efforts "cannot be defined in terms of a fixed formula; it varies with the facts and the field of law involved." (832 F.2d 214 at 225 (1987).) Still, this translates to little more than "it depends."

Some courts have looked retrospectively and compared the efforts exerted in past dealings—when the efforts were not questioned—with the purportedly inadequate efforts giving rise to the current claim for breach of the best efforts obligation. (See Olympia Hotels Corp. v. Johnson Wax Dev. Corp., 908 F.2d 1363, 1373 (1990).) That does provide something of a measuring stick. But what do you do when the circumstances have changed? In the example about entering the software- distribution agreement with the manufacturer, recall that you sold the product pre-isoquantic shift—before email, before Google, and before YouTube. Is it really fair to compare your sales in that era to sales in a whole new world, when customers are demanding features that did not even exist when you entered into the agreement?

To put the issue in stark contrast, imagine that you entered the agreement in 1962, and that it required you to sell rotary phones. If the year is now 2008 and everyone but a few Luddites down the street have cell phones, can you really be faulted for throwing up your hands and offering those too—especially if they're the hands-free models?

This injection of reality highlights another benchmark courts have considered. The "standard industry practice" has served as a gauge for determining whether efforts are sufficiently "best" to defeat a claim for breach. (See Zilg v. Prentice-Hall, 717 F.2d 671, 681 (1983), cert denied, 466 U.S. 938 (1983), finding that the defendant's efforts were "perfectly adequate," although the defendant did not follow through as well as he might have.) But this assumes that industry standards can be identified.


Before you chuck this article altogether and pick up one that gives you some information that's really useful—Is Brad leaving Angelina and getting back together with Jen? Is Angelina dumping Brad and getting together with Jen?—here's the point: Because of the uncertainty surrounding the legal effect of a best efforts promise, the best approach appears to be treating these clauses as unenforceable if they lack any objectively measurable standards. (See Pinnacle Books, Inc. v. Harlequin Enter. Ltd., 519 F. Supp. 118, 12122 (1981): absent an objective criteria by which to measure performance, "best efforts" clauses are so vague as to be unenforceable; Jillcy Film Enter., Inc. v. Home Box Office, Inc., 593 F. Supp. 515, 520–21 (1984) (accord).)

In Pinnacle Books, an author granted his publisher an option to renew the parties' contract for a series of books. The agreement provided, however, that if after extending their best efforts, the parties were unable to reach an agreement, the author would be free to offer his rights in these books to any other publisher. The court held that this best efforts clause was unenforceable because its terms were too vague.

Specifically, it held: " 'Best efforts' or similar clauses, like any other contractual agreement, must set forth in definite and certain terms every material element of the contemplated bargain." And also: "Essential to the enforcement of a 'best efforts' clause is a clear set of guidelines against which the parties' 'best efforts' may be measured." (519 F. Supp. at 121.)

Furthering this end, the court noted: "Unless the parties delineate in the contract objective standards by which their efforts are to be measured, the very nature of contract negotiations renders it impossible to determine whether the parties have used their 'best' efforts. ... Thus, absent express standards, a court cannot decide that one party's offer does not constitute its best efforts; nor can it say that the other party's refusal to accept certain terms does not constitute its best efforts." (519 F. Supp. at 122.)

This isn't hard: All it means is that if the parties are intent on including a best efforts clause, they must clearly define for themselves within the body of the agreement precisely what this means and how it will be measured. They need to set guidelines a court can use to determine what was required by the promisor and whether those requirements were met.

In the case of your agreement to sell software, for example, the contract might have included a requirement that you offer those products, explain their features, and wait for the customer to expressly ask for another product before you offer one. It might require that you offer the manufacturer's product to 100 prospective customers per month, or at least to as many as you offer any competitive product. As long as the agreement contains some objective standards, it would allow for a clear determination of breach.

But without any measurable standards, the parties and the trier of fact are left to wonder what was meant by the term best efforts. Standing alone, its meaning is nebulous and its enforceability tenuous. This is risky business: It subjects one party to a claim for breach for having failed to perform to a level it never intended—and would never have agreed to—and subjects the other party to losing the benefit of a promise for which it thought it had bargained.

When it comes to contractual provisions, no one benefits by being left to guess at what was meant by the words on the page. A best efforts clause must expressly state what is meant by this term—and most important, how to measure compliance.

Building such clarity into a contract requires the use of your prefrontal cortex. You must carefully consider how the contract language will play out in real life and whether it is sufficiently clear to allow a third party to decipher precisely what is required. Does the contract set forth milestones or benchmarks by which compliance with the best efforts provision will be measured? Does it take into account potential future changes in the marketplace or in technology that may not be foreseen at the time of contracting?

Your agreement may also benefit from a provision that allows for a periodic reassessment of how best efforts is defined and measured, especially if it relates to software or advanced technology. A clearly understandable and objectively measurable best efforts clause will likely make any litigation that ensues less cumbersome—and thus less expensive. It might even keep the parties out of court, which will save them a bundle.

Now, if you have understood all of this, you're -ready to tackle People or even the Weekly World News. Oh wait, that closed down. Gee, don't you wonder whether the publisher really used its best efforts to keep it going?

Jonathan Pink is co-vice chair of the Intellectual Property Group at Lewis Brisbois Bisgaard & Smith, and is located in the firm's Orange County office.