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 pink@lbbslaw.com
Thursday, January 24, 2008
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.”
Ka-ching!
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 pink@lbbslaw.com or 714-668-5589
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.”
Ka-ching!
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 pink@lbbslaw.com 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.
INTERPRETING "BEST EFFORTS"
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.
PRACTICAL POINTERS
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.
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.
INTERPRETING "BEST EFFORTS"
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.
PRACTICAL POINTERS
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.
Flooding the Engine
Flooding the Engine: Where Search Engine Optimization Crosses the Line Into Illegality
by Jonathan Pink
Building a successful business has never been more complicated. Customers must be able to locate you using any major internet search engine. Because 90 percent of search users never go beyond the second page of results, unless your website appears near the top, you might as well go fishing.
Increasing your search engine ranking, or "search engine optimization" can be fraught with legal pitfalls. Here are a few, and tips on how to avoid them:
Trademark Infringement: Keywords and meta tags (hidden code) are the most common method of attracting search engines and increasing ranking. Using keywords and meta tags that accurately describe a site’s content is fine, but using a competitor’s trademark can get you in trouble. 15 U.S.C. § 1125(a) (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 trademark owner's customers).
In Brookfield Communications, Inc. v. West Coast Entertainment Corp. (9th Cir. 1999) 174 F.3d 1036, the court ruled that inclusion of a competitor’s trademark in metadata constituted trademark infringement because it diverted traffic to the defendant’s site. Analogizing to a roadside billboard that misdirects customers, the court said plaintiff’s mark improperly caused initial interest in defendant’s site – thus infringement – even though users soon realized their mistake. Id. at 1061-66.
One key to avoiding infringement is the "fair use" doctrine. It permits use of another’s trademark to identify the plaintiff’s goods or services provided there is no likelihood of confusion. In Playboy v. Welles, 279 F.3d 796 (9th Cir. 2002), Playboy 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 use of these terms was necessary to describe her as "Playboy Playmate of the Year 1981." But c.f. Australian Gold, Inc. v. Hatfield (D.C. No. 02-CV-143-C) (10th Cir. Feb.7, 2006) (finding infringement where defendants’ metadata contained plaintiff’s trademark even after defendant stopped selling plaintiff’s product).
Another way to avoid infringement appears to be purchasing keywords – including a competitor’s trademark – directly from the search engines. This way, when a user searches for that keyword, an advertisement pops up with a link to your site, or a "sponsored link" appears that boosts your ranking to equal your competitor’s. See Playboy, Inc. v. Netscape Enterprises Communications Corp. (9th Cir. 2004) 354 F.3d 1020; Government Employees Insurance Co. (Geico) v. Google, Inc. (E.D. Pa 2004) 330 F.Supp.2d 700; see also 1-800CONTACTS, Inc. v. WhenU.Com., Inc., 414 F.3d 400 (2d Cir 2005); but c.f. Australian Gold, supra (defendant’s purchasing of plaintiff’s mark as a keyword contributed to the finding of infringement).
Geico involved Google’s "AdWords" program, which sells the ability to appear as a "sponsored link" when a search is run using a competitor's mark. The court found insufficient evidence that use of "Geico" as a keyword was likely to cause consumer confusion, and thus found no infringement. However, the court said that if a sponsored link displayed plaintiff’s mark, it would violate the trademark law. Google lost a similar case in France several weeks later, but then that's the French: eating frogs and snails and thinking Jerry Lewis is a genius.
In 1-800Contacts, the Second Circuit ruled that software that provided a competitor’s pop-up advertisements when accessing plaintiff's web site was not infringement. The court reasoned that inclusion of plaintiff’s marks in a directory of terms that triggered the pop-ups was not a "use" in commerce of those marks as defined under trademark law.
While this line of cases is still developing, one thing is clear: the surest way to increase your ranking is to make like a politician and buy your way to the top.
Copyright Infringement: Stuffing your site with high quality, original content is an excellent way to increase your search engine ranking. Stuffing your site with content poached from another site will only lead to trouble. Just because it’s on the Web, doesn’t mean it’s free. Nothing about the Web strips work of its copyright protection. See 17 USC §102(a) (copyright protection applies to literary, artistic, musical and architectural works exhibiting a modicum of originality and fixed in any tangible medium). Translation: you can get sued for misappropriating it. 17 USC §501(a).
Unfair Competition: California Business and Professions Code §17200 and 15 U.S.C. §1125(a) broadly protect against unfair competition. In addition to the conduct discussed above, these statues can apply to other techniques professional Search Engine Optimizers regard as "unethical," i.e. inundating blogs and discussion boards with return hyperlinks. While links are important – they are one factor search engines look at when determining rank – a better approach is obtain them legitimately by becoming popular with your peers.
The More Things Change, the More They Stay the Same: Building a business on the web – and getting it seen – ultimately comes down to offering the highest quality content, useful information, helpful resources and excellent service. After all, nothing increases ranking like web traffic itself. Just like the old days, it’s all about being better than the next person. Unless, of course, you’d rather be fishing.
Jonathan Pink (pink@lbbslaw.com) is a partner in the Intellectual Property and Technology Group at Lewis Brisbois Bisgaard & Smith, LPP.
by Jonathan Pink
Building a successful business has never been more complicated. Customers must be able to locate you using any major internet search engine. Because 90 percent of search users never go beyond the second page of results, unless your website appears near the top, you might as well go fishing.
Increasing your search engine ranking, or "search engine optimization" can be fraught with legal pitfalls. Here are a few, and tips on how to avoid them:
Trademark Infringement: Keywords and meta tags (hidden code) are the most common method of attracting search engines and increasing ranking. Using keywords and meta tags that accurately describe a site’s content is fine, but using a competitor’s trademark can get you in trouble. 15 U.S.C. § 1125(a) (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 trademark owner's customers).
In Brookfield Communications, Inc. v. West Coast Entertainment Corp. (9th Cir. 1999) 174 F.3d 1036, the court ruled that inclusion of a competitor’s trademark in metadata constituted trademark infringement because it diverted traffic to the defendant’s site. Analogizing to a roadside billboard that misdirects customers, the court said plaintiff’s mark improperly caused initial interest in defendant’s site – thus infringement – even though users soon realized their mistake. Id. at 1061-66.
One key to avoiding infringement is the "fair use" doctrine. It permits use of another’s trademark to identify the plaintiff’s goods or services provided there is no likelihood of confusion. In Playboy v. Welles, 279 F.3d 796 (9th Cir. 2002), Playboy 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 use of these terms was necessary to describe her as "Playboy Playmate of the Year 1981." But c.f. Australian Gold, Inc. v. Hatfield (D.C. No. 02-CV-143-C) (10th Cir. Feb.7, 2006) (finding infringement where defendants’ metadata contained plaintiff’s trademark even after defendant stopped selling plaintiff’s product).
Another way to avoid infringement appears to be purchasing keywords – including a competitor’s trademark – directly from the search engines. This way, when a user searches for that keyword, an advertisement pops up with a link to your site, or a "sponsored link" appears that boosts your ranking to equal your competitor’s. See Playboy, Inc. v. Netscape Enterprises Communications Corp. (9th Cir. 2004) 354 F.3d 1020; Government Employees Insurance Co. (Geico) v. Google, Inc. (E.D. Pa 2004) 330 F.Supp.2d 700; see also 1-800CONTACTS, Inc. v. WhenU.Com., Inc., 414 F.3d 400 (2d Cir 2005); but c.f. Australian Gold, supra (defendant’s purchasing of plaintiff’s mark as a keyword contributed to the finding of infringement).
Geico involved Google’s "AdWords" program, which sells the ability to appear as a "sponsored link" when a search is run using a competitor's mark. The court found insufficient evidence that use of "Geico" as a keyword was likely to cause consumer confusion, and thus found no infringement. However, the court said that if a sponsored link displayed plaintiff’s mark, it would violate the trademark law. Google lost a similar case in France several weeks later, but then that's the French: eating frogs and snails and thinking Jerry Lewis is a genius.
In 1-800Contacts, the Second Circuit ruled that software that provided a competitor’s pop-up advertisements when accessing plaintiff's web site was not infringement. The court reasoned that inclusion of plaintiff’s marks in a directory of terms that triggered the pop-ups was not a "use" in commerce of those marks as defined under trademark law.
While this line of cases is still developing, one thing is clear: the surest way to increase your ranking is to make like a politician and buy your way to the top.
Copyright Infringement: Stuffing your site with high quality, original content is an excellent way to increase your search engine ranking. Stuffing your site with content poached from another site will only lead to trouble. Just because it’s on the Web, doesn’t mean it’s free. Nothing about the Web strips work of its copyright protection. See 17 USC §102(a) (copyright protection applies to literary, artistic, musical and architectural works exhibiting a modicum of originality and fixed in any tangible medium). Translation: you can get sued for misappropriating it. 17 USC §501(a).
Unfair Competition: California Business and Professions Code §17200 and 15 U.S.C. §1125(a) broadly protect against unfair competition. In addition to the conduct discussed above, these statues can apply to other techniques professional Search Engine Optimizers regard as "unethical," i.e. inundating blogs and discussion boards with return hyperlinks. While links are important – they are one factor search engines look at when determining rank – a better approach is obtain them legitimately by becoming popular with your peers.
The More Things Change, the More They Stay the Same: Building a business on the web – and getting it seen – ultimately comes down to offering the highest quality content, useful information, helpful resources and excellent service. After all, nothing increases ranking like web traffic itself. Just like the old days, it’s all about being better than the next person. Unless, of course, you’d rather be fishing.
Jonathan Pink (pink@lbbslaw.com) is a partner in the Intellectual Property and Technology Group at Lewis Brisbois Bisgaard & Smith, LPP.
Copyright Myths Debunked
Copyright Myths Debunked
By Jonathan Pink
Over lunch the other day, a coworker asked whether it was true that there was no need to register work with the Copyright Office as long as you put it into an envelope and mail it to yourself. Gazing past the rigatoni stuck in his teeth and focusing on the question, I realized that I had heard it before. Many times before. "So what's the deal?" he asked, "Is it true or not?"
The answer is ... buried in the following multiple-choice test.
Myth 1:
Copyright protection comes from placing a "©" on your work.
a. Absolutely true. Why else would that little c be in the circle?
b. Sometimes true, depending on things I'm not really sure about.
c. Not true.
The answer is c. For works created after March 1, 1989, copyright protection attaches immediately and automatically at the moment of creation. You can even try it at home: take a pen, draw a quick sketch. Done? Great. Copyright protection has already attached. And it does not require you to pen in that familiar © symbol. 17 USC §401(a); 17 USC §102(a).
For works created before March 1989, the © was required for protection-although in the labyrinth of copyright laws, some allowance was made for works published after December 31, 1977 if the would-be copyright owner took certain measures to cure the error of omitting the mark.
Myth 2:
Copyright protection requires registering your work with the Copyright Office in Washington, D.C.
a. This is a trick question. It's true that copyright protection requires registering your work, but you don't have to do it at the Washington office. You can do it at one of the many affiliated offices through-out the country. In fact, I think I saw one just the other day.
b. Not true. I created it, it's mine, and there's nothing more I have to do.
c. Of course. Why else would your tax dollars go to support a federal copyright office?
The answer is b. Again, copyright protection attaches immediately. If you need more proof, look at that sketch you made and remember that it has copyright protection already. All that is required is an original work of authorship-be it literary, artistic, musical, or even a computer program-affixed in any tangible medium of expression. 17 USC §102(a).
"Tangible medium of expression" means that your work is readable or perceivable either by use of a machine or with the naked eye. 17 USC §102(a). Again, look at your sketch. If it's on a scrap of paper or in the corner of this article, it's affixed to a tangible medium of expression because it's still there. If it isn't where you drew it, then it probably wasn't affixed to a tangible medium of expression.
This brings up another question. Why would anyone bother registering a work at all? Registration is often a good idea because it is usually a prerequisite to bringing an action for copyright infringement. 17 USC §411(a). It also helps to establish the work's date of creation and is required if you want to recover statutory damages or attorneys fees. 17 USC §412. Oh, and it assures that your work will end up in the Library of Congress, which is cool.
Myth 3:
Placing the work in an envelope and mailing it to yourself has the same effect as registering it with the Copyright Office.
a. No. If it did, why waste the ink to print this article?
b. Of course it does. If it didn't, why waste the ink to print this article?
c. Yes. And if enough authors send in their tasteless dreck, the postal service may not have to raise rates again anytime soon.
The answer is a. Though it's always nice to receive mail, sending the work to yourself does nothing more than establish the date that the envelope-and not necessarily its contents-was mailed. If you think it's important to register your work, pay the $30 and register it with the Copyright Office. If you simply want to receive mail, send yourself a postcard. Or lie on your Form 1040.
Myth 4:
If it's on the Web, it's free for the taking.
a. No. Stealing is stealing.
b. Sure, why not?
c. This is true, but only if I use a 28KB modem, and the copyright expires before I finish downloading it.
The answer is a. Unless the work falls under a generally recognized exception to the copyright law, if it's on the Web, copyright protection attaches, and you can get hit with an infringement lawsuit for misappropriating it. See 17 USC §501(a). Nothing about the Web strips otherwise protectable work of its copyright protection.
Myth 5:
Copying just a little bit does not constitute copyright infringement.
a. Maybe.
b. Maybe.
c. Maybe.
The answer is all of the above. Though the "fair use" doctrine allows for some limited copying of a small portion of some works-for example, quotes for use in educational or scholarly works, criticism, parody, and news reporting-there is no bright-line rule as to how much is too much.
The law weighs into the mix the purpose of the use, the nature of the work, the amount used as it relates to the whole, and the effect of the use on the value of the copyrighted work. 17 USC §107. But, generally, taking any part of a copyrighted work is subject to a claim for copyright infringement. And under this same rule, a person also cannot escape liability for copyright infringement simply by making a few minor changes to copyrighted material. 17 USC §501(a).
That means that if you take your kid's Darth Vader action figure, give it Barbie-like hair, and dress it in platform shoes, you're going to get hit with an infringement action when you try selling it at Toys-R-Us as Ella Vader. You also risk getting hit with a morals charge.
Myth 6:
Company names and slogans, such as Microsoft, Coppertone, "Just Do It," and "Things Go Better With Coke" are protectable under the copyright law.
a. Sure, they all originated from companies that are crawling with copyright lawyers.
b. No, or it wouldn't be a copyright myth.
c. What things go better with Coke?
The answer is b. Although slogans, titles, names, and short words and phrases may be protectable under trademark law, they are not entitled to copyright protection. 37 CFR §202.1. Also not protected by copyright are ideas -- other than the written expression of those ideas -- such as recipes or formulas, absent their incorporation into some larger work or written expression. 37 CFR §202.1; 17 USC §102(b). That means that if someone stole your recipe for chocolate chip cookies, or if you had the idea for The Firm before John Grisham did, you're out of luck. But hey, you've still got your sketch.
Myth 7:
Once I have copyright protection, it lasts forever.
a. Nothing lasts forever.
b. Define "forever."
c. Yes, this much I know.
The answer is a. Copyright protection does not last forever-although it might as well, given that it will outlast you. Under the current law, a copyright lasts for the life of the creator, plus an additional 70 years if the work was created after January 1, 1978, and 95 years from the date the copyright was secured for works created and published before 1978. 17 USC §§302(a) and 304(a).
There is, however, an exception to this rule. The copyright for anonymous works, pseudonymous works, and works made for hire is 95 years from the date of first publication, or 120 years from the date of creation, whichever comes first. 17 USC §302. The U.S. Supreme Court recently ruled that Congress may extend the copyright term, as it has done from time to time since the act's inception. See Eldred v. Ashcroft (2002) 122 S. Ct. 1062.
Eldred involved several companies that made money by exploiting material that, generally because of its age, had lost its copyright protection. The plaintiffs contended that Congress exceeded its authority by expanding copyright protection of existing works by about 20 years. Specifically, plaintiffs argued that article 1, section 8, clause 8 of the U.S. Constitution provided for a limited duration of copyright protection and that Congress had avoided that mandate by repeatedly extending that duration.
The Supreme Court upheld the 1998 Copyright Term Extension Act, authored by the late singer/comedian/congressman Sonny Bono, reasoning that the extension, even as to existing works, was still of a "limited" duration. The Court further reasoned that Congress was well within its right to determine the need for such an extension based on new technologies that gave existing material a greater shelf life. It also supported getting U.S. copyright law in sync with the copyright laws of the European Union. It is rumored that upon learning of this ruling Michael Eisner turned to Mickey Mouse, kissed the rodent on the lips, and said: "I got you, babe."
Myth 8:
When I acquire a copyrighted work, I also acquire the copyright to it.
a. How else would museum shops stay in business?
b. Uh, isn't this why Napster got in trouble?
c. This better be true; otherwise, I just severely overpaid for "A Bug's Life."
The answer is b. Acquiring a copyrighted work does not mean that you've acquired the copyright as well. 17 USC §202. It is possible to acquire the copyright to your favorite works -- provided they are entitled to copyright protection-but this requires a transfer from the copyright holder (17 USC §201) and must be done in writing (17 USC §204). Specifically, part or all of the exclusive bundle of rights held by a copyright owner-importantly, to reproduce, perform, or prepare derivative works-may be transferred during life or at death. 17 USC §106; 17 USC §§201 (d)(1),(2). This brings the more astute back to Napster -- the free, online, song-swapping service that got hit with an infringement action when it failed to prevent its users from illegally swapping MP3 files.
Practically speaking, this means that just because you own every collection of Calvin & Hobbs ever published, that does not mean that you can create window decals of those characters and sell them to motorists across the nation. You may even own the "Essential Calvin & Hobbs," but you don't own the right to reproduce the images it contains. It also means that if you bought one of those decals and slapped it onto your SUV, you should go outside right now -- yes, now -- and scrape it off with a butter knife. Don't worry; we'll wait.
Myth 9:
Sure, you can copyright a book, a movie, or a song, but there is no way you can copyright a house.
a. This must be true. Just drive through Orange County.
b. Not so fast. I'm from Orange County, and the houses are not all alike; those shades of beige are distinctly different.
c. This is false; you can copyright a building, but only if it was built less than a dozen years ago.
The answer is c. Architectural works are entitled to copyright protection if they were created after December 1, 1990, or embodied in unpublished plans or drawings created before that time, even though they were not actually constructed. See 17 USC §102.
This is good to know if you represent architects or developers. If you represent the developer, advise your client to acquire the copyright in any architectural plans he or she commissions. If you represent the architect, advise negotiating hard when it comes to determining the price of that copyright. Remember, working together, we can rid this state of unsightly farmland, pristine hillsides, and bucolic open spaces.
Myth 10:
Once a copyrighted work goes into the public domain, I can reproduce it and claim the copyright for myself.
a. Uh -- no.
b. Sure, but you need permission from the former owner first.
c. Yes, as long as the copyright had been held by the federal government.
The answer is a. Once a copyright expires and the work goes into the public domain, it's free for the taking. Public domain is legalese for not copyrighted. This typically refers to works that never acquired copyright protection in the first place- because they failed to include the (c) during the years it was required or because the original copyright has simply expired, for example, any work that was created before 1923. To the extent you build on work that is in the public domain to create a derivative work, the material you add -- as distinguished from the pre-existing material -- is protected. That does not, however, affect the ability to copyright that portion of the work that entered the public domain; that remains available for anyone else to use. 17 USC §103(b).
By the way, works created by the U.S. government are not entitled to copyright protection, although nothing prohibits the federal government from holding copyrights transferred to it by assignment, bequest, or otherwise. 17 USC §105.
Myth 11:
The concept of "moral rights" does not exist under U.S. copyright law.
a. Oh, please. Is this going to get preachy?
b. No. Like snobby maître d's, stinky cheese, and sautéed garden invertebrates, it's a French thing.
c. Well, maybe it's not called "moral rights," but the same basic idea exists.
The answer is c. U.S. copyright law grants certain visual artists the right to, among other things, prevent the "intentional distortion, mutilation, or other modification of the work which would be prejudicial to" the artist's honor or reputation. 17 USC §106A[(a)(3)(A)]. For purposes of this rule, the artistic work must be a painting, drawing, print, sculpture, or photograph in an edition of 200 or fewer signed, consecutively numbered copies. 17 USC §101. In other words, no one can mess with your sketch.
Jonathan Pink (pink@lbbslaw.com) heads the Intellectual Property Practice Group in the Orange County office of Lewis Brisbois Bisgaard & Smith, LLP.
This article first appeared in California Lawyer magazine.
By Jonathan Pink
Over lunch the other day, a coworker asked whether it was true that there was no need to register work with the Copyright Office as long as you put it into an envelope and mail it to yourself. Gazing past the rigatoni stuck in his teeth and focusing on the question, I realized that I had heard it before. Many times before. "So what's the deal?" he asked, "Is it true or not?"
The answer is ... buried in the following multiple-choice test.
Myth 1:
Copyright protection comes from placing a "©" on your work.
a. Absolutely true. Why else would that little c be in the circle?
b. Sometimes true, depending on things I'm not really sure about.
c. Not true.
The answer is c. For works created after March 1, 1989, copyright protection attaches immediately and automatically at the moment of creation. You can even try it at home: take a pen, draw a quick sketch. Done? Great. Copyright protection has already attached. And it does not require you to pen in that familiar © symbol. 17 USC §401(a); 17 USC §102(a).
For works created before March 1989, the © was required for protection-although in the labyrinth of copyright laws, some allowance was made for works published after December 31, 1977 if the would-be copyright owner took certain measures to cure the error of omitting the mark.
Myth 2:
Copyright protection requires registering your work with the Copyright Office in Washington, D.C.
a. This is a trick question. It's true that copyright protection requires registering your work, but you don't have to do it at the Washington office. You can do it at one of the many affiliated offices through-out the country. In fact, I think I saw one just the other day.
b. Not true. I created it, it's mine, and there's nothing more I have to do.
c. Of course. Why else would your tax dollars go to support a federal copyright office?
The answer is b. Again, copyright protection attaches immediately. If you need more proof, look at that sketch you made and remember that it has copyright protection already. All that is required is an original work of authorship-be it literary, artistic, musical, or even a computer program-affixed in any tangible medium of expression. 17 USC §102(a).
"Tangible medium of expression" means that your work is readable or perceivable either by use of a machine or with the naked eye. 17 USC §102(a). Again, look at your sketch. If it's on a scrap of paper or in the corner of this article, it's affixed to a tangible medium of expression because it's still there. If it isn't where you drew it, then it probably wasn't affixed to a tangible medium of expression.
This brings up another question. Why would anyone bother registering a work at all? Registration is often a good idea because it is usually a prerequisite to bringing an action for copyright infringement. 17 USC §411(a). It also helps to establish the work's date of creation and is required if you want to recover statutory damages or attorneys fees. 17 USC §412. Oh, and it assures that your work will end up in the Library of Congress, which is cool.
Myth 3:
Placing the work in an envelope and mailing it to yourself has the same effect as registering it with the Copyright Office.
a. No. If it did, why waste the ink to print this article?
b. Of course it does. If it didn't, why waste the ink to print this article?
c. Yes. And if enough authors send in their tasteless dreck, the postal service may not have to raise rates again anytime soon.
The answer is a. Though it's always nice to receive mail, sending the work to yourself does nothing more than establish the date that the envelope-and not necessarily its contents-was mailed. If you think it's important to register your work, pay the $30 and register it with the Copyright Office. If you simply want to receive mail, send yourself a postcard. Or lie on your Form 1040.
Myth 4:
If it's on the Web, it's free for the taking.
a. No. Stealing is stealing.
b. Sure, why not?
c. This is true, but only if I use a 28KB modem, and the copyright expires before I finish downloading it.
The answer is a. Unless the work falls under a generally recognized exception to the copyright law, if it's on the Web, copyright protection attaches, and you can get hit with an infringement lawsuit for misappropriating it. See 17 USC §501(a). Nothing about the Web strips otherwise protectable work of its copyright protection.
Myth 5:
Copying just a little bit does not constitute copyright infringement.
a. Maybe.
b. Maybe.
c. Maybe.
The answer is all of the above. Though the "fair use" doctrine allows for some limited copying of a small portion of some works-for example, quotes for use in educational or scholarly works, criticism, parody, and news reporting-there is no bright-line rule as to how much is too much.
The law weighs into the mix the purpose of the use, the nature of the work, the amount used as it relates to the whole, and the effect of the use on the value of the copyrighted work. 17 USC §107. But, generally, taking any part of a copyrighted work is subject to a claim for copyright infringement. And under this same rule, a person also cannot escape liability for copyright infringement simply by making a few minor changes to copyrighted material. 17 USC §501(a).
That means that if you take your kid's Darth Vader action figure, give it Barbie-like hair, and dress it in platform shoes, you're going to get hit with an infringement action when you try selling it at Toys-R-Us as Ella Vader. You also risk getting hit with a morals charge.
Myth 6:
Company names and slogans, such as Microsoft, Coppertone, "Just Do It," and "Things Go Better With Coke" are protectable under the copyright law.
a. Sure, they all originated from companies that are crawling with copyright lawyers.
b. No, or it wouldn't be a copyright myth.
c. What things go better with Coke?
The answer is b. Although slogans, titles, names, and short words and phrases may be protectable under trademark law, they are not entitled to copyright protection. 37 CFR §202.1. Also not protected by copyright are ideas -- other than the written expression of those ideas -- such as recipes or formulas, absent their incorporation into some larger work or written expression. 37 CFR §202.1; 17 USC §102(b). That means that if someone stole your recipe for chocolate chip cookies, or if you had the idea for The Firm before John Grisham did, you're out of luck. But hey, you've still got your sketch.
Myth 7:
Once I have copyright protection, it lasts forever.
a. Nothing lasts forever.
b. Define "forever."
c. Yes, this much I know.
The answer is a. Copyright protection does not last forever-although it might as well, given that it will outlast you. Under the current law, a copyright lasts for the life of the creator, plus an additional 70 years if the work was created after January 1, 1978, and 95 years from the date the copyright was secured for works created and published before 1978. 17 USC §§302(a) and 304(a).
There is, however, an exception to this rule. The copyright for anonymous works, pseudonymous works, and works made for hire is 95 years from the date of first publication, or 120 years from the date of creation, whichever comes first. 17 USC §302. The U.S. Supreme Court recently ruled that Congress may extend the copyright term, as it has done from time to time since the act's inception. See Eldred v. Ashcroft (2002) 122 S. Ct. 1062.
Eldred involved several companies that made money by exploiting material that, generally because of its age, had lost its copyright protection. The plaintiffs contended that Congress exceeded its authority by expanding copyright protection of existing works by about 20 years. Specifically, plaintiffs argued that article 1, section 8, clause 8 of the U.S. Constitution provided for a limited duration of copyright protection and that Congress had avoided that mandate by repeatedly extending that duration.
The Supreme Court upheld the 1998 Copyright Term Extension Act, authored by the late singer/comedian/congressman Sonny Bono, reasoning that the extension, even as to existing works, was still of a "limited" duration. The Court further reasoned that Congress was well within its right to determine the need for such an extension based on new technologies that gave existing material a greater shelf life. It also supported getting U.S. copyright law in sync with the copyright laws of the European Union. It is rumored that upon learning of this ruling Michael Eisner turned to Mickey Mouse, kissed the rodent on the lips, and said: "I got you, babe."
Myth 8:
When I acquire a copyrighted work, I also acquire the copyright to it.
a. How else would museum shops stay in business?
b. Uh, isn't this why Napster got in trouble?
c. This better be true; otherwise, I just severely overpaid for "A Bug's Life."
The answer is b. Acquiring a copyrighted work does not mean that you've acquired the copyright as well. 17 USC §202. It is possible to acquire the copyright to your favorite works -- provided they are entitled to copyright protection-but this requires a transfer from the copyright holder (17 USC §201) and must be done in writing (17 USC §204). Specifically, part or all of the exclusive bundle of rights held by a copyright owner-importantly, to reproduce, perform, or prepare derivative works-may be transferred during life or at death. 17 USC §106; 17 USC §§201 (d)(1),(2). This brings the more astute back to Napster -- the free, online, song-swapping service that got hit with an infringement action when it failed to prevent its users from illegally swapping MP3 files.
Practically speaking, this means that just because you own every collection of Calvin & Hobbs ever published, that does not mean that you can create window decals of those characters and sell them to motorists across the nation. You may even own the "Essential Calvin & Hobbs," but you don't own the right to reproduce the images it contains. It also means that if you bought one of those decals and slapped it onto your SUV, you should go outside right now -- yes, now -- and scrape it off with a butter knife. Don't worry; we'll wait.
Myth 9:
Sure, you can copyright a book, a movie, or a song, but there is no way you can copyright a house.
a. This must be true. Just drive through Orange County.
b. Not so fast. I'm from Orange County, and the houses are not all alike; those shades of beige are distinctly different.
c. This is false; you can copyright a building, but only if it was built less than a dozen years ago.
The answer is c. Architectural works are entitled to copyright protection if they were created after December 1, 1990, or embodied in unpublished plans or drawings created before that time, even though they were not actually constructed. See 17 USC §102.
This is good to know if you represent architects or developers. If you represent the developer, advise your client to acquire the copyright in any architectural plans he or she commissions. If you represent the architect, advise negotiating hard when it comes to determining the price of that copyright. Remember, working together, we can rid this state of unsightly farmland, pristine hillsides, and bucolic open spaces.
Myth 10:
Once a copyrighted work goes into the public domain, I can reproduce it and claim the copyright for myself.
a. Uh -- no.
b. Sure, but you need permission from the former owner first.
c. Yes, as long as the copyright had been held by the federal government.
The answer is a. Once a copyright expires and the work goes into the public domain, it's free for the taking. Public domain is legalese for not copyrighted. This typically refers to works that never acquired copyright protection in the first place- because they failed to include the (c) during the years it was required or because the original copyright has simply expired, for example, any work that was created before 1923. To the extent you build on work that is in the public domain to create a derivative work, the material you add -- as distinguished from the pre-existing material -- is protected. That does not, however, affect the ability to copyright that portion of the work that entered the public domain; that remains available for anyone else to use. 17 USC §103(b).
By the way, works created by the U.S. government are not entitled to copyright protection, although nothing prohibits the federal government from holding copyrights transferred to it by assignment, bequest, or otherwise. 17 USC §105.
Myth 11:
The concept of "moral rights" does not exist under U.S. copyright law.
a. Oh, please. Is this going to get preachy?
b. No. Like snobby maître d's, stinky cheese, and sautéed garden invertebrates, it's a French thing.
c. Well, maybe it's not called "moral rights," but the same basic idea exists.
The answer is c. U.S. copyright law grants certain visual artists the right to, among other things, prevent the "intentional distortion, mutilation, or other modification of the work which would be prejudicial to" the artist's honor or reputation. 17 USC §106A[(a)(3)(A)]. For purposes of this rule, the artistic work must be a painting, drawing, print, sculpture, or photograph in an edition of 200 or fewer signed, consecutively numbered copies. 17 USC §101. In other words, no one can mess with your sketch.
Jonathan Pink (pink@lbbslaw.com) heads the Intellectual Property Practice Group in the Orange County office of Lewis Brisbois Bisgaard & Smith, LLP.
This article first appeared in California Lawyer magazine.
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