LawTalk Blog

Michael Jackson's Moonboots for Moonwalkin'

The United States Patent and Trademark Office (USPTO) have put together a special exhibit featuring material from Michael Jackson’s patent and trademark applications with the support of the National Inventors Hall of Fame and Museum.

Jackson’s original sketches of the patented “anti-gravity” boot system featured in the “Smooth Criminal” music video will be on display along with all of his registered trademarks, including United States Registration No. 1,908,209, which provides exclusive rights to use the words, “MICHAEL JACKSON,” on, “sound recordings; namely, pre-recorded phonograph records, audio tapes, compact discs, videotapes, and motion picture films featuring music and entertainment.”

The speed with which the exhibit was put together has been unfavorably contrasted with the USPTO’s  standard review schedule for patent and trademark examination.

Preview of Tonight's Law Talk...

Here is a quick preview of what David Mazur is going to discuss at tonight’s Law Talk:

Trademarks and the Internet

Domain Basics

• Computers accessible by the internet are identified by a numeric identifier called an “IP” or “Internet Protocol” address. 
• To make this more easily accessible, the “Domain Name System” was devised to help match names people would remember to numbers.  You are familiar with many standard top level domains (.com, .org, etc) just from browsing the internet.
• The Domain Name System is currently administered by a non-profit public benefit corporation named ICANN

Rights in Domain Names

• The process of registering a domain name results in an agreement that the registrar will take certain actions on behalf of the registrant in exchange for a fee. 
• Your rights in a domain name are purely contractual, and can be extinguished if you breach your contract with the registrar.  Registration is an administrative process that does not confer intellectual property or trademark rights on a registrant. 

Basic Trademark Considerations

• As discussed, trademark law addresses the needs of a business to identify their products and services to potential customers, but an individual can obtain a domain name for a number of reasons separate from commerce.
• One common question is whether a business can obtain a trademark to a generic (and otherwise non-trademarkable) word by adding a “.com;” they cannot.

• Initial Interest Confusion   
  
  • Trademark law principles provide protection against “initial interest confusion,” which occurs when a competitor capitalizes on the goodwill associated with a business to lead customers to their goods and services:  There will be a violation if there is a “bait-and-switch.”  If the customer makes an informed choice, there will be no violation.
  • Examples
    • Software which loaded pop-ups for competitors when a browser was directed at a well known site that “crowded out” the desired website.
    • Displaying a competitor's trademark in Adwords ad copy

Cybersquatting

• “Cybersquatting” is registering, selling or using a domain name with the intent of profiting from the goodwill of someone else's trademark. It generally refers to the practice of buying up domain names that use the names of existing businesses with the intent to sell the names for a profit to those businesses.  There are 2 primary sets of rules under which one can address cybersquatting in the US.

·       ICANN’s Uniform Dispute Resolution Policy  (UDRP)

o   A privately administered proceeding

o   Filed with an arbitrator (usually WIPO)

o   Mostly a “mail-in” paper-based process

o   Only relief available is cancellation or transfer of the offending domain names

o   Trademark owner must show both

• that the registrant has no legitimate interest in the domain name
• and that the domain name is being registered in bad faith.

o   Only mark owners can start a UDRP proceeding. 

• To establish rights in a domain, a domain holder must go to court for a protective restraining order or declaratory judgment.

o   Prior rulings under the UDRP can be used to persuade arbitrators but are not binding

o   Trademark owners who file complaints in bad faith are said to have engaged in “Reverse Domain Name Hijacking.”

• It is considered an abuse of the administrative proceeding and the Panel can enter such a finding in the record to warn others about such a trademark owner.

• The Anticybersquatting Consumer Protection Act (ACPA)

o   Authorizes a trademark owner to sue an alleged cybersquatter in federal court and obtain a court order transferring the domain name back to the trademark owner.

o   In some cases, the cybersquatter must pay money damages.

o   Trademark owner must prove all of the following:

•  The domain name registrant had a bad-faith intent to profit from the trademark
• The trademark was distinctive at the time the domain name was first registered
• The domain name is identical or confusingly similar to the trademark, and
• The trademark qualifies for protection under federal law

o   If there was a reason to register the domain name beyond selling it to the trademark owner or otherwise profiting, the registrant will have a defense

Twitter-Squatting

• In May, Tony Larussa (coach of the St. Louis Cardinals) filed a suit against Twitter in response to someone using the service to register a Tony Larussa twitter stream, post an unauthorized photo, and impersonate his through “tweets” – Twitter status updates
• The suit alleged cybersquatting under the ACPA among other causes of action, but the suit was ultimately settled and withdrawn.

The Trademark Registration Process

The first step in registering a trademark is to determine whether to apply for the mark on a use basis (if currently being used commercially) or an intent to use basis (reserving the mark for future use).

Regardless of the type of application you file, you will need to determine the types of goods or services you are currently selling in connection with the mark and/or those for which you intend to use it.   These are referred to as “classes.”

After determining whether your proposed trademark is for a current or future product/service and which classes you intend to file, you must perform a preliminary search to determine whether the trademark is available.  The purpose of this search is to determine if any previously registered mark or applications would act as a significant obstacle to the registration of your mark.  If there are conflicts to your desired trademark, you may need to choose another mark.  If there are no obvious conflicts, it is advisable to order a full U.S. search from a third party, who will examine trademarks and trade names from a number of databases.  This step is important in order to safeguard against any unexpected and complex potential problems.

Assuming that the search reveals there are no serious threats to the registration of your mark, then you should proceed with filing your application with the United States Patent and Trademark Office (“USPTO”).  Once reviewed by the USPTO, either the examining attorney will accept your application and publish it for opposition or he or she will file an Office Action, which sets forth the reasons why the examining attorney believes your application should not move forward toward registration as filed.

If all issues have been resolved, the application is published for opposition, which gives the public notice of your application and gives anyone with a potentially conflicting mark the opportunity to file an opposition to the registration of your mark.  If no one files an opposition to the registration of the mark within thirty days of its publication, the trademark will advance to registration, or in the case of an application filed on an “intent to use” basis, a Notice of Allowance will be issued, which will direct you to file a Statement of Use that states how you are using the mark commercially within six months of the mailing date of the notice.  If you are not yet using the mark within the six-month period, you may apply for an Extension to File a Statement of Use, which will extend the time period for another six months.  You may do this for up to five successive extensions of sixth months each.  If you have extended for three years and cannot file a Statement of Use, your application will be deemed abandoned, and in order to maintain rights in the mark, you will need to file a new application.     

If the publication period passes, and your mark is not opposed (and you have filed the Statement of Use if necessary), you will be granted a mark and issued a Certification of Registration.  You now have a registered trademark and can use the ® symbol. 

The entire process of registration can take roughly 12-14 months if the application is filed on an “in use” basis, no Office Actions are issued, and no third party files any opposition.

New SoundExchange Settlement Saves Internet Streaming

The July 7^th 2009 settlement between commercial webcasters and SoundExchange creates an exciting and innovative royalty scheme for commercial internet radio streaming sites.   The agreement, authorized under the Webcaster Settlement Act of 2009, determines royalty rates based on the volume of streaming by the internet radio stations, the size of their audiences and the company’s business model.   This is a significant alternative to the 2007 Copyright Royalty Board regulations, in which each song streamed, per listener, is destined for an increase to $.19 in 2010, regardless of significant business and economic factors. 

The 2007 ruling continued to flame the existing battle between record labels and internet radio sites.   Since 2002, webcasters have been protesting the Copyright Royalty Board’s royalty rates claiming that the mandated high fees would shut down internet radio stations overnight – the royalty fees would exceed the stations’ revenue.   The record labels and recording industry have argued that denying royalty payments to artists only serves to subsidize webcaster businesses and have fought to maintain their copyright mandated revenue stream. 

 But the new July 7, 2009 settlement is hailed as a “groundbreaking approach” by SoundExchange Executive Director John Simson, and “the agreement that we’ve been waiting for” by Pandora CEO Tim Westgarten.   Pureplay webcasters can now choose between the existing 2007 royalty regulations or the new 2009 SoundExchange alternative rates and terms in which copyright owners (labels or music artists) can share in webcasting revenue and growth.  SoundExchange is the government designated non-profit company that collects and distributes digital performance royalties.

The new royalty structure provides that large webcasters, including Pandora and Slacker, pay royalties to SoundExchange of either the greater of 25% of their total revenue or an escalating rate per performance, initially set at $.08 which will increase to $.14 per by 2015.  Smaller pureplay webcasters with $1.25 million in revenues or less, such as AccuRadio, Digitally Imported and RadioIO, have the option of paying 12 to 14% of their revenues or expenses.  All webcasters are required to pay an annual minimum fee of $25,000, which is then applied to royalties owed.

The 2009 webcasters/SoundExchange settlement recognizes the growing importance of streaming music for the music artist, as listeners are increasingly discovering new talent via online streaming.  In turn, the record labels substantially benefit by internet stations’ broader purchasing audience than those typical broadcast venues can provide.  And the new agreement creates a more flexible economical approach for webcasters in keeping with their financial health and viability.  Ultimately, this can only be a win-win situation for online listeners.

IRA Funded LLCs

The trend towards IRA investment is increasing, particularly in the realm of having an IRA fund your LLC.  One of the main advantages to having an IRA funded LLC, is that you are able make investments more freely.  The IRA funded LLC allows you to maintain checkbook control, meaning you can write checks for investments without the need for a custodian.  This is advantageous because it reduces the fees paid to a custodian and frees you from the need for custodian approval for each check written.      

In order to have your IRA fund your LLC, the first thing to do is to open a self-directed IRA account, which is a type of IRA where an IRA owner makes all the investment decisions and instructs a custodian to act.  Pursuant to IRS regulations, either a qualified trustee or custodian must hold the IRA assets on behalf of the IRA owner.  Various companies, such as Pensco, Sterling Trust, and Equity Trust, all act as IRA custodians. Once you have chosen a custodian, you must instruct the custodian to transfer your IRA assets to the new self-directed IRA account.  Be aware that while the IRS does not mandate what transactions you may engage in, there are certain prohibited transactions outlined in IRC § 4975(c)(1), which are either direct or indirect:

•   Sale or exchange, or leasing of any property between a plan and disqualified person;
•   Lending of money or other extension of credit between a plan and a disqualified person;
•   Furnishing goods, services, or facilities between a plan and a disqualified person;
•   Transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;
•   Act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interest of for his own account; or
•  Receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.

For purposes of this statute, a disqualified person is the IRA owner, the IRA owner’s spouse, ancestors, lineal descendents, spouses of lineal descendents, investment advisors, fiduciaries (those providing services to the plan) and any business entities, in which any of the persons previously mentioned have a 50% or greater interest in.  However, pursuant to Swanson v. Commissioner, 106 T.C. 76, the IRA LLC strategy is not considered a prohibited transaction. 

After opening a self-directed IRA account, you must then register your business entity as a limited liability company (LLC) with the Secretary of State in the state you plan on incorporating in. After your LLC is properly registered, the next step is to prepare an operating agreement, which meets all of the requirements for a self-directed IRA LLC mandated by the Secretary of State, such as specific language relating to the fact that the LLC is set up for your IRA.

After preparing a complete and accurate operating agreement, the next step is to set up a bank account for your LLC.  Then, when you are ready to invest into your LLC, instruct the custodian to place the IRA assets into the bank account or brokerage account for the LLC.  As manager of the LLC, you will have what is referred to “checkbook control,” which gives you the ability to execute transactions on the LLC level without the involvement of the IRA custodian.  In other words, once the LLC is funded, you no longer need the custodian to write the checks. 

The Right of Publicity

In recent years, consumers have been able to easily satisfy their celebrity cravings through mobile applications on their phones.  With these applications, mobile phone users can see images of their favorite celebrities right from the palm of their hand.  However, there are serious legal issues implicated as the result of the unauthorized use of a celebrity image, more specifically, a violation of their rights of publicity and privacy.

While the right of publicity is not a new area of law, in the mobile application world it bleeds into a new context.  The contours of the right vary from state to state, but the right of publicity generally includes the ability to control, direct and commercially use one’s own name, voice, signature, likeness or photograph. Moreover, the right of publicity seeks to prevent the unjust enrichment from the unauthorized use of another’s good will.  In order to lawfully publish a celebrity photograph, you must receive authorization and clearance from that celebrity.  Applications using the image of a celebrity in any such manner must be licensed or they are operating illegally.  

Some mobile applications depict celebrities in a poor light.  In a particular popular application from the iTunes App Store, celebrities are featured in bikinis amongst images of non –celebrities who are similarly scantily clad.  In the event that their identity is used without permission, for some celebrities, this could cause grave harm to their public image.  This scenario implicates of a violation of a celebrity’s right of privacy, more specifically the tort of false light.  Although not recognized in every state, a false light claim is raised when a false image of a person is painted that would be offensive to a reasonable person.  In other words, if a celebrity is depicted in a false light, in an offensive manner such as in the above-mentioned mobile application, and a reasonable person is offended, the celebrity may raise a claim for the tort of false light.

With the increasing popularity of mobile applications and the profitability they generate for their developers, the use of celebrity images, without their authorization, is problematic.  In the event that these images are properly licensed, there should be no problems.  However, if they are not, mobile application developers face the threat of a lawsuit, which could result in an injunction and damages. 

Software Escrow Agreements

Businesses relying on intellectual property assets sometimes require specialized tools to protect against potentially business ending problems.  The software escrow agreement is one such tool.  Software escrow agreements protect critical intellectual property assets (“IP”) and provide continuity of use by making the IP available to both parties under certain conditions, including bankruptcy.  Essentially, the software escrow agreement permits the customer access to the licensed product and simultaneously safeguards the vendor’s IP and proprietary information.  

Typically such agreements are set up as 3rd party agreements in which an escrow agent stores the vendor’s underlying intellectual property in a location under the control of a third party where it is accessible to the licensee under certain circumstances. For example, software source code deposited to an escrow account under third party control can be updated, serviced or customized by the developer/vendor, but can also be utilized by the licensee, even if the licensee does not have access to the protected source code itself.  Escrowing software source code is the most typical use of such agreements, but MasurLaw has also applied them to other intellectual property including domain names, or proprietary information, like business plans, to which both parties should have access, but to which the providing party wants to maintain control.  This is a developing area of law which is particularly relevant in the Web 2.0 or cloud computing space, in which nearly all information, content and software is kept under the management and control of third parties.  

Why use software escrow agreements?  As a licensee, protecting a crucial part of your business against the risk of suddenly losing access to critical intellectual property deserves an extra measure of assurance.  If the vendor becomes bankrupt, sells its assets or otherwise passes out of existence, the customer will be ensured continual access to the underlying intellectual property assets necessary for its success.  Without a software escrow agreement, your business may be damaged as the essential technology will be cut off.  MasurLaw uses software escrow agreements in situations like the one described above, or in other circumstances when the inability to access, work with, or use mission critical intellectual property or equipment could jeopardize your business.