Author: Mary Witzel

Cheerleading Uniforms Vault Copyright’s Useful Article Quandary to the High Court

Posted on by Mary Witzel

Are cheerleading uniform designs eligible for federal copyright protection? Last week, the United States Supreme Court granted certiorari in the case of Star Athletica, LLC v. Varsity Brands, Inc., promising an answer to that question. At issue is whether combinations of stripes, chevrons, and color blocks that appear on cheerleading uniforms are protected by federal copyright law.[1]

The Copyright Act offers limited protection to “useful articles” such as furniture or clothing — items that have intrinsic functionality. Although the Copyright Act protects pictorial, graphic, and sculptural works, a design incorporated into a useful article is only eligible for copyright protection if it is conceptually separable from the utilitarian aspects of that article. Under this “doctrine of separability,” if a chair has design elements that can be peeled away from the underlying purpose of the chair and can exist and be perceived independently of the chair’s underlying purpose, those design elements might be eligible for federal copyright protection. If this doctrine seems unclear, you are not alone in your assessment.

Determining whether a feature of a useful article can be conceptually separated from that article and protected under copyright law is a puzzle that some have called a “metaphysical quandary”[2] and “the most vexing, unresolved question in copyright law.”[3] Over ten different tests, some academic, some judicial, have been formulated and adopted by courts struggling to apply the doctrine of separability. The result is an incoherent patchwork scheme of copyright protection where the protectability of features of useful articles under the Copyright Act can turn entirely on which Circuit adjudicates a copyright case.

The Supreme Court’s opportunity to provide a uniform test for separability analysis arrives via a dispute that, fittingly, involves uniforms. Varsity Brands, the world’s largest cheerleading uniform manufacturer and distributor, sued industry newcomer Star Athletica for copyright infringement after Star Athletica published a catalogue of cheerleading uniforms that Varsity alleged too closely mirrored Varsity’s copyright-registered designs. Varsity owns a number of copyright registrations for the designs that appear on the cheerleading uniforms it manufactures and distributes: combinations of stripes, chevrons, and color blocks.

At the district court level, the court held that Varsity’s designs were not copyrightable because the utilitarian function of a cheerleading uniform and the designs themselves are not conceptually separable. Interestingly, according to the district court, stripes, chevrons, and color blocks are functional aspects of a cheerleading uniform, and a cheerleading uniform without these elements is not a cheerleading uniform.

On appeal, the Sixth Circuit reached an opposite conclusion, holding that Varsity’s designs were protected by copyright because the utilitarian function of a cheerleading uniform and the designs themselves are conceptually separable. In the Sixth Circuit’s view, stripes, chevrons, and color blocks serve no utilitarian function, do not impact a cheerleading uniform’s ability to function as an item of clothing, and are merely decorative as applied to cheerleading uniforms.

In granting certiorari, the Supreme Court has taken on the challenge of sorting through this “metaphysical quandary” to provide a uniform test for determining when a feature of a useful article is protectable under the Copyright Act. Any guidance the Court provides on useful articles and whether the stripes on a cheerleading uniform and the uniform itself are conceptually separable from one another is likely to have a significant impact both upon established industries such as fashion and upon fledgling industries such as 3D printing. The Court is expected to hear arguments in Star Athletica, LLC v. Varsity Brands, Inc. in the Fall 2016 Term. — Mary Witzel

 

[1] The Petition for Writ of Certiorari also raised the question of the appropriate level of deference courts should provide to determinations made by the Copyright Office. The Supreme Court declined to grant certiorari on this question.

[2] Universal Furniture Int’l v. Collezione Europa, Inc., 618 F.3d 417, 434 (4th Cir. 2010).

[3] Star Athletica, LLC. v. Varsity Brands, Inc., No. 15-866, 2016 WL 94219 (Filed Jan. 5, 2016) (Pet. Writ of Cert).

Pros and Cons: Limited Liability Companies

Posted on by Mary Witzel

You’ve got a great idea for a new business and the pieces are slowly falling into place — you’re preclearing a few options for a company name, you’ve garnered interest from potential business partners, and there’s a vacant office in the nearby office park that’s the perfect distance from your house.  During a recent meander through the office park, you noticed that many of the companies there append the acronym “LLC” to their company name.  That got you thinking: what’s an LLC, and why are so many companies identifying as one?

LLC is a short form for “Limited Liability Company,” a business structure that has a straightforward format and notable flexibility that offers unique benefits to business owners.  There are as many iterations of business structures as there are businesses, and between C Corporations and sole proprietorships, it’s not difficult to personalize a company’s organizational structure to cater to that company’s particular circumstances.  Nonetheless, the particularly customizable format of the LLC has made it the business entity of choice for many fledgling companies.

LLCs are straightforward to establish and maintain: the primary formal legal step in most states is to prepare and file Articles of Organization with the state Payment of a nominal filing fee typically accompanies such registration.  Some states also require LLCs to file an annual report or a renewal to ensure that the LLC is still operational and that the information in the State LLC database remains accurate.

In addition to streamlined administrative and recordkeeping requirements, LLCs also have the advantage of providing great flexibility in ownership, internal organization, and profit sharing arrangements.  An LLC can be owned by a single individual, multiple individuals, or even multiple companies, depending on the laws of the state where the LLC is established.

The owners of an LLC are often referred to as “members.” The internal organization of an LLC can be modified to give each particular member distinct duties from the outset or, on the other hand, left undefined until the members organically determine the roles that they each best fill.  The duties of LLC members are highly customizable: the members can elect to actively participate in the daily management of the LLC, or they can elect to be passive investors; they can choose to establish distinct roles via adoption of a formal internal operating agreement, or they can assume mutable roles via an informal understanding about how to manage the company.  An LLC has the additional advantage of limiting the liability of its members, potentially shielding the members’ personal assets in the event the company runs into trouble.

LLCs also permit great flexibility in profit sharing and loss distribution.  The flexibility offered by LLCs also extends to taxation schemes.  In some states, unless an LLC’s members affirmatively elect for their LLC to be taxed as a corporation, LLCs are usually automatically subject to a “pass through” tax scheme.  This means that, unlike a traditional corporation, the company itself is not subject to separate taxation.  Instead, profits, losses, and tax reporting responsibilities are “passed through” the company to the members of the LLC.  Thus, the profits and losses each member incurs in connection with the LLC are reported on that member’s personal federal tax return, potentially simplifying the reporting requirements for the company as a separate entity.  Despite the flexibility an LLC offers in electing a taxation scheme, LLC members should be aware that they may be required to pay self-employment tax on all profits they earn from the LLC during a given year.

Indeed, LLCs are not without drawbacks, in part because of the operational simplicity that makes them so attractive.  Although LLCs are easy to establish and operate, they can also be easy to dissolve.  In certain jurisdictions, absent an agreement to guard against dissolution, the loss of a single member may cause an LLC to cease to exist.  Additionally, the organizational structure of a multi-member LLC can quickly become unclear unless the members create and abide by an operating agreement that parses out which member plays what role and establishes which members are authorized to enter into legal agreements on the LLC’s behalf.  Nonetheless, the problems posed by the flexibility of LLCs can be easily navigated with foresight and adoption of an effective operating agreement.

As you orchestrate the formation of your company, be aware that the business structure you choose can impact everything from your personal liability in troubled times to your income reporting requirements on a yearly basis.  On your next stroll through that office park, take a minute to consider the pros and cons of the flexibility that LLCs provide and whether filing to designate your company as an LLC would secure the optimal business structure for you.  With a little planning, your business can have a custom-made structure uniquely designed to help your company profit and grow.  — Mary Witzel

Fluid Trademarks

Posted on by Mary Witzel

Fluid trademarks are trademarks that change over a short period of time — not a careful, measured brand evolution, but a dynamic, shifting depiction of an identifiable trademark. For example, Absolut Vodka frequently utilizes its distinctive bottle shape as a platform for marketing campaigns that task artists and designers with creating unique variations on the underlying trade-dress-protected bottle shape, resulting in advertisements depicting the Absolut bottle as an Easter Island statue or an hour glass, as well as labels embellished with abstract paintings of New York City or stylized drawings of superheroes. In the digital realm, an example of successful fluid trademark use can be found in popular logo variants like Google® ‘Doodles’ — unique versions of the Google logo that commemorate holidays, anniversaries, and historical and cultural events.

Trademarks ordinarily derive strength from consumer identifiability, meaning how uniquely a word or design links a particular product to the source or producer of that product. Traditionally, trademark owners are counseled to use their marks in a consistent fashion to enable customers to automatically identify those marks with their source and the goods related to them. Abrupt and unmeasured changes to a mark can potentially weaken, dilute, or destroy the mark, narrow the scope of its protection, or subject the mark to the risk of abandonment or cancellation due to non-use.

Despite the risks posed by abruptly changing a mark, fluid trademarks are an innovative, engaging way for brand owners to connect with their consumer base. Their novelty commands attention, and their use can spur public interest and deepen consumer loyalty. In order to properly balance adequate trademark protection against the dynamic nature of fluid trademarks, the following measures are recommended when adopting a fluid trademark marketing strategy:

1. Ensure the Underlying Mark Is Suitable

The ideal candidate for fluid trademark treatment is a mark that is readily recognizable to consumers and/or a mark that is “famous.” To use Absolut as an example, consumers must be able to recognize that the bottle beneath an embellished label or within a stylized advertisement is identifiably an Absolut bottle. Similarly, Google can substitute dynamic Doodles for its conventional logo on a regular basis because the underlying mark is strong and easily identifiable to consumers. Consumers visiting Google’s homepage are generally well-aware of the services Google offers in connection with its mark, regardless of whether the day’s Doodle commemorates national women’s day or Maria Montessori’s birthday. In addition, Google’s Doodles consistently appear in the same location as the underlying Google mark, giving Google a “homepage advantage” that enables users to readily associate a given Doodle with the underlying mark, even when the visual connection is attenuated, as when Google adopts highly stylized Doodles to commemorate birthdays of modern artists like Jackson Pollock or Wassily Kandinsky.

2. Ensure the Underlying Mark Is Protected

To ensure adequate protection for a fluid trademark, the underlying mark should be protected via trademark registration whenever possible. In most scenarios, the strongest form of protection is also the simplest: trademark registrations for word marks that make no claim to design elements, stylization of letters or numbers, colors, or size will arguably give you the greatest flexibility in using variants of your mark. To return to the Absolut example, because Absolut has the right to use the underlying, unadorned vodka bottle shape, the company can generally embellish the bottle as it pleases without forfeiting its rights in the underlying trade dress.

3. Ensure the Underlying Mark Remains in Use

Although the search engine frequently substitutes its homepage logo for Doodles, Google is careful to ensure that its underlying mark is discontinued on its homepage only for a brief period of time and remains in use concurrently with the Doodles. By doing so, Google keeps the underlying mark alive, prevents claims that it has been abandoned, and preserves the right to rely on the underlying mark’s priority dates. Like Google, you can use fluid iterations of your underlying mark without forfeiting your rights in the underlying mark if you ensure the underlying mark remains consistently in use.

4. Consider the Field of Use and the Protection Available for Fluid Mark Iterations

To ensure that the material you’re thinking of adding to your underlying mark does not violate the rights of a prior user, it’s advisable to preclear the material before you adopt it in connection with your underlying mark. In addition, the fluid renditions of your mark may be protectable in their own right under trademark law or copyright law — the unique design elements of an Absolut vodka advertisement depicting the bottle as a ski jump or a robotic dog might be protectable independently of the trade-dress-protected bottle shape it incorporates. An intellectual property attorney can assist you in preclearing fluid trademark material, determining what elements of your fluid trademark are independently protectable, and helping you craft a strategy to protect those unique design elements.

5. Be Prepared to Take a Non-Traditional Approach to Trademark Protection

Fluid trademarks are increasingly a public art affair and frequently inspire public participation and third-party creativity. As a brand owner, you must be prepared to craft a careful, non-traditional approach to policing trademark use that simultaneously protects your trademark rights and guards against the risk of alienating consumers.

By ensuring the underlying mark is suitable, protected, and adequately used, and by considering the field of use, the protection available for fluid mark iterations, and the need for a non-traditional trademark protection scheme, you can retain trademark protection for the underlying mark while adopting an innovative, engaging marketing strategy through use of fluid trademarks. — Mary Witzel

The Defend Trade Secrets Act: Congress Considers a Federal Civil Cause of Action for Trade Secret Misappropriation

Posted on by Mary Witzel

Trade secrets are a form of intellectual property that can consist of any piece of information that has commercial value or gives its owner an advantage in the marketplace.  Their value is directly tied to their secrecy, and their security and value is deeply, and often, fatally, impacted if they are stolen or publically revealed.

Currently, trade secret owners can obtain redress for trade secret theft through two avenues: federal remedies under criminal statutes and the Economic Espionage Act of 1996, and civil remedies available under state law.  Trade secret protection is roughly consistent between states, as most states have adopted a form of the Uniform Trade Secret Act.  Nevertheless, variances exist between state trade secret statutes, and the manner in which trade secret law is interpreted by courts also differs from one state to another.  As a result, a company seeking redress for trade secret theft might obtain different results in the courts of states with identical trade secret legislation.  There are currently no remedies under federal civil law for trade secret misappropriation.

Congress is considering an act to provide federal civil remedies for trade secret theft as an alternative to the relief available to trade secret owners under state law.  In late January, the Senate Judiciary Committee approved the Senate version of the Defend Trade Secrets Act, S. 1890 (the “DTSA”), moving the DTSA closer to a Senate Floor vote.  The current iteration of the DTSA contains the following notable provisions:

  • The statute of limitations to bring a claim under the DTSA will be three years.
  • The DTSA would allow trade secret owners to obtain ex parte seizure orders to recover stolen trade secrets while a full court hearing is pending.  Such seizure orders are only to be granted in “extraordinary circumstances,” upon a rigorous showing regarding ownership of the trade secret, theft of the trade secret, and the lack of harm to third parties should the ex parte order be granted.  Seized materials are to remain in the custody of the court pending a full hearing.
  • Under the DTSA, courts may not authorize the disclosure of trade secret information in litigation unless the trade secret owner is allowed the opportunity to submit the information under a seal describing the owner’s interest in preserving the confidentiality of the information.
  • The DTSA attempts to balance employee mobility against trade secret protection: trade secret owners can obtain injunctive relief to prevent actual or threatened disclosure of trade secrets, provided; 1) the injunction is supported by proof of actual or threatened misappropriation; 2) the injunction does not “prevent a person from entering into an employment relationship;” and 3) any conditions placed on employment are “based on evidence of threatened misappropriation, and not merely on the information the person knows.”  In addition, court orders cannot conflict with state laws prohibiting restraints on the practice of a profession, trade, or business.
  • “Safe Harbor” provisions in the DTSA will shelter whistleblowers who disclose trade secrets in confidence to government officials or in lawsuits alleging retaliation by an employer.
  • The DTSA will require an annual report from the Attorney General addressing overseas theft of United States trade secrets and the role of foreign governments in such theft.

The DTSA will not preempt the body of existing state trade secret law, but instead, will provide an alternative form of relief for business owners whose trade secrets have been misappropriated (particularly those whose business operations span multiple states).  If enacted, it will provide trade secret owners an additional tool to add to their enforcement arsenal.

The DTSA has garnered strong support in both the House and the Senate, and a variant of the DTSA is expected to pass into law in 2016.  — Mary Witzel

UPDATE (5/23/16): On May 11, 2016, President Obama signed the DTSA into law.  Litigants are already availing themselves of the federal civil cause of action created by the Act.  See M.C. Dean, Inc. v. City of Miami Beach, No. 16-cv-21731-CMA (S.D. Fla. May 16, 2016); Bonamar, Corp. v. Turkin, No. 16-CV-21746 (S.D. Fla. May 16, 2016); Universal Protection Services v. Thornburg, No. 2:16-cv-00097 (N.D. Tex. May 19, 2016).

U.S. Trade Representative’s 2014 Notorious Markets Report Includes Domain Name Registrars

Posted on by Mary Witzel

The U.S. Trade Representative recently released its 2014 Notorious Markets report identifying offline and online markets that deal in infringing goods or sustain global piracy and counterfeiting. For the first time, the Notorious Markets report identifies Internet domain name registrars as sources of piracy and counterfeiting.

Domain registrars are commercial entities which oversee the registration of Internet domain names. The 2014 Notorious Markets report notes that the industry as a whole requires greater scrutiny, and expressly names one of the largest members of the industry, Tucows, as a Notorious Market due to its inaction when notified of registrants’ infringing activity.  Inclusion of domain name registrars in the Notorious Markets report indicates that they could face increased pressure to adequately respond to infringing activity in the future. — Mary Witzel

For more information, see the U.S. Trade Representative’s 2014 Notorious Markets report:

2014 Out-of-Cycle Review of Notorious Markets