Congress Gets Serious About Defending Trade Secrets

The Defend Trade Secrets Act (DTSA) has been slowly wending its way through Congress, and it is looking as though it has a good chance of becoming a law at this point. It has bipartisan support and has now passed the Senate 87-0. It is now being considered by the House of Representatives.

Currently, there are two levels of laws governing trade secrets, and they have very different benefits for trade secret owners. The federal law is a criminal law that focuses on preventing international espionage. At the state level, the Uniform Trade Secrets Act (PDF), which has been adopted by most of the states, is a civil law. It focuses on providing monetary and injunctive remedies for trade secret owners who have experienced or may soon experience trade secret theft, regardless of the source. Some states also provide for criminal penalties. The end result is that most companies that are not operating in either agriculture or high technology (two areas particularly susceptible to international espionage) rely on a patchwork of state laws to help them protect their trade secrets.

What does the DTSA do, exactly? It creates, for the first time, a private cause of action for misappropriation of trade secrets at the federal level. This means that trade secret owners will be able to sue for trade secret violations in federal court rather than in state court, which will in turn create a more uniform treatment of trade secrets nationwide.

This bill will benefit most, but not all, trade secret owners by opening up a federal forum for litigation. This is because the federal law applies only to trade secrets that are currently used, or intended to be used, in interstate or foreign commerce. (Congress has the authority to regulate interstate, but not intrastate, commerce under the Constitution.) If your business is small enough that it operates only within one state, and you cannot make a showing that you have some effect on interstate commerce, you are stuck with whatever body of law your state has in place about trade secrets. The states generally have broadly diverging case law despite the near-uniformity of the statutes. And if you are in one of the states that hasn’t adopted the Uniform Trade Secrets Act, you might not like the outcome; older laws tended to be very skeptical of trade secrets as a form of intellectual property. All that said, at least you know what you have to do to protect your trade secret because the laws of only one state apply; the federal bill, if it becomes law, offers that kind of reassurance to businesses that operate in more than one state.

If the bill becomes law, it will create a more stable atmosphere in which to do business, as it will be clearer what constitutes a “reasonable” level of protection for a particular type of business or type of trade secret. If your business relies heavily on trade secrets and you like the idea of uniformity, this is a good time to contact your House of Representatives delegation and let them know that you support the Defend Trade Secrets Act.

What do you think? Would you rather be able to sue in federal court for trade secret violations, or are you happy with the current “50 ways of doing things” setup?

Star Trek v. Axanar: Copyright Infringement or Permissible Fan Work?

Star Trek vs Axanar: CBS and Paramount sue Axanar Productions
Star Trek vs Axanar: CBS and Paramount sue Axanar Productions

If you are a Star Trek fan, know a Star Trek fan, or are merely vaguely aware that you need to be very careful about whether you call Star Trek fans “trekkies” or “trekkers,” you are probably aware of the Axanar project and the litigation surrounding it.

For those who spend slightly less of their time contemplating the wonders that Gene Roddenberry created than I do, here is the nickel summary: In 1966, the television show Star Trek first aired. It was cancelled after three seasons but went on to gain popularity in syndication. From these humble beginnings, the property has ultimately expanded into multiple spinoff television series, movies, books, websites, merchandising, and pretty well any kind of copyrightable work you can think of. In terms of the depth and breadth of the copyrighted properties and the fictional geography, it can only properly be called a “universe.” Today, there are two companies that own the copyright rights to Star Trek, CBS and Paramount. CBS owns the television rights and Paramount owns the movie rights, though according to Axanar Productions’ attorneys, this may not be the full picture due to the ways in which the copyright ownership has changed hands over time. CBS and Paramount have, according to numerous news articles, allowed fans to make short films, written fictional works, elaborate and accurate costumes, and other tributes, all without pursuing legal action against the fans. Corroborating this claim is the fact that Paramount lists Star Trek fan sites on its official website for the Star Trek movies. CBS and Paramount could have taken legal action against these fan uses at any time because these fan works are derivative works, meaning copyrightable works that are based on another copyrighted work. Only the owner of a copyright has the right to create or authorize creation of derivative works of the original copyrighted material; if anyone else creates a derivative work, that constitutes copyright infringement.

But Axanar, unlike many fan films before it, has drawn legal action from CBS and Paramount. Theories on why Axanar is different range from timing (CBS has just announced another new Star Trek television show to begin airing in 2017, and Paramount has the next reboot movie coming out in summer 2016) to money (the crowdfunded Axanar raised an unprecedented $1 million for production online) to quality (Axanar is using professionals to make the film, while most prior fan films did not) to sour grapes (the studios fear that Axanar will be more popular than the reboot movies, which many fans felt failed to capture the spirit of Star Trek). The Axanar Productions legal team has taken the strategy of insisting that the plaintiff explain in great detail exactly which copyrights have been violated and exactly which plaintiff owns which copyrights. They are asking, essentially, that CBS and Paramount give the exact coordinates of the conflict within the Star Trek universe. The disconnect is that CBS and Paramount are contending that Axanar Productions is in essence violating (almost) the entire universe all at once. And such insistence on a detailed list of the exact elements that have been violated (which the amended complaint does provide) gives the appearance of being the refuge of an infringer that knows it has been caught and has no solid grounds for defense.

One concept I have seen repeatedly throughout news articles and fan website discussions is that CBS and Paramount have always been fine with fan works as long as they didn’t make any money–and that a lack of profits is a defense to infringement. The Axanar creators themselves have repeated this idea and are fighting hard in the court of public opinion to turn the fan community to their side. Both Prelude to Axanar, a 20-minute trailer to the new movie, and Axanar itself will be released to the public for free (assuming the movie ever does get released). This does not, however, mean that the movie is not a for-profit enterprise in any sense that would matter for a legal defense of Axanar. The professional production staff, producers, and others are certainly being paid, regardless of whether the money comes from donations to a Kickstarter campaign or from purchase of tickets, electronic files, or DVDs. This is also not a real legal test for whether a work is infringing. It is part of the legal test for the fair use defense to infringement, but it is only part of the test. Axanar likely wouldn’t make it past the first question in a fair use analysis, specifically whether the purpose of the use is “criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research.” Even if it did, there is a serious question about whether it would harm the market for the copyrighted works, another of the elements of the fair use test. The fact that fans have posited that Axanar better captures the spirit of the original Star Trek than the reboot movies certainly adds weight to CBS and Paramount’s position on that question.

Another defense of Axanar Productions that I have seen often is that CBS and Paramount have never sued before, so they should be barred from suing now. Legally speaking, this would be a defense for Axanar Productions in a trademark case, but it is not a defense in a copyright case like the one CBS and Paramount have filed. Trademark owners must police their trademarks to ensure that the marks do not become so diluted that they no longer serve as source identifiers; copyright owners have no such obligation and are perfectly free to pick and choose which infringers to take action against. This means that the fan theory that the money is the motivation may be at least a partial explanation: why bother pursuing an infringer who has no money? Hiring big-name litigation lawyers is quite expensive, and if you win an infringement case, the other side must pay your attorneys’ fees. If the other side has no money, you’re out your attorneys’ fees.

The other major defense of Axanar Productions I have seen is that CBS and Paramount have slapped fans in the face by bringing this lawsuit. The fan community is the lifeblood of Star Trek, the thinking goes, and for CBS and Paramount to bring a suit without so much as sending a cease and desist letter will only alienate fans. While I do understand this sentiment, and I enjoyed Prelude to Axanar as much as the next fan, I also appreciate that CBS and Paramount are businesses. They have a bottom line to consider, and when fans are saying things like “this captures the spirit of Star Trek better than the reboot movies!” that shows that Axanar is realistically a threat to their bottom line. Should they have explored a license agreement first? Maybe. But they also don’t want to encourage the “it’s better to beg forgiveness than to ask permission” approach from fan works. In addition, Axanar Productions is able to do things that older fan works have not: technology has been changing in ways that make fan works a realistic threat to the market for canon/copyright-owner-created works. CBS and Paramount may be navigating the changing landscape badly, but they are hardly alone in needing to find ways to deal with the changes.

What do you think? Are there other alternatives CBS and Paramount should have explored? Can fan films coexist with canon works without hurting the market for canon works? Will you stop watching new Star Trek because of the lawsuit?

The PTO, the First Amendment, and Disparaging (Re)Marks

A note before we start: This post contains racial slurs because they are a part of the trademarks at issue in the cases I am discussing. After struggling with how to address this fact, I have decided to spell them out in full because 1) they are spelled out in the trademarks as well as the cases; and 2) in one case, the slur was deliberately chosen by a member of the relevant racial group as a political statement. I wish to handle this matter with sensitivity, and I welcome an open and honest discussion about this choice; if you choose to comment, though, refer to my Terms of Use for my comment policy.

By now, you have probably heard about the Washington Redskins “losing” their trademarks. Some of the reports going around are a little overblown; the team hasn’t actually lost its ability to use the trademark, but the federal trial court in the Eastern District of Virginia has ruled that the U.S. Patent and Trademark Office (PTO) acted appropriately when it decided to remove the trademark from the Principal Register (cancel the mark registration) because it was a disparaging term. The Principal Register is a list that the PTO maintains of trademarks that meet its standards for receiving certain nationwide statutory protections. Among the standards: a mark cannot be “immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.” Sometimes the PTO believes a mark meets its standards and registers a mark, but later a third party introduces evidence that convinces the PTO that the mark did not actually meet the standards. That is what happened here: a group of Native Americans brought evidence to the PTO showing that the “Redskins” marks were disparaging, so the PTO decided to cancel registration. If a mark is not registered with the PTO, the owner can still use the mark, and the mark may still be eligible for common law protection. The team certainly did not lose its marks entirely. In fact, because this was a trial court decision about a PTO decision, it is not yet final by a long shot; the decision may be appealed to the Circuit Court of Appeals with jurisdiction over the trial court (in this case, the Fourth Circuit), and from there it may even be heard by the Supreme Court. The team’s marks are therefore still showing as “registered” on the PTO website.

What you may not have heard is that the Federal Circuit Court of Appeals (the FCCA) also recently ruled in a trademark case involving a racial slur, and it’s a doozie. The FCCA ruled that the First Amendment prohibits the government from denying federal registration of trademarks on the basis that they are disparaging. This overturns part of the Lanham Act, the law that allows the PTO to decide which trademarks to register, and opens the door to overturning other parts (e.g., the prohibition on “scandalous” marks). The case focused on a band named The Slants, a name selected by the group in order to reclaim a racial slur. The PTO had denied registration on the basis that the term was disparaging, the same reason it agreed to cancel registration of the Washington Redskins’ trademarks.

Why did the two courts take such very different approaches to the issue? There are several reasons, but it boils down to this: the court in the case that was decided first, the Redskins case, was a federal trial court. It was constrained by precedent (that is, by what higher courts had decided before on the same subject). The court in the Slants case (the FCCA) was an appellate court and was empowered to overturn its own precedent—and it did just that. In fact, the FCCA overturned one of the cases that the Virginia trial court relied upon in ruling against the football team. The Virginia court held that the decision not to register the mark was a form of government speech, outside the purview of the First Amendment; and that the speech was not prohibited by canceling the mark anyway. The Federal Circuit held that the government had no business constraining the speech of others by withholding the benefits associated with registration based on the content of the speech (the trademark).

What happens next could be the interesting part. For those who are unfamiliar with our court system, in the hierarchy of courts, there are many district courts throughout the country. Each district court’s decisions can be appealed to one of the twelve Circuit Courts of Appeals, depending mostly upon its geographic location. And each of the Circuit Courts of appeals’ decisions can, in turn, be appealed to the Supreme Court of the United States (SCOTUS). SCOTUS will usually only hear an appeal when there is a split among the Circuit Courts of Appeals—that is, when there is disagreement among the Circuits about how a particular legal issue ought to be handled.

The Federal Circuit Court of Appeals may have just created a split. The Virginia court’s ruling is on appeal to the Fourth Circuit Court of Appeals. If the Fourth Circuit decides not to overrule its own precedent on the subject of disparaging trademarks and the First Amendment, we could very well see the Supreme Court resolving this issue within the next few years.

My thought: it is surprising that it took this long for this First Amendment ruling to occur. The First Amendment has been methodically knocking down morality clause-like parts of statutes (like this portion of the Lanham Act) since the 1950s. At one time, the Post Office famously would not carry the book Lady Chatterley’s Lover, which it considered to be obscenity. The thought of the Post Office discriminating based on the intellectual content of the mail today is laughable. Today, the rulings upholding the Lanham Act’s prohibitions on disparaging marks have been twisting themselves in knots trying to draw distinctions between government speech and other speech. It has felt inconsistent with the progress of the First Amendment cases. I will be slightly surprised if there is still a circuit split after the Fourth Circuit rules on the Redskins case. If SCOTUS hears these cases, though, I will be shocked if this “morality clause” does not fall to the First Amendment.

What do you think?

Preventative Practices: Dodging Trademark Bullying

Various sticky trademark disputes have been in the news lately. First, there was the dispute between Apple and Proview Technology over the IPAD trademark in China (the dispute was settled on July 2). Then there was the still-ongoing dispute between the United States Olympic Committee and the knitting website Ravelry over the crafters’ use of the term RAVELYMPICS in connection with an Olympics-viewing event. My local newspaper is even getting in on the act, writing about how devastating a trademark dispute can be to small businesses.

So what can you, as a small business owner, do to protect yourself from a trademark dispute? Take some good old-fashioned advice!

  • An ounce of prevention is worth a pound of cure. Do not choose your business name or other trademarks without making sure that they are available and will not infringe on another company’s marks. This means conducting a thorough search. If you have the budget for it, hire a trademark attorney to obtain and interpret a full search report from a third-party provider. If you don’t have the budget for it, your attorney should at minimum conduct a preliminary check of potentially problematic trademarks in the U.S. Patent and Trademark Office (PTO) database and on the web.

  • Don’t cry over spilled milk. If you find that your favorite trademark is already taken, especially if it’s been taken by a company with deep pockets, take a deep breath and bid it farewell. As the examples in the Star Tribune article demonstrate, responding to an allegation of infringement can be financially devastating to a business. It is much better to let it go now and find a new mark that will better differentiate your business from the competition anyway.

  • The best defense is a good offense. Register your trademark as soon as possible. If you are operating only in one state, register it with the state. If you are operating in more than one state, register it federally with the PTO.

  • Know thyself. Keep good records regarding how you have used your trademark and in what markets. Keep copies of every advertisement you run in a file for each trademark you own (for electronic advertising, keep a record of what trademarks you have advertised in what geographic areas, your view rate, and your and click-through rate). Keep copies of complimentary (or not-so-complimentary) letters and emails from outside your immediate geographic region so that you know who has heard of your company and where they live. Keep track of where and when you have made sales. These records can be vital evidence of your geographic scope of ownership in the event of a dispute.

Follow these tips and make sure you have a great trademark attorney on your side, and you may be able to avoid disputes altogether. If not, you will be in good shape going into any disputes.

Legal Terms in Real Life: Genericide (Or: The Death of Google)

This series explains legal terms in plain language and gives examples from everyday life.

Today’s Legal Word of the Day is “genericide,” from trademark law. Genericide has been in the news recently because of Arizona resident David Elliott’s lawsuit to cancel two of Google’s trademark registrations for the term “GOOGLE” (Reg. Nos. 2,806,075 and 2,884,502). Black’s Law Dictionary (8th Ed.) defines “genericide” as: “The loss or cancellation of a trademark that no longer distinguishes the owner’s product from others’ products.”

Trademarks are words, symbols, or other source indicators (even colors, sounds, or scents) that help a consumer distinguish the products or services of one company from those of another. When a consumer is in the store, he or she can choose to purchase toothpaste labeled Crest, Arm & Hammer, Colgate, or any of a number of other toothpaste brands. The name on the box helps the consumer distinguish one from another. Trademark law is, at its heart, a form of consumer protection, although businesses, not consumers, must spend their time, energy, and money on building up and protecting trademarks as source identifiers.

As you know from our previous Legal Word of the Day, distinctiveness, there is a continuum of trademark strength, from fanciful to generic. Trademarks can move along this continuum. A mark that starts out as descriptive can become distinctive through long use and/or an advertising blitz, so that consumers associate what would be a descriptive name exclusively with a single product. For example, the clothing store The Children’s Place has at least arguably acquired distinctiveness as to its THE CHILDREN’S PLACE trademark.

Conversely, trademarks can move in the opposite direction along this continuum. A mark that starts out as fanciful or arbitrary may become the generic term for a product if consumers begin to believe that the trademark is the name of the product. This is genericide. Examples of marks that have been killed through genericide include ASPIRIN and THERMOS. Examples of marks that have at one time or another become endangered include BAND-AID, VELCRO, and TEFLON.

Whether Mr. Elliott successfully has Google’s GOOGLE trademark canceled will depend on whether he can show that the term has become so ubiquitous as a word meaning “to search” that consumers no longer associate the term with any particular search engine. He has several examples showing that the mark is often used as a verb meaning “to conduct an internet search”; however, he may have to show that consumers use the word to signify searching on any search engine, not only on Google’s search engine. This may prove difficult for him; I was unable to locate serious examples of people referring to “googling on Bing,” though parodies do exist.

Genericide is a fairly ironic death for a trademark; it signals that a company has become so successful at making its mark so well-known that the general public can no longer distinguish the trademark from the product. Genericide is death by success.