United States: Supreme Court Corner - 24 July 2019

Last Updated: July 31 2019
Article by Brian Biggs and Stan Panikowski

Fourth Estate Public Benefit Corp. v. Wall-Street.com
COPYRIGHT – Decided: Mar. 4, 2019
Holding: A copyright claimant may commence an infringement suit when the Copyright Office registers a copyright.

Petitioner Fourth Estate owns copyrights in certain journalistic works and licenses them to a cloud-based news organization that, in turn, licenses them to others. Respondent Wall-Street.com licensed some of these materials to publish on its website. After Wall-Street.com cancelled the license, it continued to display the material. Fourth Estate then filed an application for registration of the copyrighted works with the Copyright Office, but did not wait for the Copyright Office to act before filing a copyright infringement suit against Wall-Street.com.

A copyright infringement suit shall not be instituted until "preregistration or registration of the copyright claim has been made" or where "registration has been refused" by the Copyright Office. 17 U.S.C. § 411(a) (limited to US works). Under the Copyright Act, the copyright owner "may obtain registration of the copyright claim by delivering to the Copyright Office" a copy of the copyrighted work and "the application and fee specified." 17 U.S.C. § 408. The Eleventh Circuit, in affirming the dismissal of Fourth Estate's copyright infringement claim, agreed with the Tenth Circuit that the Register of Copyrights must act on the application before the statute permits suit. In contrast, in the Fifth and Ninth Circuits the copyright owner may initiate an infringement action once the application has been filed.

Holding: A copyright claimant may commence an infringement suit when the Copyright Office registers a copyright.

In a unanimous decision delivered by Justice Ruth Bader Ginsburg, the Court affirmed the Eleventh Circuit's decision. If applying for the copyright sufficed, the statute's provision allowing suit when "registration has been refused" would be superfluous. Moreover, if an application sufficed, other provisions in the Copyright Act would lack utility, among them actions the Register may take, such as preregistration (§ 408(g)) or allowing the Register to become a party to the infringement action (§ 411(a)). The Court dismissed Fourth Estate's argument that a copyright owner may lose the ability to enforce its rights if the three-year statute of limitations runs while the registration application is in process, reasoning that registrations take on average seven months and the infringement suit can look back three years. Even so, delays are due to "staffing and budgetary shortages that Congress can alleviate, but courts cannot cure."

With the circuit split now resolved, practitioners will no longer need to consider this issue when contemplating forum. However, copyright owners would be wise to diligently seek registration to ensure the three-year statute of limitations does not run before the Copyright Office acts.

For more, see our alert here.

Mission Product Holdings Inc. v. Tempnology, LLC
TRADEMARK – Decided: May 20, 2019
Holding:
A debtor-licensor's "rejection" of a trademark license in bankruptcy does not terminate the licensee's right to continue to use the mark.

Section 365 of the Bankruptcy Code allows the trustee to reject an executory contract of the debtor in some circumstances. In 1985, the Fourth Circuit's Lubrizol decision held that rejection of a patent license under § 365 terminated the licensee's rights to use the licensed invention. In response, Congress added § 365(n) to the Code, allowing an "intellectual property" licensee to retain its rights post-rejection, but trademarks are not among the enumerated "intellectual property."

Holding: A debtor-licensor's "rejection" of a trademark license in bankruptcy does not terminate the licensee's right to continue to use the mark.

Respondent Tempnology licensed to petitioner Mission rights to use Tempnology's trademarks. Tempnology later filed a voluntary petition for Chapter 11 bankruptcy and rejected the license agreement with Mission; Mission objected.

Following the Seventh Circuit's 2012 Sunbeam decision, the First Circuit Bankruptcy Appellate Panel found Tempnology's rejection under § 365 constituted a breach by the debtor which does not affect Mission's right to continue to use the mark. On the next appeal, a divided First Circuit panel reversed and followed Lubrizol, finding rejection terminates the licensees' trademark rights.

In an 8-1 decision delivered by Justice Elena Kagan, the Court held the bankruptcy estate's rejection of an executory contract under § 365 functions as a breach, not a complete rescission, of the contract. Thus, the trademark licensee retains the rights it would have had under the terms of the breached contract, which may include continuing to practice the license, paying the royalty, and seeking any potential redress for the estate's breach. The Court found that one cannot read § 365(n)'s omission of trademarks to mean trademarks should be treated differently. Second, 365(g) establishes the general rule that rejection functions as a breach, and Congress enacted § 365(n) as a tailored response to Lubrizol's treatment of patents.

Trademark licensing practitioners now can have confidence that a licensee's rights will survive the licensor's bankruptcy. More generally, this decision seems to clarify the general disposition of rejected executory contracts not subject to an enumerated exception in § 365.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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