When A Trademark Is Challenged, a Covenant Not to Sue Might Be the Answer

The United States Supreme Court, which rarely agrees to hear trademark cases, has recently ruled that a properly drafted covenant not to sue a competitor for trademark violation can effectively moot the competitor’s counterclaims challenging the drafter’s trademark.

In Already, LLC, dba Yums v. Nike, Inc.,  Nike sued Yums for violation of Nike’s trademark  associated with Air Force 1s shoes and alleged that Yums’s “Soulja Boys” and “Sugars” shoe designs infringed and diluted Nike’s trademark.   Yums denied these allegations and filed a conterclaim contending that Air Force 1 trademark was invalid and seeking its cancellation.

Four months after Yums filed its counterclaim, Nike issued a “Covenant Not to Sue,” which proclaimed that Yums’s actions no longer infringed or diluted the Nike’s trademark at a level sufficient to warrant the substantial time and expense of litigation and that Nike promised not raise against Yums or any of its affiliated entities any trademark or unfair competition claims based on any of Yums’s existing footwear designs, or any future Yums designs that constituted a “colorable imitation” of Yums’s current products.

After issuing the covenant, Nike moved to dismiss its claims and Yums’s counterclaim stating that its promise not to sue for trademark infringement eliminated any controversy between the parties.  Yums opposed the dismissal and argued that a controversy still existed – that despite the covenant not to sue, investors remained nervous about investing in Yums as long as the Nike registration was in effect and that Nike could possibly refile its trademark infringement lawsuit at some point in the future.

The Supreme Court ruled that under the Voluntary Cessation Doctrine, Nike carried a “formidable burden” or showing that it “could not reasonably be expected” to resume its enforcement efforts against Yums.  The Court then held that Nike’s covenant not to sue met that burden for the following reasons:

(1)  The covenant was unconditional and irrevocable; thus Nike could not simply change its mind and pursue Yums in the future;

(2) The covenant prohibited Nike from not only filing suit, but also from making any claim or any demand. Thus, Yums was protected not only against future lawsuits, but other cease and desist letters, demands or threats that might place a cloud over its business activities;

(3)  The covenant reached beyond Yums to protect Yums’s distributors and customers, protecting Yums from “downstream” IP claims; and

(4) The covenant covered both current and previous designs, as well as any “colorable imitations” of those designs – thus protecting Yums’s going forward.

With respect to the last factor, Yums was unable to come up with any shoe design that could potentially infringe upon Nike’s trademark but would not be covered by the covenant not to sue.

Practical Implications of the Decision:

1.      If you have filed a suit to protect your intellectual property, asserting infringement claims against a defendant, and now you want to end the case quickly – either because the suit is no longer economically viable or because there is a real threat that your asserted rights will be declared invalid or significantly narrowed, and the defendant refuses to agree to a dismissal, issuing a covenant not to sue might be your most viable option.

2.    Nike’s covenant will probably become the golden standard against which all future covenants not to sue will be held.

3.    Even if the lawsuit is dismissed after the covenant not to sue is issued, the party seeking to cancel trademark registration may still pursue opposition or cancellation proceedings before the Trademark Trial and Appeal Board.

4.    Issuing a covenant not to sue may carry some long-term risks to the issuer’s trademark strategy, which should be carefully analyzed.

For more information, contact Leiza Dolghih.

Employer Can Access Employee’s Cell Phone under the Stored Communications Act

In December, the Fifth Circuit Court of Appeals in Garcia v. City of Laredo, et al. found that an employer who accessed its employee’s cell phone without her permission did not violate the Stored Communications Act.

The employer, a city police department, terminated the employee after it discovered images and text messages on her cell phone that violated the departmental rules. The police department investigators actually downloaded a video and photographs from the employee’s cell phone before calling her to a disciplinary meeting at which she was fired.  The employee sued the City of Laredo claiming that all the text and data stored on her personal cell phone were protected by the Stored Communications Act and the employer violated it when it accessed the data without her permission.

The Fifth Circuit Court of Appeals, however, found that the Act, which protects electronic data, only covers information stored by an electronic communication service provider, and does not reach information stored on a cell phone. The Fifth Circuit noted that this interpretation was consistent with other courts, who had previously held that the Act applied to service providers such as phone companies and Internet or email providers, but did not apply to an individual’s computer, laptop or mobile device.

WHAT DOES THIS MEAN?  This means that while an employer cannot access your Facebook account, for example, or your cell phone records without your permission, the information that you choose to keep on your cell phone or an iPad is fair game (at least in Texas).

The moral of the story is: Don’t leave your phones or iPads lying around at work unless you want your employer to see your personal information.

For more information, contact Leiza Dolghih.

Pending Tax Increases in 2013 – The Tax Side of the Fiscal Cliff

On December 31, 2012, the following tax cuts (that were created during the Bush administration) will end unless the Obama administration acts.

10% Tax Rate will rise to 15%

Currently the first $8,500 ($17,000 if married) of taxable income is taxed at a 10 percent rate.  In 2013, the first dollar of taxable income will be taxed at a 15 percent rate.

All other tax brackets will increase as well

Currently the highest tax rate is 35 percent. That tax bracket will increase to 39.6 percent in 2013.

Payroll taxes will increase

Today, there is a 2 percent rollback on the employee portion of FICA taxes.  That rollback could end in 2013 unless renewed by the Obama administration.

Child tax credit will be reduced

The Child Tax Credit for those with dependent children under age seventeen will be reduced from $1000 to $500.

College Education Credit will be eliminated. 

The current American Opportunity Credit offers up to $2,500 to help defray the cost of higher education expenses. That credit will no longer exist in 2013.

Long-term capital gain taxes will increase. 

The long-term capital gains will be taxed at 10% (instead of 0) if you are in the 15% ordinary income tax bracket or below, and will be taxed at 20% (instead of 15%) if you are in a higher ordinary income tax bracket.

Qualified Dividends will be eliminated. 

The current tax rate on qualified dividends is 0% (if you are in the 15% tax bracket or lower) and taxed at 15% if you are in the higher ordinary tax brackets.

In 2013, dividends will be taxed as ordinary income. This means they will be taxed as high as 39.6%.  There will be a new 3.8% surtax on investment income for those with taxable incomes over $200,000 ($250,000 if married). Thus, if you are in the higher tax brackets, your dividend income could be taxed at 43.4% (39.6 % + 3.8%) versus the 15% tax rate in 2012.

These are just a few of the potential increases that could go into effect in 2013. Other increases include the return of limitations on itemized deductions and personal exemptions, return of the marriage penalty, reduced student loan interest deductions, and more.

For more information, contact Leiza Dolghih.

The 5th Circuit Upholds a Ban on Sale of Firearms to People Under 21

Last month, the 5th U.S. Circuit Court of Appeals upheld a 1968 law that prohibits federally licensed firearm dealers from selling handguns to people under age 21.

The National Rifle Association challenged the law soon after the U.S. Supreme Court declared a broad Second Amendment right for individuals to keep and bear arms in District of Columbia v. Heller in 2008.  The Supreme Court in Heller held that the Washington, D.C. statutes banning the possession of usable handguns at home — in addition to requiring residents to keep their firearms either disassembled or trigger locked violated the Second Amendment.  The Court invalidated the laws because they violated the central right that the Second Amendment was intended to protect—that is, the “right of law-abiding, responsible citizens to use arms in defense of hearth and home.”

After Heller, the National Rifle Association filed a lawsuit against the Bureau of Alcohol, Tobacco, Firearms, and Explosives arguing that 18 U.S.C.  §§ 922(b)(1) and (c)(1) , as well as attendant regulations, 27 C.F.R. §§ 478.99(b)(1), 478.124(a), and 478.96(b), which prohibited federally licensed firearm dealers from selling firearms to people between ages of 18 and 21, violated the Second Amendment and the Equal Protection Clause.

The Fifth Circuit in National Rifle Association of America, Inc., et al. v. Bureau of Alcohol, Tobacco, Firearms, and Explosives, et al. was the first circuit court to address the constitutionality of a firearms law in light of Heller

The Fifth Circuit Court of Appeals’ unanimous three-judge panel held that the Congress adopted the law to help curb violent crime and that young persons under 21 presented a particular problem because they were immature and prone to violence.  Thus, the ban was “consistent with a longstanding tradition of age- and safety-based restrictions on the ability to access arms.”   The Court further noted that “unlike the D.C. ban in Heller, this ban does not disarm an entire community, but instead prohibits commercial handgun sales to 18-to-20-year-olds—a discrete category.”

While the NRA might appeal this decision to the Supreme Court, it is very unlikely that the Supreme Court will agree to hear the case because the ban in question has been in place for over 40 years and constitutes a “long-standing tradition” and because it is not nearly as drastic or limiting as the ban implemented by the District of Columbia and struck down in Heller

For more information, contact Leiza Dolghih.

New Expedited Process for Lawsuits With Less Than $100,000 in Damages

Late last week, the Texas Supreme Court issued Rules for Dismissals and Expedited Actions.  Under the new Texas Rule of Civil Procedure (TRCP) 169, the expedited process is mandatory for cases where relief is limited to “$100,000 or less, including damages of any kind, penalties, costs, expenses, pre-judgment interest, and attorney fees.”

TRCP 169 does not apply to healthcare-liability claims or claims governed by the Family Code, Property Code, or Tax Code.

The expedited proceedings will include an expedited pretrial process, limits on discovery, and an expedited trial.  More specifically:

• Once discovery begins, it must be completed within 180 days.

• Written discovery is limited to 15 written interrogatories, 15 requests for production, 15 requests for admissions, and a request for disclosure.

• Each party has a total limit of six hours for all depositions.

• At the request of any party, the court must set the case for a trial date within 90 days after the discovery period ends.

• At trial, each side is limited to five hours for jury selection, opening, closing, and examination of witnesses.

• The court cannot order the parties to engage in alternative dispute resolution, unless the parties agree or are required by contract to do so.

Additionally, under the new Texas Rule of Civil Procedure 91a, a party may move to dismiss a cause of action on the grounds that it has no basis in law or fact.  The winning party gets the attorneys fees.  Thus, if a party files a motion to dismiss and loses, it must pay the other side’s attorneys fees.  Likewise, if a party’s case gets dismissed as the result of the motion, that party will have to pay the other side’s attorneys fees.

How will this affect litigation? 

Given that $100,000 cap includes all types of damages, including attorneys’ fees and interest, the expedited rules will end up applying only to truly small cases.  However, they will end up streamlining such cases, which could result in a faster and less expensive resolution of a dispute.   A trial could occur as early as nine months after the filing of suit (or even earlier if the court desires), with limited discovery, no mediation, and perhaps a two-day trial.

The dismissal rules could prevent frivolous lawsuits from being filed.  If a lawsuit is found to have no basis in law or fact and  is dismissed under TRCP 91a, the plaintiff will be forced to pay the defendant’s attorneys fees.  This should serve as a deterrent to frivolous lawsuits.

For more information, contact Leiza Dolghih.

The Texas Supreme Court OKs do-it-yourself divorce forms

The Texas Supreme Court has approved new do-it-yourself divorce forms this Tuesday.

The forms are designed only for uncontested divorces with no children or real estate and are intended to help low-income Texans who cannot afford legal representation.

The Court stated that it is confident the forms will be useful “in addressing the burgeoning population of litigants who cannot afford representation and are unable to obtain representation through legal service provider.”

Last year, almost 58,000 Texans filed family law cases without help from a lawyer — more than could be absorbed by attorneys offering to work without charge, the court said.

Clearly, if you are considering a divorce, and you and your spouse have property, debts, or children, you should consult with an attorney.   However, if no such issues are present, and neither of spouses is contesting the divorce, the form approved by the Court might be all they need.

The form is available on the Texas Supreme Court website and in the near future will be posted on TexasLawHelp.org, a website offering legal help to low-income people.

You can find it at  http://www.supreme.courts.state.tx.us/miscdocket/12/12919200.pdf.  NOTE: The form might be modified in response to comments received on or before February 1, 2013.

For more information, contact Leiza Dolghih.