IP Legal Lounge

Arbitration Clause At Issue In A Copyright Infringement Suit

Beidleman, a photographer, entered into a limited license agreement with a textbook publisher for the reproduction of his photograph of Mt. Everest in 40,000 textbooks.  The agreement included a typical arbitration clause stating that any disputes in connection with the agreement would be settled by arbitration in New York City.  After printing the contemplated textbooks, the publisher allegedly proceeded to produce in excess of 1,000,000 more copies without Beidleman's consent.  Not surprisingly, Beidleman filed suit alleging copyright infringement.

After both parties moved for a stay of the proceedings, Beidleman stated that he would not agree to arbitration of the matter.  The publisher, thus, filed a motion for an extension of the stay, and informed the court that it would seek to compel arbitration by filing an action in the U.S. District Court for the Southern District of New York.

In granting the publisher's motion, the court cited to the Federal Arbitration Act ("FAA") and various cases that held arbitration to be a favored means of dispute resolution.  Contractual language pertaining to arbitration must be liberally construed by the courts, with any doubt being resolved in favor of arbitration.  Whether or not a certain claim is arbitrable is founded on principles of contract interpretation since an arbitration clause is simply a type of contract provision.

Beidleman's opposition to the motion was comprised primarily of two arguments.  Besides arguing that the copyright claim is outside the scope of the arbitration clause, he also asserted that the limited license expired when the publisher reproduced the 40,000 copies authorized by Beidleman.  Therefore, the reasoning goes, the arbitration clause should not apply to any additional copies made after the agreement allegedly expired.  I don't know if this latter argument will be successful, but kudos to Beidleman for some creative lawyering.

The court held that Beidleman's arguments addressed both the scope of the arbitration clause and whether the licensing agreement expired, thus, nullifying the arbitration provision.  "Questions concerning the scope of an arbitration should be decided in favor of arbitration."  The court, therefore, granted the stay of all proceedings pending a determination by the U.S. District Court for the Southern District of New York as to whether or not it should compel arbitration.

Beidleman v.Littell, 2006 WL 2425321 (N.D. Ill., Aug. 21, 2006).

Licensee Has The Duty To Stop Using Trademarks Once Licensing Agreement Ends

In a fairly straightforward opinion, the Northern District of Illinois held that when a licensing agreement is terminated and the contracts are silent with respect to removal of licensed trademarks, such duty belongs to the licensee.

Plaintiff, Super Wash, provides car washing services and equipment across the United States under its "Super Wash" mark, and owns several federal trademark registrations on the Principal Register.  Plaintiff granted a non-exclusive license to defendant, Sterling, to use the marks in the operation of a car wash in Indiana.  The agreement specified that defendant could not install brushes for customer use without plaintiff's consent.  Defendant, nonetheless, did just that, and plaintiff subsequently instructed defendant to cease using its marks.  Defendant eventually removed all of the signs except the exterior one, which remained on display until after plaintiff filed the lawsuit.  Among other things, plaintiff sued for trademark infringement under Section 32 of the Lanham Act and unfair competition under Section 43(a).  Pending before the Court were defendant's summary judgment motion as well as plaintiff's cross-motion.

The Court concluded that none of the contractual provisions of the agreement relied upon by the parties addressed the circumstances under which the parties could end their relationship, and who would be responsible to remove the marks in the event of termination.  Nevertheless, since the license agreement did not specify any particular duration or provide that it was terminable only for cause, the Court determined that the agreement was thus terminable at the will of either party for any reason.  The Court found that the licensing agreement was terminated based on various actions by both parties.  In such a situation, and where the licensing agreement is otherwise silent, the duty to remove the licensed trademarks belongs to the licensee.  "As a general matter of trademark law, a licensee cannot continue to use a trademark after the license agreement is terminated."  Continued use constitutes trademark infringement.  The Court therefore found defendant liable for trademark infringement and unfair competition.

Interestingly, plaintiff requested treble damages and attorney's fees in its summary judgment motion based on an allegation of willful infringement.  The Court declined to rule on this since such a ruling would be premature considering plaintiff has not yet established that it is entitled to any damages.  The light at the end of the tunnel for the defendant may be the Court's statement at the end of the opinion that it knew "of no reason why [plaintiff] did not have a duty to mitigate its damages" which could have been limited to the expense of removing the sign (according to defendant, it invited plaintiff to remove the exterior sign upon termination of the license agreement).

Super Wash, Inc. v. Sterling, (Slip Op.) 2006 WL 533362 (N.D. Ill., March 2, 2006).