June 2011 Archives

Naked Licensing, Trademarks and a Consumer's Right to "High Quality"

June 15, 2011

In the recent case of Eva's Bridal Ltd. v. Halanick Enterprises, Inc., Judge Easterbrook of the Seventh Circuit highlights the importance of managing a license of a registered trademark.

One of the reasons that one applies for and obtains a trademark registration is to show ownership---instant identity---of a good or service. When one sees or hears the mark coca-cola, the company Coca-Cola comes instantly to mind. That's the point. To ensure the continuity of that association, Coca-Cola must monitor the use of its trademark to ensure that no one is using it without right. Why? Well, Coke wants to make sure it gets paid for the use of its valuable trademark. But it also wants to make sure that Coke products are of good quality. If it licensed its trademark to a producer of poor quality soda, the consumer might associate bad soda with Coke and avoid Coke products in the future. Also, on some level, the consumer has an expectation that buying a Coke product will yield a Coke-quality product. Therefore, Coke will make sure that any company producing Coke products will do so under its strict rules to ensure consistent quality.

Sometimes, though, trademark holders are happy enough to pocket their licensing or royalty fees, but ignore their obligation (yes, obligation) to maintain a role in the production of the goods being sold under the trademark. That's called naked licensing. And its a good way for a trademark holder to lose its trademark registration.

In his decision, Judge Easterbrook refused to accept the theory that naked licensing is 939846_mallorca_034.jpgOK if the licensee is a "high quality" business and a trusted partner to the trademark owner who licensed the trademark. Because the reputation of the trademark owner (the licensor) is "at stake in every outlet," the consumer has a right to expect that the goods purchased under the trademark is reviewed for the quality and delivery that the consumer expects.

So, while a trademark is often seen as protecting its owner's business, preventing unauthorized use by competitors, ultimately, that is done to ensure that the consumer receives goods or services consistent with what it comes to expect from the trademark holder. If I buy a Coke, I should expect to get a Coke.

Can You Defame Yourself?

June 8, 2011

Apparently you can, but a Kings County judge won't allow you to sue someone for it.

In a recent case, the plaintiff sued after being fired from her position as a hospital psychiatrist, with the termination reported to the New York State Office of Professional Medical Conduct, New York State's regulatory authority. The plaintiff claimed that the termination was without basis. As part of her complaint, plaintiff sought damages for "compelled self-defamation." Plaintiff alleged that because she was fired, she is required to reveal to prospective employers that a report of why she was fired was filed with the State. By doing so, plaintiff is compelled to republish the defamatory statements made by the hospital, thus self-defaming herself.

Citing to appellate authority that refused to recognize defamation where the plaintiff herself republishes the defamatory statement, the court reluctantly dismissed that claim. In doing so, the court noted that other courts, including Federal courts, have recognized a claim for self-defamation. In fact, the court cited some of those Federal court decisions and predicted that New York State will one day recognize this claim.

But will you ever be able to sue yourself?

Selling Your Life Insurance Policy

June 3, 2011

For someone to buy a life insurance policy on the life of another person, that purchaser must have an "insurable interest" in the insured. That insurable interest is a reason that the purchaser wants the insured to live. This requirement makes sure that the buyer is not betting (or hoping?) that the insured dies anytime soon. In today's marketplace, there is a strong business in buying the policies of those that may not have long to live. It even has a name with a catchy acronym: Stranger Owned Life Insurance or STOLI. This is permitted so long as the buyer can show an insurable interest. In these cases, the buyer of the policy pays the premiums and keeps the proceeds upon the insured's death. But can one buy a policy on his or her own life, satisfying the insurable interest requirement, but sell it to a stranger the day after its issued? Is that buyer just betting that the insured does not live long?

In a Court of Appeals case, an insured bought more than $50 million in insurance policies on his own life, placed the policies into trusts and promptly sold them or, more accurately, assigned the right to collect on them when he passed away to a third-party. After his passing, litigation ensued, and the question of assigning one's policy to one with no insurable interest was raised. Initially, the courts had no answers. After a process through Federal Court, the New York State Court of Appeals found the assignment valid. Although this transaction allows for an end-run of the insurable interest requirement, the court's strict reading of the applicable law left it no room for a different outcome. Interestingly, there was a strong dissent, who saw this arrangement for what it was, a wager on the life of the insured. This has been rendered largely moot, as laws have been enacted to prohibit this type of arrangement, but illustrates the creativity of some to beat the system.