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In This Issue
Sculptor Wins Copyright Battle Over Korean War Stamp 
The U.S. Court of Appeals for the Federal Circuit has ruled that Frank Gaylord, the artist who sculpted the formation of stainless-steel soldiers (The Column) that constitutes the heart of the Korean War Veterans Memorial (KWVM) in Washington, D.C., is the sole copyright owner of that sculpture and that the U.S. Postal Service’s use of a photograph of The Column on a stamp infringed his copyright. Gaylord v. United States, 595 F.3d 1364 (Fed. Cir. 2010). In its 2-1 decision, the court held that the Postal Service’s stamp was not a fair use of Gaylord’s copyrighted work and that, even though the KWVM is a public memorial built with public money, the U.S. government is not a joint author of The Column. In 1986 Congress authorized the creation of the KWVM, which includes landscaping, a mural, and granite plates representing the reflection of rice paddies at soldiers’ feet. The government engaged Cooper-Lecky Architects, P.C. (CLA) as the prime contractor. CLA sponsored a contest to select the sculptor for the memorial, and Gaylord won. In 1990 Gaylord began working on The Column, receiving several suggestions from the KWVM Advisory Board, the Commission on Fine Arts, CLA, and other entities and adopting some of them. From 1990 to 1995 Gaylord received five copyright registrations relating to the soldier sculptures; each registration certificate listed Gaylord as the sole author. The KWVM was dedicated in 1995, and shortly thereafter a photographer named John Alli took numerous pictures of it, including some made just after a snowstorm. One photograph, which Alli entitled "Real Life," is particularly striking as it shows the soldiers as ghostly gray figures trudging through the snow on a dark day. Alli, who owns the copyright in the photo as a derivative work, decided to sell prints of "Real Life" and sought permission from the copyright owner of the underlying work. William Lecky of CLA characterized himself as the "outright" owner of the copyright in The Column, and Alli and Lecky entered into a licensing agreement. Lecky did not inform Gaylord of this licensing agreement. In 2002 the Postal Service decided to issue a stamp commemorating the Korean War. The Postal Service selected "Real Life" for the stamp (Stamp), and Alli referred the Postal Service to Lecky, who gave permission with respect to The Column. The Postal Service received over $17 million from the sale of nearly 48 million Stamps and additional funds from the sale of Stamp-related commemorative panels and framed art. After suing Alli and settling that case in return for Alli’s payment of a 10 percent royalty, Gaylord sued the federal government in 2006. The Court of Federal Claims held that Gaylord was the sole copyright owner of The Column but that the government’s creation and distribution of the Stamp was fair use. Both sides appealed. The Court of Appeals analyzed the fair-use issue under the four-part test specified in the Copyright Act, 17 U.S.C. § 107. First, the court held the Stamp was not a transformative, i.e., fair, use of The Column because both were intended to honor veterans of the Korean War, the Stamp did not criticize or otherwise comment on The Column, and the Stamp was used for commercial purposes. Second, the court held The Column is an expressive, creative work as opposed to a factual, informational work, which also weighs against a finding of fair use. Third, the court noted that the Stamp depicted a substantial portion of The Column —14 out of 19 soldiers —and that The Column constitutes "essentially the entire subject matter" of the Stamp. The court said both of these factors weighed against a finding of fair use. Fourth, the court found the Stamp had not adversely affected Gaylord’s efforts to market derivative works of The Column, which weighed in favor of a finding of fair use. With three factors against and only one in favor of a finding of fair use, the court held the Stamp was not a fair use of The Column. Next, the court considered the issue of whether the government, through the contributions of the KWVM Advisory Board, the Commission on Fine Arts, and CLA, is a joint author of The Column. The court began by noting Gaylord’s copyright registrations, which listed him as sole author, entitled Gaylord to a prima facie presumption of the validity of those copyright registrations. The court then observed that although various entities had contributed to the creation of The Column by providing ideas, suggestions, and approval, such contributions do not amount to authorship, especially without evidence that Gaylord or any of the other entities had intended it to be a joint work. The court quoted from earlier cases that hold "[t]o be an author, one must supply more than mere direction or ideas: one must 'translate [] an idea into a fixed, tangible expression entitled to copyright protection.'" The court said that although the KWVM might be a joint work, The Column was not, and the court noted the Stamp depicted only The Column. Accordingly, the court ruled the government could not escape liability for copyright infringement by pointing to its rights in the KWVM. The court also held that because The Column is not an architectural work, the government could not escape liability under the statute that permits reproducing photographs of copyrighted buildings ordinarily visible from a public place. Focusing on the public nature and funding of the memorial, the dissent argued the government should not be liable because of its prime contract with CLA, which gives the government an unlimited license in copyrighted material related to the KVWM, and 28 U.S.C. § 1498, which precludes government liability where the copyrighted work was created by a government employee or by using government time, material, or facilities. The majority rejected both arguments, noting Gaylord was not a party to the prime contract, CLA and Gaylord had agreed Gaylord would retain his copyright in The Column, and Gaylord was an independent contractor who created The Column for CLA without the use of government resources. The court remanded the case to the trial court for a determination of Gaylord’s damages for copyright infringement. The Gaylord case illustrates several important points for businesses. First, contractors must clearly understand what rights the government expects to acquire under a given contract and be prepared to fulfill that expectation. Second, prime contractors must ensure they acquire from subcontractors any and all rights necessary for the primes to meet their obligations to the government. Third, subcontractors should be careful not to assign or license to prime contractors more rights than necessary under the primes’ government contracts. Fourth, before exploiting a derivative work, the entity that owns the copyright in the derivative work must ensure it has obtained from the true owner of the copyright in the underlying work all rights necessary to carry out the projected exploitation. Finally, a business planning to make unlicensed use of material in which a third party owns the copyright must carefully evaluate its plan under the four-part test for fair use. The business should implement its plan only if it is confident its proposed use actually is fair under that test. Court Decision Underscores Need To Check IP Provisions in Employment Agreements The U.S. Court of Appeals for the Federal Circuit has held that language in a Stanford University employment agreement providing that an employee "agree to assign" certain patent rights to Stanford was insufficient for the purpose of accomplishing a present assignment of future rights. Board of Trustees of the Leland Stanford Junior University v. Roche Molecular System, Inc., 583 F.3d 382 (Fed. Cir. 2009). In 1988 Stanford hired a scientist named Mark Holodniy to work as a research fellow in the Department of Infectious Disease, focusing on the human immunodeficiency virus (HIV). In connection with his employment at Stanford, Holodniy entered into a "Copyright and Patent Agreement" (CPA) in which he undertook to "agree to assign or confirm in writing to Stanford" rights to inventions that he conceived while Stanford’s employee. In 1989 Holodniy began visiting a laboratory at Cetus Corporation to learn about a new process called polymerase chain reaction (PCR). Holodniy signed Cetus’s "Visitor’s Confidentiality Agreement" (VCA), which stated Holodniy "will assign and hereby do[es] assign to Cetus" his rights in his inventions. Thus, Holodniy was party to two apparently conflicting agreements—both of which called for him to assign his rights in the same inventions to different entities. Holodniy and his colleagues eventually developed a method of using PCR to measure the efficacy of drugs for treating HIV. In 1991 Roche purchased Cetus’s "PCR business," including the VCA with Holodniy. After the transaction was complete, Roche began manufacturing HIV detection kits using Holodniy’s method. The following year Stanford obtained three patents based on Holodniy’s method. In 2005 Stanford filed suit against Roche in the U.S. District Court for the Northern District of California, alleging Roche’s HIV detection kits infringed on Stanford’s three patents. Roche defended partly by challenging Stanford’s ownership of the patents. The district court treated Roche’s defense as a counterclaim and held it was time-barred. On appeal, the Federal Circuit said Roche’s defense should be treated as an affirmative defense, not as a counterclaim, and accordingly was not time-barred. The court then analyzed the rights Stanford and Cetus had acquired from Holodniy under the applicable agreements. The court found that the language in the CPA—"agree to assign"—reflected "a mere promise to assign rights in the future, not an immediate transfer of expectant interests," and that "Holodniy agreed only to assign his invention rights to Stanford at an undetermined time." In contrast, the court found that "the VCA’s language of 'do hereby assign' effected a present assignment of Holodniy’s future inventions to Cetus" and that thereby "Cetus immediately gained equitable title to Holodniy’s inventions." Accordingly, the court held that Holodniy had effectively assigned his rights to Cetus and had nothing left to assign to Stanford even though Holodniy entered into the CPA before entering into the VCA. After determining that Holodniy had effectively assigned his rights to Cetus and had merely promised to assign them to Stanford, the court of appeals reversed the district court. The court of appeals ruled Stanford lacked standing to pursue its patent-infringement claims because it could not establish ownership of rights in the patents at issue. The Stanford case demonstrates the importance of carefully selecting appropriate contractual provisions for employment agreements in which intellectual property rights are to be assigned. If the contract states the employee "agrees to assign" but does not also state the employee "hereby does assign" his or her rights to the employer, all the employer has is an "agreement to agree," not a present assignment of future rights. Employers should carefully review their employment agreements with this issue in mind. Court Denies Trade Dress Protection for Dixie's Cup 
A federal court has ruled that the narrow white band at the bottom of the "Insulair Cup" manufactured by Dixie Consumer Products LLC (Dixie) is functional, not ornamental, and thus, unlike McDonald’s "golden arches," is not protectable as trade dress. Dixie Consumer Products LLC v. Huhtamaki Americas, Inc., ___ F.Supp.2d ___, 2010 WL 784905 (N.D. Ga., Mar. 08, 2010). The court granted the defendant’s motion for summary judgment, thereby enabling Huhtamaki Americas, Inc. (Huhtamaki) to continue to sell its competing "Chinet Comfort Cup," which has a white bottom band virtually identical to Dixie’s. 
Both cups are designed to keep liquids hot while protecting users’ hands. Both consist of: (1) an inner layer to hold the liquid, (2) a middle insulating layer, and (3) a paper outer layer that can display print or graphics. Dixie contended that not extending the middle or outer layers to the bottom of the inner layer, leaving the band visible, constituted trade dress. Dixie objected to the use by Huhtamaki, which has captured a growing share of the market for insulated paper cups, of the same layering technique to leave a white band at the bottom of its competing cup. Huhtamaki claimed the band is functional and therefore cannot be trade dress. Because Dixie had not registered its alleged trade dress with the U.S. Patent and Trademark Office (USPTO), Dixie had the burden of proof with respect to functionality. As a leading case explains, "The functionality doctrine prevents trademark law, which seeks to promote competition by protecting a firm’s reputation, from instead inhibiting legitimate competition by allowing a producer to control a useful product feature." Functional features provide the benefit of a product—in this case, a paper cup’s insulating property—as opposed to identifying a product’s origin. By definition, functional features are likely to be included in similar products made by different manufacturers and therefore are unlikely to identify a particular manufacturer. As the courts have stated, if a single manufacturer could appropriate a functional feature through trade dress protection, "competitors would be prevented from duplicating the new product even to the extent permitted by the branches of the law of intellectual property that protect innovation [e.g., patent law] rather than designations of source." In that regard, Huhtamaki pointed out that Dixie’s cup is the subject of several utility patents that include drawings showing an insulating sheet that does not extend to the bottom of the cup and thus exposes a narrow band at the base. One of the patents even touts this feature as a way of saving paper during manufacture. Dixie countered by claiming that because the patent does not say the outer, or non-insulating, layer cannot be extended to the bottom without affecting the cup’s functionality, the band is "ornamental, incidental, or arbitrary," qualifying it to be trade dress. Dixie also opposed summary judgment by arguing Huhtamaki could have selected "numerous alternative non-infringing cup designs." The cases are mixed on whether alternative designs must, or merely may, be considered in trade dress cases. However, because the 11th Circuit has not yet addressed that issue, the court analyzed Dixie’s proposed alternative designs under each of the two relevant tests. The court rejected Dixie’s argument, stating the patent drawings show that the two outer layers work together as an "insulating sleeve" and thus are functional. The court cited as true trade dress the Mercedes hood ornament and the four linked rings on Audi’s grille, contrasting those obviously non-functional features with the white band that is "the direct result of attaching a functional insulating sleeve to a functional single-wall cup." Under the "traditional" test a product feature is functional if it is essential to the product’s use or purpose or if it affects the product’s cost or quality. Under the "competitive" test a feature is functional if one entity’s exclusive use of it would put competitors at a significant non-reputation-related disadvantage. Huhtamaki stressed the second test, and the court agreed that not being able to leave a band at the bottom would significantly disadvantage Huhtamaki because of increased manufacturing costs and decreased effectiveness of the insulated cup. Accordingly, the court found that the band is functional and thus not entitled to be protected as trade dress. In a footnote the court noted that "Dixie owns numerous patents pertaining to the Insulair Cup and is also the owner of over 128 active trademark registrations." The court commented that given Dixie’s considerable experience in protecting its intellectual property, Dixie’s waiting until the day it sued Huhtamaki to seek registration of its alleged trade dress was "peculiar." The court admitted its observations in this regard were not "legally dispositive," but the court obviously thought Dixie would have been in a better position if it had earlier sought—and perhaps been able to obtain—registration of the narrow white band as trade dress. Both the court’s ruling and its comments about Dixie’s knowledge and conduct underscore the need for companies to identify and seek to register distinctive, nonfunctional product features that may qualify for trade dress protection.
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