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Elizabeth Holmes, Theranos, and the Patenting of Vaporware

Elizabeth Holmes set the biotech investment world on its head when she announced that her company had developed a small machine capable of performing hundreds of blood tests on tiny blood samples at a greatly reduced cost. Her company
Theranos (a portmanteau of “therapy” and “diagnosis”), immediately began receiving investment capital. These investments eventually totaled over $700 million, skyrocketing the company’s valuation to over $9 billion. But it was all based on a lie. Ms. Holmes had no machine with these capabilities. Not only did such a machine not exist, but an expert in her own company admitted that producing a machine, in such a tiny form factor, with all of its claimed capabilities, was simply impossible.

So how did Elizabeth Holmes and Theranos raise hundreds of millions of dollars based on technology that it did not, and would never, have? As detailed in the new HBO documentary The Inventor: Out for Blood in Silicon Valley, there are several reasons Theranos was able to receive so much money, based on so little technology. One reason was Ms. Holmes’ cult of personality, that kept investors from questioning why the Emperor had no clothes. Another reason was her ability to attract powerfully influential board members, like Henry Kissinger and George P. Shultz, who understood little about biotech, and even less about Theranos’ calims of a tiny miracle machine. Ms. Holmes also brought in investors who, after investing large sums of money into Theranos, had a large incentive to convince new investors to invest even more money, thereby dramatically increasing the valuation of their initial position.

So why did none of these investors confirm that Theranos’ technology actually existed, or that such a technology was even theoretically possible? It appears that instead of conducting sufficient due diligence of Theranos on their own, investors may have blithely relied on the mistaken assumption that at least one earlier investor, in at least one prior Theranos investment round, did confirm that the technology existed, or was at least theoretically possible. So what about the early investors? Why did they not demand to see evidence that the technology was viable? One reason may have been the complexity of the technology and the patents that allegedly protected it. If the company holds multiple patents and employs experts in the field, such as former Stanford chemical engineering professor Channing Robertson, the technology must exist, right?

The problem investors failed to realize is that patents are no indication that a technology exists, or that the technology is even possible. There is no requirement that you have a prototype, or even prove the technology works, before the United States Patent and Trademark Office (USPTO) will grant you a patent. There is a requirement under 35 U.S. Code § 112(a) that a patent contain a written description of the invention and the manner of making it “in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains [….] to make and use the same.,” but you only have to state that. You do not actually have to submit any proof the technology is viable unless the USPTO requests it. And why would the USPTO request it? Why would anyone spend so much money patenting technology that does not exist?

Now if an examiner at the USPTO became aware that a particular technology is impossible to make or use according to a patent application’s written description, such as in the case of applicants trying to patent perpetual motion machines, the examiner will refuse to grant a patent on the technology. The problem is that patent examiners at the USPTO have no ability to use the written description of a patent application to try to actually build or use the claimed invention. In many cases, especially in the case of complex technology, confirming the patent accurately describes how to make or use a viable technology would require massive amounts of time and money to produce a prototype. Given the rarity of applicants spending massive amounts of money try to patent a technology that does not exist, forcing the USPTO to conduct experiments to determine the viability of every claimed invention would be a massive waste of time and resources. The USPTO is, therefore, left with no choice, but to assume that the patent applicant has described the technology in the patent application sufficiently to allow a person of ordinary skill in the art to produce the claimed technology.

Why is this not a bigger problem? Why are more companies not getting patents on vaporware? First, a patent only gives the patent owner the right to stop someone else from making, using, or selling, the technology claimed in the patent. If the technology does not exist, the patent owner has no rights to enforce. Second, if a patent owner were to get a patent on fake technology and then try to enforce its patent against a competitor making a different product, the competitor would investigate the patent, and call in experts to invalidate the patent in court, by proving that the description in the patent does not describe a technology in such full, clear, concise, and exact terms as to enable any person skilled in the art to make or use the technology. So even if the USPTO were to grant a patent on a technology that does not exist, the market would ordinarily weed out those patents before they can do any harm.

But what if a company obtained a patent on an impossible technology and never tried to enforce the patent against anyone? What if the company simply touted its technology as “patented”?

Many investors hold tight to the mistaken belief that the USPTO vets patents to make sure the technology claimed in the patent is real. They erroneously rely on the USPTO to do the complex, costly, and time-consuming due diligence that would be necessary to ensure a technology is viable. Many investors view a patent as a seal of approval from the government that the technology is real and no competitors are allowed to compete in the marketplace.

In actuality, a patent is no guarantee that: 1) the technology is viable; 2) that the patent is valid; or 3) that a competitive technology is infringing the patent. While a patent is presumed valid, if a competitor can present a court with evidence that the patent covers technology that was in the public domain, the court will invalidate the patent. Similarly, a patent can be broad or narrow. A broad patent provides its owner with a monopoly not only on the exact technology, but on alternative technologies a competitor may try to implement to get around the patent. Conversely, a narrow patent allows competitors to change one or two minor elements of the technology to legally circumvent the patent. The breadth or narrowness of a patent determines the scope of the monopoly the patent provides over competing products. Whether a competitive technology infringes a patent or not is determined by a judge or a jury, after reviewing all of the evidence.

Investors, therefore, need to be aware that patents are no substitute for the due diligence required to determine if a technology is real. It is simply not the USPTO’s job to determine the viability of a technology covered by a patent. Investors need to realize what patents represent and what they do not. When the USPTO grants a patent, it is simply stating that, based upon the USPTO’s necessarily limited investigation, the USPTO has not found any evidence that the patent is attempting to cover technology that already exists or that will never exist.

From a technology viability perspective, a patent grant is similar “not guilty” verdict in a criminal trial. A “not guilty” verdict is not a certification that the defendant is innocent. It is simply an indication that there was insufficient evidence to find the defendant guilty. Similarly, a patent is not a certification that the technology is viable, just that the USPTO has not been presented with any indication the technology is not viable.

While most of the blame for the massive Theranos investor losses rests with Elizabeth Holmes and Theranos, some of the blame rests with the investors themselves. This blame rests with Theranos investors failing to conduct sufficient due diligence and for failing to understand what a patent means and does not mean. Investors, especially when investing in complex technology, must conduct their own exhaustive due diligence into the viability of the technology. In today’s complex investment market, there is simply no excuse for investors failing to understand the interplay between patents and technology and how patents do, and do not, factor into proper due diligence protocols.

Brett Trout


Posted in Patent Law.

1 Million Cups Des Moines: Venture Capital Edition

1 Million Cups Des Moines is a weekly networking and presentation event for entrepreneurs and their latest projects. The event, and the coffee, are free. 1 Million Cups Des Moines events are held most Wednesday mornings at 8a.m. at the Science Center of Iowa, which also graciously provides free parking in the Science Center Parking Ramp during the event (be sure to grab a ticket from Emily on your way into the Science Center). Networking starts at 8a.m., with the presentation usually starting between 8:30a.m. and 9a.m.

While 1 Million Cups Des Moines events are typically presentations by up and coming companies, this Wednesday’s event will be a presentation by the venture capital group NextLevel Ventures. NextLevel Ventures typically invests $1 to $4 million for a minority ownership position in a company with the potential to scale rapidly. Qualifying companies generally have at least $1 million in annual sales and a defined path to a large increase in revenue.

If you have not attended a 1 Million Cups event before, here is a brief startup and venture capital glossary of frequently used funding terms to help make your first 1 Million Cups experience be a little more enjoyable:

Accelerator: A program designed to take startups that have already gained some traction to a place suitable for the next investment round. Accelerator programs often range from three to six months.

Accredited Investor: An individual investor who meets certain Securities and Exchange Commission minimums for income and net worth. Certain investment opportunities are only available to individuals who meet the qualifications of an Accredited Investor.

Angel Investor: Accredited investors who invest their own assets in early stage companies, such as startups. Angel Investors generally invest in companies that are at a stage too early to obtain venture capital funding.

Benchmark: The performance metrics a company must meet to receive an additional round of funding from an investment group. Benchmarks may include things like sales and revenue goals, customer satisfaction metrics, and market penetration.

Bootstrapped: A company funded by its own revenue stream and/or its owner’s personal assets.

Deal Flow: The rate at which an investor or investment group locates new investment opportunities. A venture capital group may have to review hundreds of potential deals to find a deal worth pursuing.

Debt Financing: Raising money by borrowing money from a financial institution or investor, with the promise that the debt will be repaid with interest.

Down Round: Offering a new round of equity financing at a corporate valuation lower than the corporate valuation for the last round of funding. For a down round to occur something negative and unforeseen typically occurred between the two funding rounds. Down rounds can be a case of throwing good money after bad or an opportunity for investors to grab equity at a discount.

Due Diligence: A comprehensive analysis of a company’s business plan, financials, management team, etc. by someone with particular expertise in such evaluations to determine the present and/or future value of the company.

Equity Financing: Raising money by selling partial ownership in the company.

Friends and Family Round: A type of bootstrapping that extends to friends and family investing more in their belief in the startup founder than in the type of arms-length due diligence undertaken by angel investors and venture capitalists.

Incubator: A group that provides start-up companies with resources in exchange for partial ownership of the start-up. Resources provided by an incubator may include corporate management services, office space, office resources, internet access, etc. Unlike accelerators, incubators usually work to build companies on a longer timeline.

Initial public offering (IPO). Offering ownership shares in the company to the public for the first time.

Lead Investor: An individual or entity, such as a venture capital group, that puts together a funding round for a company. If the Lead Investor also puts the most money into the investment round, the Lead Investor is said to be “leading the round.”

Mezzanine Financing: A mix of debt financing and equity financing, such as options. Typically used by companies that are past the startup stage, but which have not yet gone public.

Round: Venture Capital firms typically invest money in companies in rounds. The first round is often the Seed round, with subsequent rounds referred to by letters, such as Series A, B, C, etc. rounds.

Seed round: The company’s first official financing round. Seed rounds are often used for building prototypes, proof of concept, and/or creation of a minimum viable product.

Secondary Public Offering: Offering the public new stock after an IPO. Secondary Public Offerings may occur in the event the founder wishes to exit and/or decrease participation in running the company.

Stage: The current state of a growing company’s financial/growth position. There are no hard-and-fast rules for determining which stage a company is at or even what stages there are. Some terms used to define company stages include: seed, early, mid, and late stages. Many Venture Capital firms have a particular expertise helping companies in only one or two stages of development and may not invest in companies outside of these stages.

Venture Capital: Assets provided by venture capital entities to smaller, higher-risk, startup companies with a clear path to accelerated growth.

Venture Capitalist: An individual or entity that invests venture capital in a new company. Venture capitalists often limit their investment to companies at a particular stage of growth and/or a particular market sector with which the venture capitalist has an established expertise.

If you choose to stop by 1 Million Cups Des Moines this Wednesday, be sure to introduce yourself to this 6’4″ patent attorney who will be making the rounds and enjoying a cup of coffee with you.

Brett Trout

Posted in General. Tagged with , , .

ScoutSheet to Present at 1 Million Cups Des Moines

Presented at the Science Center of Iowa (SCI) every Wednesday morning, 1 Million Cups Des Moines showcases entrepreneurs and their growing businesses. The event, and the coffee, are free. This week’s presentation is by ScoutSheet, an SaaS product providing B2B sales and marketing professionals with new ways to discover customers.


So join us tomorrow and every Wednesday morning at 8a.m. at the Science Center of Iowa to network with other like-minded entrepreneurial professionals, and be sure to say “Hi” to your favorite patent lawyer while you are there. The Science Center provides free parking in the SCI Parking Ramp during the event (be sure to grab a ticket from Emily on your way into the Science Center). Networking starts at 8a.m., with the presentation usually starting between 8:30a.m. and 9a.m.


Brett Trout?

Posted in Des Moines, Events, StartUp.

1 Million Cups Tomorrow at the Des Moines Science Center

UPDATE: Due to the impending storm, tomorrow’s 1 Million Cups Des Moines event has been cancelled.

1 Million Cups Des Moines is a weekly showcase of entrepreneurs and their burgeoning projects. The event is free, as is the coffee. 1 Million Cups events are held most Wednesday mornings at 8a.m. at the Science Center of Iowa, which also graciously provides free parking in the Science Center Parking Ramp during the event (be sure to grab a ticket from Emily on your way into the Science Center). Networking starts at 8a.m., with the presentation usually starting between 8:30a.m. and 9a.m.

If this is your first 1 Million Cups, and you are new to the startup scene, here are some oft-used acronyms and their meanings to help your first 1 Million Cups experience be a little more understandable:

CRM (Customer-Relationship Management) – This is a system for using customer data, received through various channels, to optimize a company’s interactions with past, present, and future customers. Depending on the companies CRM goals, the company can use the system to retain current customers, obtain new customers, increase overall sales, etc.

KPI (Key Performance Indicator) – This is a list of factors that a company has chosen to assess the success of a company or a particular initiative undertaken by the company. KPIs can be quantitative, such as objective sales figures, or qualitative, such as subjective customer opinions about a particular product. Some examples of KPIs include profit, customer acquisition costs, employee satisfaction, etc.

MVP (Minimum Viable Product) – This is an early-stage version of the company’s good or service, having the minimum number of features necessary to address the needs of early adopters and to obtain feedback for future iterations of the good or service.

SAM (Serviceable Addressable Market) – This number is a subset of TAM (see below), representing the annual sales revenue or unit sales you could theoretically obtain with your good or service. For instance, if you were selling bubble gum, TAM would be the total candy market, and SAM would be that subset of the candy market that you are targeting and that would buy bubble gum.

SOM (Serviceable obtainable market) – This number is a subset of SAM (see above), representing the annual sales revenue or unit sales you can realistically obtain with your good or service.

TAM (Total Addressable Market) – This number is the annual sales revenue or unit sales, representing the entire potential worldwide market for your good or service. Any sales to anyone who could buy your good or service, across all industries, locations, and sales structures, is included in this number.

If you plan on attending 1 Million Cups Des Moines this week, be sure to find me and say “Hi” while you are there.

Brett Trout

Posted in Des Moines, Events, StartUp.

Upstart Locast Shakes Up the Local Television Broadcast Market

A tiny non-profit is making big waves in the vast ocean of television broadcasting. Locast.org now offers a handful of local broadcast television stations online and appears to have found a legal loophole that has prevented similar companies from streaming local broadcast television stations in the past.

Locast.org is what is known as a “digital translator.” Traditional broadcast translator services are low-powered television stations that rebroadcast the signal of full-power station to areas that the full-power station signals cannot reach. For instance if someone in Adair, Iowa was too far away to receive a local television broadcast signal from Des Moines, Iowa, a broadcast translator service could set up a rebroadcast antenna between the two cities, which would allow viewers from Adair to watch Des Moines local television broadcasts. Locast.org acts like these traditional broadcast translator services, except that instead of rebroadcasting a local broadcaster’s signal over-the-air, Locast.org rebroadcasts the signal over the Internet. To keep the reach of the rebroadcast local, Locast.org users must sign up online, provide a name and email address, certify the city they live in and are logging on from, and then select their city online. Currently, Locast.org is only available in a handful of markets, but intends to expand in the future.

So why has no one done this in the past? They have. It is just that they have all been shut down. To understand where other have failed and Locast.org appears to be succeeding requires a look at the law governing rebroadcast of local television signals. The Telecommunications Act of 1996 requires that local television stations consent to give cable systems or other multichannel video programming distributors (MVPD) to rebroadcast the local television stations’ signals. Cable companies, satellite providers, and other MVPDs negotiate with local television stations for this consent to rebroadcast, typically in exchange for cash or other consideration.

Failure of the cable provider and the local television station to come to an agreement can result in the cable company subscribers no longer being able to access their local television station. Combine this with people who do not have cable or satellite and still wish to receive their local television stations and you can see why the market for an alternative access to local television stations exists. Other companies have tried to do what Locast.org is doing. One such company was Aereo. When Aereo entered the market to provide users with internet access to local television stations a consortium of major broadcasters, including NBC, CBS, ABC and Fox, sued Aereo. The case went to the United States Supreme Court, which held that Aereo did indeed infringe the exclusive right of the owners of the copyright in the network broadcasts by selling Aereo’s subscribers a technologically complex service that allows them to watch television programs over the Internet at about the same time as the programs are broadcast over the air.

So what allows Locast.org to thrive, where competitors like Aereo have failed? The secret lies in one small section of the united States Code. Under 17 U.S.C. § 111, “The secondary transmission of a performance or display of a work embodied in a primary transmission is not an infringement of copyright if [….] the secondary transmission [….] is made by a governmental body, or other nonprofit organization, without any purpose of direct or indirect commercial advantage, and without charge to the recipients of the secondary transmission other than assessments necessary to defray the actual and reasonable costs of maintaining and operating the secondary transmission service.” According to 17 U.S.C. § 111, it appears that as long as Locast.org remains a nonprofit, it maintains the right to rebroadcast local television station signals to consumers in those markets.

So network broadcasters are left with a conundrum. Should they sue Locast.org at all? The upside of a successful lawsuit would mean the continuation of huge revenues across the country from cable companies paying to rebroadcast their signals. The downside of an unsuccessful lawsuit would likely mean a significant decrease in those revenues, as cable companies no longer felt compelled to deliver a product their customers can get for free online. From the network broadcasters’ vantage, Locast.org does not appear to have the resources to fight a lengthy copyright battle in federal court. However, the language of 17 U.S.C. § 111 appears clear, so clear, that a court might grant Locast.org summary judgment on the issue, meaning Locast.org could likely avoid the majority of the legal fees involved in these types of fights. Additionally, if a court were to grant Locast.org summary judgment, it is likely that donations to Locast.org would skyrocket overnight, leading to a rapid boost in its expansion plans.

Even more interesting, is what this upstart company might mean for cable and satellite providers. Video consumers have shown a strong affinity for à la carte picking and choosing among only those providers they want to watch i.e.(HBO, Amazon Prime, Netflix, etc.). Consumers do not want to pay a portion of the huge fees associated with channels like ESPN if they do not watch sports. If providers like Locast.org finally allow consumers to receive local stations without having to purchase predetermined packages from cable and satellite providers, and instead select only those channels they wish to receive, the market for cable and satellite providers may quickly plummet. At the present, network broadcasters, cable and satellite providers, and consumers all appear to be waiting to see how things progress with Locast.org before taking action. No one knows for sure how Locast.org’s risky gambit will pay off, but rest assured, it will be interesting.

Brett Trout

Posted in Copyright Law, General, Internet Law.

Board Game Patents – Magic: The Gathering

On August 5, 1993, mathematics Professor Richard Garfield released a set of 240 playing cards that would change the gaming landscape forever. But the story of Magic: The Gathering (“MTG” for short), starts much earlier. Garfield had been creating games since at least as early as 1982, when he came up with a card game called Five Magics. While Five Magics went on to inspire Garfield’s friends to develop additional magic-based card games, within a few years, Garfield had moved on.

In 1991, Garfield was working toward a Ph.D in one of my favorite areas of mathematics, combinatorics. By that time, Garfield had also teamed up with Mike Davis to create the popular board game RoboRally. Davis eventually pitched the game to Peter Adkison and James Hays of American game publisher Wizards of the Coast (“WotC”). Adkison and Hays loved RoboRally, but explained to Garfield and Davis that WotC was not in a position to release a board game at that time. Disappointed, Garfield responded, asking Hays what WotC was in a position to publish. Hays told Garfield that WotC was looking for a portable card game that people could take out and play during downtimes at conventions. The rest is history.

Returning home, Garfield dusted off Five Magics, began adding to the good things, and chiseling away at the bad. Garfield focused on combining the collectability of baseball cards and the chaotic asymmetrical energy of the iconic board game Cosmic Encounter with the beloved fantasy elements of Dungeons & Dragons. After multiple failed attempts, Garfield eventually landed on a game he simply called “Magic.” To deter people from buying hundreds of cards and only using the most powerful cards in his game, Garfield included an “ante” mechanism. The ante worked much like a claiming race in auto sports or horse racing. At the beginning of the game, both players would randomly select one card from their decks and place them aside. The winner of the game would then own the two ante cards. The ante system placed a financial disincentive on using only rare and expensive cards to compete against a deck of more common cards.

The first MTG core set that WotC released in August of 1993 was called Limited Edition: Alpha (nicknamed “Alpha”). Alpha’s first print run was a modest 2.6 million cards. WotC sold Alpha in 60 card starter decks and 15 card boosters. MTG turned out to be more successful than either Garfield or WotC could ever have imagined. Having just celebrated its 25th anniversary, MTG has become one of the biggest selling games of all time, today boasting over 20 million players and over 20 billion cards sold. Since its inception, MTG has been translated into over ten languages and has become the world’s “Most Played Trading Card Game.”

As shown below, the now-expired MTG patent originally covered a game mechanic whereby players would make some type of designation that certain cards were being brought into play. The “tapping” mechanic could involve simply rotating the cards sideways.

Claim 1 of U.S. Patent No. 5,662,332

1. A method of playing games involving two or more players, the method being suitable for games having rules for game play that include instructions on drawing, playing, and discarding game components, and a reservoir of multiple copies of a plurality of game components, the method comprising the steps of:
each player constructing their own library of a predetermined number of game components by examining and selecting game components from the reservoir of game components;
each player obtaining an initial hand of a predetermined number of game components by shuffling the library of game components and drawing at random game components from the player’s library of game components; and
each player executing turns in sequence with other players by drawing, playing, and discarding game components in accordance with the rules until the game ends, said step of executing a turn comprises:
(a) making one or more game components from the player’s hand of game components available for play by taking the one or more game components from the player’s hand and placing the one or more game components on a playing surface; and
(b) bringing into play one or more of the available game components by:
(i) selecting one or more game components; and
(ii) designating the one or more game components being brought into play by rotating the one or more game components from an original orientation to a second orientation.

Brett Trout

Posted in Board Games, Patent Law.

Board Game Patents – Tsuro

The Patent

Tsuro, the tile-laying board game was not released until 2004, but the underlying game has been around much longer than that. The original game was called “Squiggle” and was the subject of United States Patent Number 4,180,271 (the ‘271 Patent), filed July 10, 1978. As disclosed in the ‘271 Patent by inventor Thomas McMurchie, other than using a “Next” tile instead of the familiar “Dragon” tile, the concept and rules for Squiggle are not much different than present day Tsuro.

The Alternative Version

It is interesting to note that in the ‘271 Patent McMurchie envisioned an alternative embodiment of the game, where instead of having two endpoints on each side of the tiles, the eight connection points on the tiles were on the four corners and four sides of the tiles.

From Squiggle to Tsuro

Although Squiggle was patented in 1979, it was not until 2001, when McMurchie played a game of Squiggle with WizKids founder Jordan Weisman, that the idea for rebranding Squiggle as Tsuro came to fruition. WizKids published the game from 2004 until 2009, when Weisman et al. launched Calliope games with Tsuro as one of its supporting titles. Since then, Calliope Games has launched various reimplementations of Tsuro, including Tsuro of the Seas, and Tsuro: Phoenix Rising.

Tsuro Meets Star Wars

Another interesting fact about Tsuro is that in 2011, prior to the release of the follow-up hit Tsuro of the Seas, French game publisher Abbysse Corp. published a few copies of a game called Star Wars Asteroid Escape. Adding to the rarity Star Wars Asteroid Escape is the fact that Abbysse only released the game in France. It is rumored in some discussion groups that shortly after Disney announced its multi-billion dollar deal to acquire Lucasfilm and the Star Wars franchise in 2012, Disney ordered all remaining copies of Star Wars Asteroid Escape destroyed. Star Wars Asteroid Escape is played much like the 2012 board game Tsuro of the Seas, with the asteroid tiles of Asteroid Escape, being replaced by the better-known daikaiju tiles of Tsuro of the Seas.

Feel free to leave any other interesting facts about Tsuro in the comments below.

Claim 1 of U.S. Patent No. 4,180,271 reads as follows:

1. A game comprising:
a game board having a quadrangular playing area that is divided into a plurality of equal sized quadrangles and having a border between the outer edges of the game board and said quadrangular playing area;
a plurality of start marks located on said border adjacent each one of the outer ones of said plurality of equal sized quadrangles;
a plurality of playing cards, each one of said plurality of playing cards being of equal size and shape to the size and shape of each one of said plurality of equal sized quadrangles and having a plurality of line segments imprinted on one surface thereof, each one of said line segments having both of its ends terminate at an edge of the said playing card on which that line segment is imprinted; and
a plurality of individually distinguishable playing pieces.

Brett Trout

Posted in Board Games, Patent Law.

McDonald’s Loses Its “Big Mac” Trademark Across Europe

On January 11, 2019, in a landmark ruling, the European Union Intellectual Property Office (EUIPO) revoked McDonald’s International Property Company, Ltd., (McDonald’s) European Union trademark registration No 62 638 for the trademark “BIG MAC.” Citing as the reason for the revocation, the EUIPO pointed to McDonald’s failure to prove that it had used the “BIG MAC” trademark in the European Union for a continuous period of five years.

Trademark rights are not like patent rights or copyrights. Patent and copyright owners can obtain those rights without ever selling a single item, and maintain those rights even if the owners never put those rights to use. Conversely, to obtain and maintain trademark rights, the trademark owner must actually use the trademark in association with the sale of goods or services. Failure to continuously use a trademark will result in those trademark rights being lost.

So what happened in this case? McDonald’s did register a European Union trademark (EUTM) (formerly Community Trade Mark (CTM)) for the “BIG MAC” trademark on December 12, 1998. Thereafter, an Irish company, Supermac’s (Holdings) Ltd, (Supermacs) began using the “SUPERMACS” trademark in association with its restaurants. McDonalds then took issue with this use, arguing that the use of “SUPERMACS” in association with restaurants infringed its “BIG MAC” trademark. Supermacs fought McDonald’s over the use and eventually prevailed. Thereafter, Supermacs went a step further and applied to have McDonald’s “BIG MAC” trademark revoked. Supermacs filed the revocation request on April 11, 2017.

In response to the trademark revocation application, McDonald’s provided affidavits, brochures, website printouts, and a even a printout from Wikipedia. While the EUIPO gave some weight to this evidence, the EUIPO concluded that “[t]aking into account the submitted evidence as a whole, it is concluded that the documents do not provide conclusive information that the products marked with the EUTM are offered for actual sale, as there is no confirmation of any commercial transactions, either online, or via brick-and-mortar operations.”

In defending its revocation, the EUIPO pointed to McDonald’s failure to provide sufficient evidence of continuous use of the “BIG MAC” trademark. “The methods and means of proving genuine use of a mark are unlimited. The finding that genuine use has not been proven in the present case is due not to an excessively high standard of proof, but to the fact that [McDonald’s] chose to restrict the evidence submitted.”

McDonald’s has two months from the date of the revocation to file an appeal.

Brett Trout

Posted in Trademark Law.

1 Million Cups Des Moines – Thaddeus Medical Systems

Come join like-minded Des Moines, Iowa area entrepreneurs at the 1 Million Cups events tomorrow. January 16, 2019. at 8a.m. at the Science Center of Iowa (which also graciously provides a ticket for free parking in the Science Center Parking Ramp during the event).

Share some free coffee with local startup community members and then take part in a presentation by Thaddeus Medical Systems as they detail their road to creating their smart packaging technology solution for storing and transporting temperature sensitive therapeutics and specimens. After the talk feel free to ask questions and share insight about the company’s journey from idea to realization.

I’ll be there, so be sure to say “Hi” and introduce yourself if you plan to stop by.

Brett Trout

Posted in Des Moines, Iowa Law.

Jury Verdict Stripping Mongols Motorcycle Club of Its Trademarks Raises More Questions Than It Answers

Background

The Mongols Nation Motorcycle Club is an outlaw biker club formed in Montebello, California in 1969. The Club is estimated to have up to 1,500 “full patched” members in fourteen states and ten countries, including former member and former Minnesota governor Jesse Venturea. The Bureau of Alcohol Tobacco and Firearms (BATF) has infiltrated the club multiple times, resulting in many arrests and convictions of various club members for various crimes.

In addition to trying to imprison its members, the BATF and Department of Justice (DOJ) have engaged in lengthy legal battles to strip the Club of its trademark rights in the “Mongols Nation” name and logo. Since 2008 prosecutors have tried over and over again, in various courts, to obtain forfeiture of the trademarks. The trademarks at issue include the words “Mongols Nation” and the logo at the right showing a Genghis Khan-type caricature riding a cruiser.

The Club originally registered the “Mongols Nation” service mark in 2005 and filed a federal trademark on the collective membership logo in 2013. The registration was cancelled in 2012 and the application abandoned in 2014. New registrations covering the service mark and the collective membership logo were filed and registrations obtained in 2013 and 2015 respectively.

Courts have attempted to strip the Club of its trademark rights in the past. In 2008, Judge Florence-Marie Cooper, of Federal District Court in Los Angeles, granted an injunction prohibiting gang members and their associates from wearing the logo and authorizing law enforcement seizure of “products, clothing, vehicles, motorcycles, books, posters, merchandise, stationery, or other materials bearing the Mongols trademark.” In 2009, a Mongols Nation member, Ramon Rivera, along with the help of the American Civil Liberties Union, filed a lawsuit, demanding law enforcement not be allowed to confiscate his property. Mr. Rivera eventually prevailed, the judge’s ruling was overturned, and the court awarded Mr. Rivera $252,466 in lawyers’ fees.


The Verdict

Since 2009, the rights in the trademarks have been transferred multiple times, avoiding confiscation when it appeared whomever the then-current owner was might run into a situation requiring forfeiture of the trademark rights. On December 14, 2018 a federal Santa Ana jury found the Club guilty of the charges of conspiracy and racketeering. On January 11, 2019, that same jury that found the Mongols Nation Motorcycle Club guilty of conspiracy and racketeering charges, handing down a verdict that the Mongol Nation has to forfeit its trademark rights to the federal government. Unfortunately, neither the redacted jury notes, nor the redacted verdict form provide much insight as to the basis of the jury’s verdict.

The Aftermath

Just what the jury’s decision means for the future of the trademark rights in “Mongols Nation” and the Genghis Khan logo remains unclear. Even prosecutors are surprisingly mum about what might happen next. It was the intention of some members of law enforcement that the ruling would allow them to stop anyone wearing the trademarks and confiscate all items bearing the trademarks. This does not appear to be what is going to happen, especially since some members of the Club have the trademarks tattooed on their bodies. Confiscation, especially in those cases, could prove difficult.

To anyone with a background in trademark law, this verdict should raise a lot of questions. Most importantly, what statute or common law allows a jury to take trademark rights away from an entity and give them to the federal government? Also, does this verdict force the federal government to start using the trademarks to prevent their abandonment? This verdict seems to be the first of its kind where a jury tried to permanently deprive one particular entity from ever obtaining trademark rights in a name or logo. While the verdict may be well-intentioned, it does not appear to be supported by existing law.

The main problem with the verdict is that trademark rights are not like most other property rights. Unlike other property rights, trademark rights do not exist in the abstract. One cannot simply acquire trademark rights, lock them away in a box for twenty years, and then sell them. Trademark rights are harder to maintain than even other intellectual property rights. Unlike patents and copyrights, trademark rights exist only in association with a good or service being offered for sale in commerce, or to identify members in an organization. If a trademarks, such as those owned by the Mongols Nation, are forfeited to the federal government, and the federal government has no intention of offering any goods or service under the trademarks, and intends that the trademarks specifically not be used to identify members of an organization, those trademark rights will go abandoned.

Once the trademark rights go abandoned (ignoring for the moment that the logo might still be protected by copyright) anyone can use them. For these particular trademarks however, it seems unlikely that anyone would be willing to risk physical assault for wearing the former trademarks of a 1%er motorcycle club. Once the trademarks go abandoned, if no one is using them to sell a good or a service, or to identify members of an association, it seems that, pursuant to federal trademark law, someone, perhaps a member of the Mongols Nation can start using the words again in association with a good or a service, or as a membership identifier, thereby obtain trademark rights in the words, and then register them with the federal government again.

About the only thing that does seem clear is that the First Amendment stops the government from preventing anyone from ever using the logo or the words “Mongols Nation” to identify a group of people. It will be interesting to see how this case develops. If someone does start using the Mongols Nation trademark or the logo, since this would not violate any criminal statute, it appears the government would have to fight that fight in civil, rather than criminal, court. That means the federal government would again subject itself to the possibility of having to pay the defendant’s attorneys’ fees if the court finds the case to be “exceptional.” Far from bringing this case to a decades-old conclusion, this recent jury verdict seems like just the beginning of a very long trademark fight with a very persistent group of bikers.

Brett Trout

Posted in General, Trademark Law.