Locution, Locution, Locution: IP Licensors – Service Suppliers or Product Providers?

Secondary Trademark Liability | Bloomberg BNA

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Consider the following scenario: Company A is a well-known film producer that licenses its intellectual property rights in famous cartoon characters to Company B, a jewelry manufacturer. Company B in turn features those characters in bracelets that infringe Company C’s marks. Company C sues both Company B and Company A, alleging direct and contributory trademark infringement, respectively.

In this situation, how should the court apply contributory liability doctrine to the Company A, the licensor defendant? As explained in the website overview, that doctrine prescribes a different standard depending on whether the defendant has supplied a product or a service to the direct infringer. How then should the court view Company A? Has it supplied the direct infringer with an intangible “product” – its intellectual property? Or has it provided it with a “service” – the licensing arrangement? Neither option seems to capture the essence of the licensor-licensee relationship. And yet the difference is not merely a matter of form: In the latter case, Lockheed Martin’s version of the Inwood Labs. test would apply, with its additional requirement that the plaintiff show “direct control and monitoring” of the instrumentality of infringement.[1]

While the courts generally agree that contributory liability doctrine applies in the licensing context,[2] they have wrestled with how, precisely, to characterize the relationship between the licensors and licensees. In the three cases discussed below, the courts considered licensing relationships in the context of contributory liability. In two of the cases, the courts assumed thatLockheed Martin would apply,[3] while the third court reserved judgment pending further developments in the case.[4] Each court had a different view of how to characterize the licensor’s relationship with its licensee. More …