Mary Beth Hasty
Today, the Supreme Court ruled that Section 2(a) of the Lanham Trademark Act is unconstitutional because it violates the First Amendment’s protection of freedom of speech. The Section 2(a) provision bans the issuance of trademark registration to marks that the U.S. Patent and Trademark Office (“PTO”) deems are “immoral” or “scandalous,” based on ordinary and common meanings of the proposed mark. The high court ruled that this immoral or scandalous bar discriminated on the basis of a viewpoint and therefore conflicts with the First Amendment.
The Lanham Act provides for the administration of federal trademark registration. While registration of a mark is not mandatory, and a mark can still be used in commerce and enforce it against infringers, federal trademark registration gives trademark owners valuable benefits. For example, a valid federal trademark registration gives prima facie evidence of the mark’s validity, and serves as constructive notice to others of the registrant’s claim of ownership of that mark.
Here, in the case of Iancu v. Brunetti, Erik Brunetti sought these benefits by applying for federal registration for the trademark “FUCT” for use in connection with his clothing lines, but the PTO refused this application for violation of Section 2(a). The Examining Attorney assessed his proposed mark as a “total vulgar” mark and therefore unregistrable, and the Trademark Trial and Appeal Board agreed, stating that the mark was “highly offensive,” “vulgar,” and that it had “decidedly negative sexual connotations.”
Upon review, the Supreme Court struck down this provision for being unconstitutional. The Court emphasized a core foundation of freedom of speech law: that the government may not discriminate against speech based on the ideas or opinions it conveys. The Court concluded that this provision of the Lanham Act “allows registration of marks when their messages accord with, but not when their messages defy, society’s sense of decency or propriety.”
Writing for the majority, Justice Elena Kagan illustrated this content-based discrimination with four made-up marks: “Love Rules” “Hate Rules” “Always Be Good” and “Always Be Cruel.” The Court contended that the statute would favor marks such as “Love Rules” and “Always Be Good” but disfavor a mark such as “Hate Rules” and “Always Be Cruel.” This favoring or disfavoring based on content results in viewpoint-discriminatory application. Under this provision, the statute “on its face, distinguishes between two opposed sets of ideas: those aligned with conventional moral standards and those hostile to them; those inducing societal nods of approval and those provoking offense and condemnation.” Therefore, the Supreme Court struck down this ban on federal registration of these “scandalous” or “immoral” marks.
In Mission Product Holdings Inc. v. Tempnology LLC, the Supreme Court addressed a Circuit Split on whether a bankruptcy trustee can terminate a trademark license agreement, thereby allowing a trademark licensee to lose their rights to continue using the trademark under the license contract. The Supreme Court held that the debtor-licensor’s rejection of the contract does not deprive a trademark licensee of its rights to use the trademark thereafter.
Section 365(a) of the Bankruptcy Code allows a bankruptcy trustee to assume or reject a debtor’s pre-bankruptcy executory contracts, depending on whether the benefits of continued performance of the contract outweigh the burdens to the bankruptcy estate. Section 365 of the Bankruptcy Code enables a debtor to “reject any executory contract,” which is a contract that neither party has finished performing. The section provides that a debtor’s rejection of a contract under that authority “constitutes a breach of such contract.” At issue in this case were the implications of a breach of such contract. While it was acknowledged that the licensee would have the right to a claim for damages for such a breach of contract, which may perhaps be valueless in light of the bankrupt state of the licensor, it was not clear whether the trademark licensee still had the right to use the trademark after such breach.
In interpreting the meaning of a breach of the contract, some lower circuits took the position that a rejection has the same consequence as a contract rescission, which allows a damages claim, but terminates the whole agreement along with all rights it conferred. However, the Supreme Court disagreed with this position, and held that such rejection does not mean that a trademark licensee will lose their rights to use the trademark under the contract. Specifically, Justice Kagan in her majority opinion stated, “A rejection breaches a contract but does not rescind it. And that means all the rights that would ordinarily survive a contract breach, including those conveyed here, remain in place.”
The Supreme Court has agreed to review Mission Product Holdings Inc. v. Tempnology LLC, to address a Circuit Split on whether a bankruptcy trustee can terminate a trademark license agreement, thereby allowing a trademark licensee to lose their rights under the license contract. This decision could have a substantial impact on trademark licensees if the Court affirms the First Circuit Court of Appeal’s decision that a licensee loses its right to use a licensor’s trademarks if the licensor has filed a petition for bankruptcy and the trustee elects to reject the agreement pursuant to Section 365(a) of the Bankruptcy Code.
Section 365(a) of the Bankruptcy Code allows a bankruptcy trustee to assume or reject a debtor’s pre-bankruptcy executory contracts, depending on whether the benefits of continued performance of the contract outweigh the burdens to the bankruptcy estate. Under Section 365(a), a rejection is treated as a breach by the debtor if certain conditions are met. While the licensee is entitled to file a claim for damages in the bankruptcy action, that may be insignificant in light of the bankrupt state of the licensor.
However, the Bankruptcy Code does not specifically address the matter at issue before the Supreme Court, which is whether rejection of a trademark license agreement under the Bankruptcy Code strips the licensee of the right to use “trademarks.” While Section 365(n) expressly and specifically protects the rights of “intellectual property” licensees, “trademarks” is not defined in the Bankruptcy Code’s definition of “intellectual property.” In light of this, the First Circuit did not interpret the code’s language of “intellectual property” to include trademarks. Contrastingly, the Seventh Circuit has interpreted “intellectual property” to include trademarks, and therefore held that a licensee’s trademark rights survive any rejections of the agreement by a trustee in bankruptcy. See Sunbeam Prods. v. Chi. Am. Mfg., 686 F.3d 372 (7th Cir. 2012). Of the many actors to file amicus briefs, the U.S. Government appears to agree with the Seventh Circuit’s interpretation, and has taken the position that a trademark owner cannot revoke a licensee’s right to use the trademark via the Bankruptcy Code.
The Supreme Court is expected to begin hearing arguments in the next upcoming months.
In January, the Supreme Court agreed to hear Iancu v. Brunetti, a case that will decide whether it is constitutional for the U.S. Patent & Trademark Office to refuse trademark registration for immoral or scandalous marks. A clothing line applied to register the mark “FUCT” but was refused by the U.S. Patent & Trademark Office pursuant to Section 2(a) of the Lanham Trademark Act, which specifically bars registration of immoral or scandalous matter. To determine whether a mark is immoral or scandalous, the U.S. Patent and Trademark Office considers ordinary and common meanings. The meaning imparted by a mark must be determined in the context of the current attitudes of the day, and as such, can change over time.
The clothing line appealed the U.S. Patent and Trademark Office’s decision to refuse its mark under Section 2(a) to the United States Court of Appeals for the Federal Circuit. The Federal Circuit affirmed the U.S. Patent & Trademark Office’s decision to refuse registration under Section 2(a) of the Trademark Act, but then ruled that Section 2(a)’s bar on immoral or scandalous marks is unconstitutional under the Freedom of Speech clause of the First Amendment. The Federal Circuit found that refusing registration of trademarks which the U.S. Patent & Trademark office finds immoral or scandalous results in content-based speech regulation, which is presumptively invalid under the Constitution. The government argued that Section 2(a) does not implicate the First Amendment because trademark registration is either a government subsidy program or a limited public forum, or in the alternative, is commercial speech that implicates only an intermediate level of scrutiny. The Federal Circuit rejected these arguments, and found that “trademarks convey a commercial message, but not exclusively so,” recognizing the “expressive content” of a trademark.
The question turns on how the Supreme Court will classify an individual’s act of applying and obtaining a trademark registration, and the government’s act of granting a trademark registration. On the one hand, the granting of registration can be classified as a government act in many ways, such as a government subsidy program because it is the provision of benefits rather than money, a limited public forum where the government has opened its property for a limited purpose, i.e., trademark registration, or the regulation of commercial speech. On the other hand, should the Supreme Court consider trademark registration as an individual’s expressive speech under the First Amendment as the Federal Circuit did, Section 2(a) will likely be overturned as unconstitutional. Should it be overturned, the U.S. Patent and Trademark Office will no longer be able to refuse registration for marks it deems immoral or scandalous.
The Supreme Court is expected to hear the case this term.
In a 9-0 opinion issued by Justice Ruth Bader Ginsburg, the Supreme Court resolved a division among U.S. Courts of Appeals today on whether an owner of a work must first obtain a copyright registration from the Copyright Office before she may file suit for copyright infringement. The Copyright Act requires that “registration of the copyright claim has been made” before suit can be brought, but the U.S. Courts of Appeals were split on whether “registration” has been made when a copyright owner submits the application, materials, and fee required for registration to the Copyright Office, or only when the Copyright Office issues registration. The Supreme Court held that the Copyright Office must grant a registration before a copyright infringement suit is filed, and submitting an application to the Copyright Office is not enough to meet the “registration” requirement.
The case, Fourth Estate Public Benefit Corp. v. Wall-Street.com, LLC, involved a collective journalist news organization, Fourth Estate Public Benefit Corporation, which licensed works to Wall-Street.com, a news website. Fourth Estate sued Wall-Street.com in the U.S. District Court for the Southern District of Florida for copyright infringement of news articles that Wall-Street failed to remove from its website after the parties cancelled their license agreement. The Copyright Act, Title 17 U.S.C. s 411(a), states that “no civil action for infringement of the copyright in any United States work shall be instituted until… registration of the copyright claim has been made in accordance with this title.” Fourth Estate had submitted an application, deposit, and fee to the Copyright Office before filing suit, but the Copyright Office had not yet acted on the application or issued registration. Some circuits, such as the Ninth and Fifth Circuits, had allowed plaintiffs in such circumstances to bring infringement lawsuits against alleged infringers at this stage, taking what is called the “application approach,” whereas other circuits, such as the Eleventh, required that registration be issued by the Copyright Office first, taking what is called the “registration approach.” Judge Robert Scola, Jr. took the “registration approach” and dismissed the case because Fourth Estate had not yet obtained a registration for the works from the Copyright Office. Fourth Estate appealed the Eleventh Circuit and the Eleventh Circuit affirmed the dismissal, noting that “filing an application does not amount to registration.” The Supreme Court agreed to hear the case in June of last year.
Affirming the Eleventh Circuit’s judgment, the Supreme Court unanimously held that under the Copyright Act, a copyright claimant may commence an infringement suit only when the Copyright Office registers a copyright. However, a copyright owner can recover for infringement that occurred both before and after registration.
Fourth Estate argued that a copyright owner may lose the ability of enforce his or her rights if the Copyright Act’s three-year statute of limitations runs out before the Copyright Office acts on his or her application for registration, however, Justice Ginsburg noted that the average processing time for registration applications is seven months, which would leave “ample time to sue after the Register’s decision.”
Justice Ginsburg concluded that the “Copyright Act safeguards copyright owners by vesting them with exclusive rights upon creation of their works and prohibiting infringement from that point forward. To recover for such infringement, copyright owners must simply apply for registration and await the Register’s decision.”