Wednesday, January 31, 2007

5th Circuit Shoots Down Creative Attempt to Remove a State Law Trademark Case

The Fifth Circuit recently shot down a creative attempt to remove a state court case claiming trademark infringement under Texas law (not under the Lanham Act) to federal court. In In re Hot-Hed Inc., No. 06-20893 (5th Cir. Jan. 30, 2007), the plaintiff sued in Texas state court, alleging trademark dilution under the Texas Business & Commerce Code, and trademark infringement and unfair competition under Texas common law. In its prayer for relief, the plaintiff demanded “attorneys’ fees as allowed by law.” The defendant removed to federal court, alleging that the claim raised a “federal question.”

The plaintiff moved to remand, saying that its complaint didn’t say a word about federal law. The defendant convinced the district court, however, that the phrase “attorneys’ fees as allowed by law,” which appeared in the prayer, must have meant federal law (i.e., the Lanham Act), since none of the three asserted Texas law claims permit the recovery of attorneys’ fees.

On mandamus, the Fifth Circuit disagreed. It said that Texas case law indicates that the plaintiff might have been able to ask for a declaratory judgment under the Texas Declaratory Judgment Act, even though the complaint didn’t mention the Texas D.J. Act or demand declaratory relief. And under Tex. Civ. Prac. & Rem. Code § 37.009, attorneys’ fees are available for a D.J. under the Texas D.J. Act. Applying the principle that “any doubt about the propriety of removal must be resolved in favor of a remand,” the Fifth Circuit ordered the district court to check out if diversity jurisdiction existed, and, if not, to remand. The Fifth Circuit also seemed swayed by the principle that removal of a trademark case is improper if the plaintiff doesn’t clearly state he’s seeking relief under the Lanham Act.

6th Circuit Decides Interesting Copyright and Trademark Case Involving Repackaging and Reselling of Audio Recordings of Books

First the copyright part of the case. Under copyright law, the legitimate owner of a “copy or a phonorecord” can “sell or otherwise dispose of them” without the consent of the copyright owner. 17 U.S.C. § 109(a). There’s an exception, however, in § 109(b)(1)(A). It says that:

Notwithstanding the provisions of subsection (a), unless authorized by the owners of copyright in the sound recording . . . and in the case of a sound recording in the musical works embodied therein, . . . the owner of a particular phonorecord . . . may [not], for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord . . . by rental, lease, or lending . . . .”

This exception came about in the early 1980s because record companies were concerned that they were losing too much business through record and tape rentals (to people would simply copy the rented music). In Brilliance Audio, Inc. v. Haights Cross Communications, Inc., No. 05-1209 (Jan. 26, 2007), the question was whether this exception applied to rentals of audio recordings of books. The Sixth Circuit though that the statutory language could go either way. (I had to read this part of the opinion three times to see how it could be read NOT to include recordings of books, but I digress.) Because it considered the language capable of going either way, the court jumped into the dreaded legislative history and discussed evanescent notions of “policy.” To make a long story short, the court decided that, in 1984, Congress was concerned only with music recordings. Nobody mentioned books on tape at all. And as to policy, the court decided that exceptions to the first sale doctrine should be construed narrowly, since such exceptions would “upset the bargain” in copyright law between copyright owners (who want to protect their creative works) and the rights of owners of stuff (to do what they want with their stuff). So it concluded that first sale doctrine exonerated the defendant on the copyright count.

The trademark claim was that the defendant was repackaging and re-selling the audio books in violation of the Lanham Act. The plaintiff sold two different versions of the audio books: one for consumers and one for libraries. It claimed that the defendant was taking the consumer versions and labeling them as library versions. The court (correctly in my view) upheld the trademark claim in the face of a first sale defense because (a) the plaintiff alleged that the defendant’s labeling didn’t make clear that the product was repackaged, plus (b) the goods weren’t “genuine” because there were differences between the two versions.