Tails of a Cybersquat Claiming Grumpy Cat and an IP Licence

Turns out our Merpel is not the only internet sensation with feline features; there’s another described as “one of the most famous cats in the world.” This celebrity cat in question is named Tardar Sauce, but is better known to the world as Grumpy Cat – the fury face of many viral memes. 

This case rests on two key issues - the scope of the licence and alleged cybersquatting. The annual WIPO Cybersquatting Report continually shows an increase in cybersquatting cases. in 2017, most of the WIPO UDRP cases originated from the US with 920 cases filed, followed by France (462), the U.K. (276), Germany (222), and Switzerland (143).

Background

Grumpy Cat Monologues

The owners Tardar Sauce, realising the potential of their grumpy companion, set up Grumpy Cat Limited and registered trade mark and four registered copyrights associated with Grumpy Cat. Noted by Kat post here.

This case transpired after Grumpy Cat Ltd [plaintiff] licensed the use of their IPRs to Grenade Beverage LLC and its members, Nick and Paul Sandford [defendants] in 2013. In a previous trial by jury, the plaintiff succeeded in a claim for infringement of their trade mark and copyright, arguing that the defendants used the IPRs beyond the boundary of the licence.

In this most recent judgement on the matter, the plaintiffs claim cybersquatting and the defendants counterclaim seek declaratory relief for non-infringement of trade mark and copyright.

Condition or Covenant, that is the question! 

The licence agreement between the parties, provided for the use of the Grumpy Cat name and image “in connection with the manufacture, advertisement, merchandising, promotion, distribution, and sale of solely Products.” The products where described in the licence as “Grumpy Cat-branded coffee products, or other additional products within the Product Category that may, upon the Parties’ mutual approval, be marketed hereunder.”

Grumpy cat stuff 

The defendants then used the Grumpy Cat name and image to market iced coffee and non-iced coffee products, including ground coffee. The plaintiff argued that using their copyright and trade marks on ground coffee products fell outside the scope of the licence agreement and where thereby infringing.

The defendants pitched for an argument that they couldn’t be guilty of infringement since they were an exclusive licensee; and therefore “cannot be liable for infringing the copyright rights conveyed to it” under an exclusive license. But the Court knocked it out the park by pointing out that an exclusive licensee can be liable for infringing copyrights not conveyed to it under the exclusive license...

So the plaintiff had to demonstrate [when only the scope of the licence is at issue, the copyright owner bears the burden of proof] that the term from the licence that Defendants violated was a condition, and not a covenant. [Under California law, “a covenant is a promise to do or refrain from doing a specific act. A condition is a qualification to the parties’ obligations; if it occurs, the interest is terminated or enlarged.” So when a party breaches a “condition,” that party can be liable for infringement but, not if they breach a “covenant” - Sun Microsystems, 188 F.3d at 1120.] In other words, if the term was a condition then the Defendants would be liable for infringement for exceeding the scope of the licence.

The question before the court was whether the term in the licence: “additional products within the Product Category that may, upon the Parties’ mutual approval, be marketed hereunder” was a covenant or a condition. In order to decide if the contractual terms are a condition or covenant, under California law, the courts consider the intentions of the parties, and the agreement as a whole [Sun Microsystems, Inc. v. Microsoft Corp., 81 F. Supp. 2d 1026, 1031–32 (N.D. Cal. 2000) (citing Machado v. Southern Pacific Transportation Co., 233 Cal.App.3d 347, 352 (1991)].

Turning to the language of the agreement, the court noted that the agreement granted rights to use the licensed property “in” the Product Category [non-alcoholic beverages], rather than rights “to” the Product Category. The court interpreted this to mean that the licence was granted solely for iced coffee, rather than for all non-alcoholic beverages, and that “other additional products within the Product Category that may, upon the Parties’ mutual approval, be marketed hereunder,” would only become part of the licence upon approval. [It's true what they say then - the devil really is in the detail!]

As such, the agreement made clear that the parties intended that the “additional products” term is a condition that excludes additional products from the license, without prior mutual approval. Therefore, in selling coffee other than iced coffee the defendants exceeded the scope of the exclusive license and legally may be found liable for copyright and trademark infringement.

Cybersquatting

Meerkat Squat - Kyle Murphy

The plot thickens! In negotiating the expansion of the above mentioned licence, the defendants bargained with a domain name that was previously unattainable to the plaintiffs. The plaintiff declined and called cybersquatting. 

In 2014, the defendants (through their counsel) proposed that in exchange for the transferring of the domain www.grumpycat.com [owned by a third-party before the days of Grumpy Cat] to the plaintiff, the license agreement be changed: (1) to apply to “Grumpy Cat branded coffee products,” rather than “a line of Grumpy-Cat branded coffee products”; and (2) to add language requiring that approval of products “shall not be unreasonably withheld.” The defendants also used the domain www.grumpycat.com to redirect traffic to their Grumpy Beverage coffee products.

The plaintiff argued that by proposing that the scope of the license agreement be expanded in exchange for transferring www.grumpycat.com to the plaintiff; that the defendants acted in bad faith by using the domain as leverage. In addition, by using the domain to direct and divert consumers to a website selling “Grumpy Cat” ground coffee product; customers would be confused into believing that Plaintiff had authorised the sale of ground coffee.

In order to prevail on a cybersquatting claim, a plaintiff must prove the following elements:
(1) the defendant registered, trafficked in, or used a domain name;
(2) the domain name is identical or confusingly similar to a protected mark owned by the plaintiff;
(3) the defendant acted “with bad faith intent to profit from that mark.
[DSPT Int’l, Inc. v. Nahum, 624 F.3d 1213, 1218–19 (9th Cir. 2010)]

In determining whether a person has bad faith intent, US statute 15 U.S.C. § 1125(d) sets out a non-exhaustive list of 9 factors that a court may consider in determining, see here section D(1)(B)(i). In addition, a jury can find that using a domain name "to get leverage in a business dispute can establish ‘bad faith intent." [Nahum, 624 F.3d at 1219–20]. The court also takes into consideration that “it is ‘indicative’ of a ‘bad faith intent to profit’ from the mark if the person offering to transfer the domain name to the owner of the mark has never actually used or intended to use the domain name for bona fide sales of goods.” As such, in the Nahum case, the court concluded that, “it is bad faith to hold a domain name for ransom, where the holder uses it to get money from the owner of the trademark rather than to sell goods.”

The court held that the circumstances do not suggest that the website was used as leverage for ransom to get money. Rather it was used to sell goods, as part of business negotiation between business collaborators to further the sale of Grumpy Cat branded products, via a proposal to modify the license agreement. Thus, the plaintiff did not show evidence that the defendants acted in bad faith.

In relation to re-directing consumers through the domain the court held that, considering the unique circumstances of this case, the defendants likely had reasonable grounds to believe the use of the website was lawful because of their license agreement for a line of Grumpy-Cat branded coffee products (even though, ultimately, the ground coffee exceed its scope).