Reportedly, SPT struck a deal with MTV Networks to distribute various clothing and luggage goods carrying MTV branding in 30 countries in Latin America and the Caribbean and only discovered MTV had licensed out rights it had not registered, after getting in hot water with the local authorities.  According to the complaint, the merchandise was “seized by authorities as infringing upon the trademark, copyright and proprietary rights of third parties.”  This lawsuit has embarked upon the very hairy waters of international trademark protection, so hopefully it will have its day in court and the legal community will get the benefit of a federal judge entangling it.

MTV/Viacom is an unusual suspect to get into this kind of trouble over failing to secure international trademark rights.  Small companies are more commonly seen finding themselves in this position because they do not have budgets to hire an attorney to do due diligence and certainly not to hire in-house counsel.  And then there is the cost of securing international trademark rights which can run into the millions when adding up the filing fees for each country and local counsel for policing the marks.  While the Madrid Protocol (an international treaty allowing registration of marks in multiple countries with one filing), alleviates significantly the administrative burden of registration, the cost of the filing fees and policing are still substantial.  Granting trademark rights is essentially granting a monopoly over the use of a certain name, image, slogan, etc, in the marketplace of that country, so it is not surprising that nations place a high price to giving away these rights, in particular to foreign companies.

Another point worth mentioning is that not registering the marks may have been a calculated risk for MTV and the network may still pull out of this one with only a few bruises on its wallet.  It is a bit hard to believe that this was merely an oversight on the part of MTV’s savvy army of lawyers, it is more likely that the burden of cost and process of registering the marks outweighed the fear of getting sued.  In the United States, the entity which uses a mark first in commerce obtains the rights to that mark, in most other countries, the mark belongs to the first to register it.  It may well be the case that MTV’s legal team did their research and determined that a brand as famous as MTV need not be registered in every country it is used and MTV, as I am sure, does a good job excluding local entities with substantial public exposure from using it.  However, most “first to use” countries tend to have a background in the British legal tradition, so there is a high likelihood that the Latin American countries, where SPT had problems, follow the “first to register” doctrine, vesting all rights to a mark in the entity which first registered it in that country, rather than the one which first used it in commerce.

Even if SPT has a chance of winning this or of getting a sweet settlement, a better route for asserting its rights might have been the preventive one – due diligence and indemnification.  It is quite standard for the licencee to ensure that the intellectual property rights being assigned exist before signing a contract, especially as large as this one.  Also, every licensing agreement should obligate the licencor to warrant that it owns all the rights it is bestowing, and failing that, the indemnification clause would save the day for the licensee and MTV would have had to pick the tab contractually for SPT’s legal troubles in Latin America.

[http://newsandinsight.thomsonreuters.com/Legal/News/ViewNews.aspx?id=50949&terms=%40ReutersTopicCodes+CONTAINS+%27ANV%27]

Defendant’s successful petition for certiorari argued that the Second Circuit’s decision diverged from a Ninth Circuit decision issued in 2000, which allowed counterclaims challenging the validity of a trademark to proceed despite plaintiff’s promise not to sue.  In the California case, the plaintiff offered to waive all of its trademark infringement, dilution, and unfair competition claims against defendant’s use of the “masters.com” domain.  The court held that the plaintiff’s promises did not divest the court from jurisdiction to hear defendant’s counterclaims.

This case taps into the very core of strategic decision making for trademark owners.  Nike placed itself in a somewhat precarious situation by first suing to enforce its trademark and later voluntarily dismissing the suit, signaling apprehension that its mark may be invalidated.  This move, planned or not, may backfire on the shoe manufacturer regardless of this case’s outcome.  Even if the Supreme Court finds that there is no jurisdiction over the counterclaim, Nike might still be vulnerable to competitors wishing to get a free ride on its popularity.  Nike’s apparent lack of confidence in the validity of this trademark might embolden opportunistic companies to manufacture products with similar designs and names.

Owners of valuable trademarks, however, also stand to benefit greatly from a favorable outcome in this case.  If they gain the ability to enforce their marks without fearing invalidation, the risk of going to court to enforce them would decrease substantially.  The down side of this is that it may inspire an increase in big name trademark owners flexing their muscle against small competitors by going to court with the option to voluntarily dismiss the case if the other side signals ability and willingness to litigate all the way.