Benighted Stars: An I.P. Blackhole

September 2002
The Licensing Book

Climbing gingerly through the shadows, I paused as strains of Claire de Lune wafted down the spiral staircase to my ear.  From the landing, I reached above my head and carefully lifted the trapdoor.  Ascending slowly the last four steps, I allowed my eyes to adjust to the nearly total darkness of the small observatory which Larry Lexus had erected atop his loft.  The music gently enveloped me as I stepped through the opening and onto the floor, turning to close the trapdoor against the dim light of the loft below.

"Thank you for coming, my friend," Larry said without looking in my direction.  His gaze remained fixed at the eyepiece of his large reflecting telescope as Debussy's final notes faded.  Larry made minor adjustments to the telescope and motioned me toward him in the dimness of the room.

Universal Fate?

"Have a look into the end of all things," he said, taking my hand in greeting.  As he directed me to the eyepiece, Larry said, "The telescope is focused at the center of our Milky Way Galaxy, where astronomers believe resides a huge blackhole which they estimate to comprise 1.5 million solar masses, though it occupies a space smaller than a speck of dust.  It continues to grow in mass and to gain gravitational power as it accretes and destroys stars and cosmic material from surrounding space."

Following his direction, I stared through the eyepiece and saw what appeared to be a hollowness surrounded by thousands of individual stars, tiny as colored pinpricks against the night sky, interwoven by nebulae of faint shades.  "It's beautiful," I said to him as I continued to stare.

"Yes," he said, "but ultimately deadly.  Astronomers believe that the blankness you see at the center of the image ultimately will absorb all of the stars that surround it.  As mass falls into the void, the power of the blackhole continues to grow, accelerating the process.  Eons in the future, the conclusion of this progression may be the absorption and end of our galaxy.  Cosmologists theorize that replication of this process throughout our universe may lead to its ultimate demise."

Licensor Gravitational Field?

Larry Lexus, the Licensing Lawyer, has more than a passing interest in matters of the cosmos, having published several monographs in the field.  "Descending from the sublime to the mundane," he continued, "these observations are reminiscent of a negotiation I recently concluded on behalf of a substantial manufacturer.  I would be interested in your reaction to my astral analogy.  It may be the basis for an article in that paragon of trade publications The Licensing Book.

"The licensor in the negotiation represents a corporate trademark, which had become moderately well known before the financial demise of the trademark owner/manufacturer.  Resurrected from bankruptcy, the entity has ceased manufacturing and focuses entirely upon licensing its mark.  Notwithstanding its somewhat dubious lineage, the brand owner takes an extremely aggressive posture toward intellectual property rights used by licensees in conjunction with its mark.  The initial draft agreement from the licensor struck me as perhaps erroneously drafted in this regard, until I determined from conversation with the licensor's counsel that they were deadly serious."

I paused as Larry switched on a small lamp and led me to the two aging easy chairs that occupied a corner of his study.  Settling into the fragrant leather, I gratefully accepted the snifter of cognac that Larry handed me as he continued his narration.  "Craftily worded, the product submission and approvals sections of the proposed licensing agreement incorporated camouflaged but unmistakable language that had the most remarkable effect: any intellectual property of the licensee which may be used in connection with the licensed products was required to be identified by the licensee as its property simultaneously with the first submissions for approval.  Any intellectual property which the licensee neglected to so identify thereupon would immediately become property of the licensor."

Shocked, I said, "Do you actually mean…?"  "Yes," Larry continued, "The designs for all products with which the licensed brand was to be used would become the licensor's property.  The manufacturing processes by which those products would be made would suffer the same fate.  Any  patented concepts, trademarks or other rights of any description applicable to or used with the licensed products or even used in sales materials for the licensed products, all would be lost by the licensee and irrevocably transferred to the licensor.  After ownership has been transferred, the licensor could then enforce those very rights against the licensee to prevent its use of its own product designs, manufacturing processes and any other transferred rights.

"This remarkable story gets better: if through inadvertence, the licensee were to fail to state that it is the owner of its own trade name - which in this instance has substantially greater public awareness and credibility than the licensor's mark - then the licensee's corporate trade name itself would become property of the licensor.  Carrying this sequence to its logical conclusion, presumably the licensee is then expected to cease operation so that the licensor can take over the licensee's entire business in its stead."

I interjected, "But if the licensee is sufficiently cautious and identifies its trade name, trademarks, product designs, and manufacturing processes as its property, surely they would then be protected and reserved to the licensee…correct?"

Larry smiled, "Not exactly.  Even if the licensee meticulously followed each and every step in this convoluted identification and submission process, the licensor would then be presented with a royalty-free and perpetual license to use all of the licensee's intellectual property rights in any way it wished, and with absolutely no obligation to or influence from the licensee."

"But the trademarks?," I began.  "You are exactly right, my friend, the licensee's trademarks and trade name would be legally invalidated by the licensor's uncontrolled use.  I must admit that I became increasingly vexed as the licensor's counsel sought to justify these extraordinary, nay irrational, demands.  He told me, 'We must preserve the integrity of our licensing program.  We must have the wherewithal to market the same products through other sources that the licensee popularizes by use of our licensed mark.'"

Licensees Operating in a Vacuum?

I could feel the hairs on my neck bristling at the thought of sitting across the table from this, as Larry must have done.  "I must admit that my patience was sorely tested," he said.  "But I held my silence as the licensor's counsel told me that more than 20 licensees had signed on to the licensing program, and none had questioned this potential hijacking of their intellectual property.  In rejecting the draft out-of-hand, I did aver that perhaps his prior successes were more the result of the licensees' lack of comprehension of his sly and convoluted document than of agreement with its principles.  When I asked the licensor's counsel whether the other licensees had been represented by counsel in negotiating their agreements, he declined to answer on grounds of 'confidentiality'. 

 "I would surmise, my friend, that like too many licensees, perhaps those 20 unfortunates who unwittingly signed on to these heinous terms did not perceive that the financial terms of their particular agreements warranted the retention of counsel.  In so doing, they may have exposed their companies to potentially devastating loss of intellectual property rights.

"But perhaps we should return to the telescope.  Cloudless evenings like this one are too rare to waste discussing matters of such an irritating nature."  Larry smiled and then began to chuckle.  "It occurs to me, however" he said, "that perhaps the cosmos may not end when blackholes absorb all matter in the universe, but rather when this star-pretender has absorbed all intellectual property rights in the universe."  Larry continued to chuckle as mirth glistened in his eyes.

Jim Kipling is a veteran of 20 years representing licensors and licensees in negotiating entertainment, sports, artwork brand, invention and technology agreements, and is with Frost Brown Todd LLC in Cincinnati, Ohio and can be reached at jkipling@fbtlaw.com, (513) 651-6101. Copyright: © 2002 James M. Kipling,

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