Last month the District Court for the Central District of California granted the defendant’s motion for summary judgment in the case San Diego Gulls Hockey Club, LLC v ECHL, Inc.. The league’s win resolves the league’s potential indemnity obligation to the hockey team, the Gulls. This case presents a cautionary story for transactional attorneys.
This dispute arises out of a 2015 transaction between the league and an entity formed to become the San Diego Gulls hockey team, which included the assignment of certain trademarks, including a logo, to the team. The assignment agreement specifically referenced three federal trademarks and all common law marks owned by the league incorporating the word “Gulls”; any formative of that word; and any depiction of a seagull in the context of hockey or hockey team. The Agreement also assigned to the team a list of social media names that contained the word “Gulls,” which had been used to promote the team. The assignment agreement defined the registered marks, the common law marks, and the social media names collectively as “Intellectual Property”.
What’s missing here? There is no reference to assets or material protected by copyright. That will prove to be an issue for the team.
After the 2015 transaction between the team and the league closed, the team was sued by a third party who claimed that the Gull logo infringed his artwork entitled “San Diego Gulls”. The allegedly infringed artwork had registered with the United States Copyright Office prior to the creation by the league of the Gull logo and the allegedly infringed logo and the acquired logo appeared to be exactly the same.
The team spent about $750,000 defending the copyright infringement lawsuit and ultimately settled with the plaintiff for $330,000. The team then sued the league trying to recover the amount (over $1,000,000) the team spent on the lawsuit.
The team made two claims in its lawsuit against the league. The first was a breach of contract claim which alleged that in the 2015 assignment agreement, the league represented that it was assigning the copyright in the logo to the team free and clear of any claims, and that the third-party copyright claim is evidence that the league breached that representation. The second claim was for intentional misrepresentation – that the league knew, or should have known, about this third-party copyright claim, and that the league made misrepresentations when it stated in the 2015 assignment agreement that it had the right and authority to transfer the assets to the team, and the assets were free and clear of any claims.
The District Court determined that both of the claims advanced by the team would rise and fall based on whether the 2015 assignment agreement transferred any copyright in the logo.
When a court interprets a contract, pursuant to California Civil Code § 1636, the general rule is that the Court must “give effect to the mutual intention of the parties as it existed at the time of contracting.” This intent is to be inferred, if possible, solely from the written provisions of the contract, but extrinsic evidence may be offered both to explain an obviously ambiguous term and to reveal a latent ambiguity.
The 2015 assignment agreement only referenced trademarks and various social media accounts owned by the league; it did not reference any copyrights. The court did not find anything ambiguous about the 2015 assignment agreement. The Court found that the terms of the Agreement did not contain any ambiguity that could be construed as transferring any interest in any copyright. Similarly, the Court found that the Agreement contained no affirmative representation at all about copyright in the logo, so there went the team’s misrepresentation claim.
There are a few takeaways from this case. The first is to make certain, as a drafter or deal maker, that you have a good understanding of all the intellectual property being acquired. A logo is a graphic design and that has copyright elements.
Another point is, when drafting the scope of intellectual property being acquired, be sure to be as inclusive as possible. In all IP assignment agreements, it’s best to include a specific reference to copyright materials, as well as included a catch-all reference to any and all forms of IP related to the subject matter of the transaction, which in the case of the 2015 assignment agreement would have been the word “Gulls” or any formative of that word, or a depiction of a seagull in the context of hockey or hockey team.