Let’s go Back in Time

The Delorean broke into the collective consciousness of America in 1985 with the motion picture Back to the Future.

The story of the original Delorean Motor Company is literally the stuff of insane documentaries. From high-flying ex-GM car designer to cocaine trafficking to fund continued operations of John Delorean’s assembly line in Belfast. The original DMC went defunct in 1982, with its assets, including replacement parts and presumably its intellectual property valued at mere pennies on the dollar. In about 2007, an individual in Texas bought the remaining replacement parts, later announced plans to operate under the name Delorean Motor Company.  In 1989, Universal and John Delorean’s estate reached a trademark license agreement entitling the estate to 5% of royalties going forward for uses of the Delorean image on products. Later, there was a lawsuit between the new DMC and John Delorean’s widow sued for trademark infringement that settled in 2016 with a purported transfer of the trademarks (or at least a release of trademark rights) to the new DMC from his widow. Though, as explained in the court opinion below, this transfer of royalties to the trademark license granted by the estate of John Delorean remained in question.

DMC now has plans to offer an updated, electric Delorean model.  But, their primary business presently remains manufacturing and selling replacement parts and updated versions of parts for the tiny number of existing Deloreans, estimated to be on the order of approximately 9,000 cars manufactured in 1981 and 1982. In 2018-2020, DMC and the estate of John Delorean had yet another lawsuit that regarding entitlement to royalties from NBCUniversal which resolved in DMC’s favor in 2019.

In Delorean Motor Company v. NBCUniversal Media, LLC, Case No. 8-22-cv-02189 (CDCA Feb. 22, 2024) (case here), that new DMC is suing NBCUnviersal (which became the owner through a merger with Universal Pictures the rights to the Back to the Future series of movies and associated toys, clothing, and merchandise) for their continued use and royalty payments for the Delorean-themed products. For example, NBCUniversal licenses toys in the form of the Delorean-based Time Machine used in the movie. 

DMC alleges that it is entitled to royalty payments which NBCUniversal has mis-represented that a likelihood of confusion still exists for sales of toys and other products featuring the Delorean Time Machine.  The three issues in NBCUniversal’s summary judgment motion are (1) whether there is a breach of contract at all since DMC is not a party to the original 1989 license to NBCUniversal, (2) that accounting is not a valid claim, aside from a remedy to breach of contract, to which DMC is not a party, (3) that DMC’s claim for trademark and trade dress infringement fails because NBCU is a senior user of the marks at issue.  

Regarding the first two claims, Judge Carter found that there was no mention or identification of the 1989 agreement between Universal and John Delorean’s estate. Accordingly, the agreement was not assigned to DMC and, therefore, DMC has no standing to sue for breach of a contract to which it is not a party.

However, primarily because DMC has registered and incontestable marks, the marks are well-known, NBCU had paid royalties to DMC for several years, acknowledging those trademark rights, the court found that there remained sufficient questions of fact making it improper to resolve the Lanham Act claims on summary judgment.

Inequitable Conduct Allegations do not Entitle one to Rely Upon the Crime-Fraud Exception

In CR Bard, Inc. et al v. Medical Components, Inc., 2-17-cv-00754 (DUT Mar. 14, 2024) (case here) the court covered an issue we briefly discussed several weeks ago during another SoCal IP Institute. It felt timely, so I am covering the case in this week’s Institute.

Here, C.D. Bard (“Bard”) sued Medical Components (“MedComp”) regarding alleged patent infringement. In response, MedComp alleges among other things that Bard committed inequitable conduct. Bard indicates that it cannot obtain the necessary documents to prove its case without production of otherwise privileged documents. The pending motion is a motion to compel filed by Bard. Notably, discovery had closed in this case when the motion was filed. And, in a somewhat tortured procedural history, Bard did not challenge MedComp’s designation of certain documents for more than a year after they had been designated as privileged and those claims were accepted by a special master and adopted by the court.

To satisfy the crime-fraud exception, a party must show that a “Walker Process” fraud has occurred. The Federal Circuit law on this requires (1) a representation of material fact, (2) falsity of that representation, (3) the intent to deceive or recklessness also to the consequences held to be the equivalent of intent, (4) a justifiable reliance upon that representation by the party deceived which induces them to act thereon, and (5) injury to the party deceived as a result of their reliance upon the misrepresentation. In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 807 (Fed. Cir. 2000). The fraud must be in furtherance of a crime or fraud and the party seeking disclosure of otherwise privileged documents must prove clear evidence of invent and reliance by he deceived party.

First, the court finds that merely pleading inequitable conduct is not enough to meet this high bar as a matter of law. Such a result would be nonsensical. In the few cases cited by Bard, inequitable conduct had already been found before the crime-fraud exception was applied. And, as you may have gathered from the above, MedComp sat on its rights for more than two years, or at best, one year, before seeking to obtain the otherwise privileged documents. Its motion is far too late procedurally. So, the motion was denied on substantive and procedural grounds.

 

 

 


Jonathan Pearce, the author of this post, will lead a discussion of these issues at our weekly SoCal IP Institute Meeting on May 6, 2024 which will qualify for 1 hour of MCLE for the State Bar of California and is available via the internet for those who would like to participate.