February 13, 2012
LES Insights
Authored by D. Brian Kacedon, Douglas W. Meier, and John C. Paul
Intellectual property licensors often desire to protect their intellectual property from validity challenges by their licensees. From a licensor's perspective, it often seems reasonable to request that a licensee give up its right to challenge the validity of certain intellectual property in exchange for having access to that intellectual property. In some areas of the law, however, there are limitations on a licensor's ability to prevent such challenges. For example, in patent law, licensees generally cannot be prevented from bringing patent validity challenges. See Lear, Inc. v. Adkins, 395 U.S. 653 (1969). In contrast, trademark law still contains a doctrine of "licensee estoppel" that prevents licensees from bringing validity challenges. In Fair Isaac Corp. v. Experian Information Solutions, Inc., No. 10-2409 (Aug. 17, 2011),1 the Eighth Circuit recently revisited this issue and held that while the doctrine of "licensee estoppel" applies in the trademark context, it extends only to the licensee and not to affiliates of the licensee.
This case involved "credit scores," the tool widely used by lenders to determine when to grant loans and the rates at which loans should be granted. The algorithms that generate these credit scores were first developed by Fair Isaac Corp. and myFICO Consumer Services, Inc. (collectively, FICO). FICO's credit score, the most widely used score in the industry, produces a score in the range of 300-850. Because of this, FICO applied for and received trademark protection for "300-850."
More recently, three major credit bureaus, Experian, Equifax, and TransUnion, came together to create a joint venture called VantageScore designed to compete with FICO by creating a new tri-bureau credit score. In February 2006, just before the launch of VantageScore, Experian signed a license agreement that permitted Experian to use FICO's 300-850 trademark. This license contained a no-contest provision stating that Experian would not "challenge the validity of [FICO's] exclusive rights" to its trademarks.
In October 2006, FICO filed suit against the three credit bureaus and VantageScore, asserting, among other things, trademark infringement. Equifax and TransUnion settled, leaving Experian and VantageScore to defend themselves. The Fair Isaac trial court took evidence by Experian, over FICO's objection, that FICO's trademarks were invalid. FICO objected on the grounds that Experian, as a licensee of the mark, and VantageScore, as a joint venture of Experian and the other credit bureaus, should both be estopped from challenging the validity of the mark in light of the doctrine of licensee estoppel. The evidence came in, however, and the jury found FICO's "300-850" mark invalid. The district court upheld the jury's finding, reasoning that VantageScore is not a licensee and therefore is not precluded from challenging the validity of FICO's mark.
On appeal, the Eighth Circuit began by affirming that the doctrine of licensee estoppel precludes a trademark licensee from contesting the validity of its licensed rights. But, according to the court, the doctrine precludes only the actual licensees from a challenge—other parties, even those closely affiliated with the licensee, are not foreclosed. Thus, VantageScore, although closely affiliated with Experian, is not foreclosed from challenging the validity of the licensed rights.
The Eighth Circuit pointed out that VantageScore is a distinct entity from its three joint shareholders (i.e., the three major credit bureaus). FICO argued that VantageScore is the "alter ego" of the bureaus and therefore should not have been able to challenge the validity of the licensed rights because Experian could not. But the Eighth Circuit agreed with the district court, pointing out that FICO did not present any evidence that VantageScore was in fact the alter ego of Experian or the three credit bureaus.
Finally, with regard to validity of the mark, FICO argued that in any event its mark should be deemed valid against Experian, even if VantageScore is able to challenge its validity. The Eighth Circuit dispensed with this argument, however, explaining that a mark that is invalid cannot be infringed.
Entities affiliated with a trademark licensee may still challenge the validity of the licensed trademark. A company granting a trademark license should recognize that only the actual licensees will be estopped from challenging the validity of the licensed trademark. Thus, entities related to the licensee, such as affiliates, will not be so restricted if they are not parties to the license agreement. In this regard, the licensor should also consider whether to extend the license to affiliates or related companies. If so, the licensor should further ensure that those entities are sufficiently bound by the terms of the agreement so as to prevent a validity challenge by those entities.
1 The Fair Isaac decision
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm’s clients.
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