Copyright and Trademark Preemption
Barker Epstein & Loscocco
Emmel Law, LLC
Presented at the 2012 AIPLA Mid-Winter Institute at the "Trademark and Copyright Registration and Enforcement: How to Balance Risks and Benefits so You Hit the Jackpot!" session.
The theme of this session is balance. In the history of the United States there are few issues of legal balance more important that the balance between federal and state powers. When a state law threatens to encroach on a federal law, such as the Copyright Act or the Lanham Act, the court must consider whether the federal law preempts the state law claim. Recent cases involving the California Royalty Act, state labor laws, and state labeling regulations raise these issues.
A. The Tests for Preemption
Federal preemption begins with the Constitution's Supremacy Clause, which provides that “[t]his Constitution, and the Laws of the United States which shall be made in pursuance thereof… shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding.” U.S. Constitution, Article VI, cl.2.
Federal laws and regulations may preempt state laws in three ways. The first is through express preemption, where the federal law or regulation explicitly states that it preempts state or local regulation. The Second is implied preemption where it can be inferred from the language of the federal law that state law is preempted. The third means of preemption is field preemption, which arises when there is a conflict between the state and federal regulation or where attempting to comply with both federal and state laws would create a conflict. State law should be deemed preempted by federal law in any of these scenarios.
1. Express Preemption
a. The Copyright Act and Express Preemption
Section 301 of the Copyright Act expressly addresses copyright preemption. Section 301(a) provides:
On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.
Section 106 provides copyright holders with the exclusive rights to reproduction, adaptation, publication, performance and display. Section 301(f)(1) expands the preemption right to apply to the rights of attribution and integrity, enumerated in Section 106A of the Copyright Act, which includes the following rights:
1. to claim authorship of that work;
2. to prevent the use of his or her name as the author of any work of visual art which he or she did not create;
3. to prevent the use of his or her name as the author of the work of visual art in the event of a distortion, mutilation, or other modification of the work which would be prejudicial to his or her honor or reputation;
4. to prevent any intentional distortion, mutilation, or other modification of that work which would be prejudicial to his or her honor or reputation, and any intentional distortion, mutilation, or modification of that work is a violation of that right; and
5. to prevent any destruction of a work of recognized stature, and any intentional or grossly negligent destruction of that work is a violation of that right.
State laws which purport to expand or decrease these exclusive rights would be preempted by the Copyright Act, according to Section 301. A finding of copyright preemption means that a claim must be brought under the Copyright Act or not at all. If copyright preemption does not apply, the plaintiff can bring a state law claim (as well as a Copyright Act claim).
To avoid a preemption claim, state law (whether common law or statutory) must regulate conduct other than that associated with those exclusive rights provided by the Copyright Act. The language of Section 301 creates a two-part test for determining preemption: First, whether the work is within the subject matter of the Copyright Act; and second, whether the state law creates rights equivalent to those exclusive rights protected by the Copyright Act. Briarpatch Ltd., L.P. v. Phoenix Pictures, Inc., 373 F.3d 296, 308 (2d Cir. 2004).
When considering the second step of the preemption analysis, courts have developed the "extra element" test to determine whether the rights at issue “are equivalent to” one of the copyright owner's exclusive rights, and whether the state law cause of action is, in fact, “qualitatively different” from a claim of copyright infringement. If a qualitative difference is not demonstrated, the state law claim will be preempted. See, e.g., Laws v. Sony Music Entm't, Inc., 448 F.3d 1134, 1143-45 (9th Cir. 2006) (right of publicity claim preempted), cert. denied, 127 S. Ct. 1371 (2007); Briarpatch, 373 F.3d at 305-06 (unjust enrichment claim preempted); Del Madera Props. v. Rhodes & Gardner, Inc., 820 F.2d 973, 977 (9th Cir. 1987) (misappropriation claim preempted). As the court wrote in Giordano v. Claudio, No. 09-1456, 2010 U.S. Dist. LEXIS 48148 (E.D. Pa. May 14, 2010) “[i]f a state law cause of action 'requires an extra element' in addition to or instead of an act of reproduction, performance, distribution or display that would be prohibited under the Copyright Act, there is no preemption of the state cause of action, provided the 'extra element' changes the nature of the action so that it is qualitatively different from a copyright infringement claim. In addition, this " 'extra element' must be more than just an intent or state-of-mind requirement: it must be an extra substantive element that has independent analytical content, beyond mere violation of one or more of the rights of a copyright holder specified in Section 106." Harper & Row, Publishers v. Nation Enterprises, 723 F.2d 195, 200 (2d Cir. 1983), rev'd on other grounds 471 U.S. 539 (1985).
Express preemption and the extra element test apply only when the "exclusive rights" of copyright holders are at issue. Computer Assoc. Int'l, Inc. v. Altai, Inc.,982 F.2d 693, 716 (2d Cir.1992). If those "exclusive rights" are not at issue, general preemption law must be applied. Foley v. Luster, 249 F.3d 1281, 1286 (11th Cir. 2001).
b. The Lanham Act and Express Preemption
Sections 45 and 39(b) of the Lanham Act expressly forbids state interference with federally registered trademarks. Section 45 expressly states that the Act applies to the states and that registered marks are to be protected from state interference. “Any State, and any such instrumentality, officer, or employee, shall be subject to the provisions of this Act. . .The intent of this Act is … to protect registered marks used in such commerce from interference by State, or territorial legislation.” 15 USC 1127. Section 39(b) clarifies what is meant by interference.
No State or other jurisdiction… may require alteration of a registered mark, or require that additional trademarks, service marks, trade names, or corporate names that may be associated with or incorporated into the registered mark be displayed in the mark in a manner differing from the display of such additional trademarks, service marks, trade names, or corporate names contemplated by the registered mark as exhibited in the certificate of registration issued by the United States Patent and Trademark Office.
15 USC 1121(b).
2. Field Preemption
Field preemption, or implicit preemption, occurs where “[t]he scheme of federal regulation [is] so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it.” Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1946). In this situation, “the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject.” Id.
In the context of the Copyright Act the argument could be made that if any type of copyright claim were brought under state laws, the suit would be preempted under the theory of field preemption. There is no need to infer intent from statutory language. The intent, as discussed above, is clearly and explicitly stated in the Copyright Act and legislative history.
In contrast, the Lanham Act does not preempt the entire field of trademark law. State trademark law and registrations can coexist, side-by-side with federal trademark law as long as they don’t attempt to narrow the Federal rights.
3. Copyright and Trademark Conflict Preemption:
A state law claim may also be preempted under the theory of conflict preemption, which provides that state laws that create obstacles to the purposes and objectives of the Copyright Act, or Lanham Act, are preempted. Conflict preemption “arises when compliance with both federal and state regulations is a physical impossibility, or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Pacific Gas and Elec. Co. v. State Energy Res. Conservation and Dev. Comm'n, 461 U.S. 190, 204, 103 S.Ct. 1713, 1722, 75 L.Ed.2d 752 (1983). The first type of conflict, physical impossibility, does not apply to copyright or trademark rights, precisely because they are rights, not obligations, and the registrant could choose to not take advantage of those rights in order to comply with state regulations. The second type of conflict, where the state law is an obstacle to the accomplishment and execution of the full purpose and objectives of Congress, may apply to copyright and trademark law.
The Constitution and case law clearly state the purpose of the Copyright Act. Congressional intent is enumerated in the Copyright Clause of the Constitution as “the Power… to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” The Supreme Court has further explained that there is both a private and public purpose for the Copyright Act. "The immediate effect of our copyright law is to secure a fair return for an 'author's' creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good." Twentieth Century Music v. Aiken, 422 US 151, 156 (1975). Another purpose of copyright law may be “to protect copyright holders in a comprehensive and uniform way.” Foley at 1286. When a state law is an obstacle to any of these purposes, that state law would be preempted under the theory of conflict preemption.
The purpose of trademark law is to protect both consumers and the holders of the trademark.
The purpose underlying any trade mark statute is twofold. One is to protect the public so it may be confident that, in purchasing a product bearing a particular trademark which it favorably knows, it will get the product which it asks for and wants to get. Secondly, where the owner of a trademark has spent energy, time, and money in presenting to the public the product, he is protected in his investment from its misappropriation by pirates and cheats. This is the well established rule of law protecting both the public and the trade mark owner.
S. Rep. No. 1333, 79th Cong., 2d Sess., 3 (1946). Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 787 - 112 S.Ct. 2753, 120 L.Ed.2d 615, 60 USLW 4762 (1992). In Mishawaka Rubber Justice Frankfurter eloquently describes the power behind trademarks, and how they are used by both the registrant and consumer. “Whatever the means employed, the aim is the same -- to convey through the mark, in the minds of potential customers, the desirability of the commodity upon which it appears. Once this is attained, the trademark owner has something of value. If another poaches upon the commercial magnetism of the symbol he has created, the owner can obtain legal redress.” Mishawaka Rubber & Woolen Manufacturing Co. v. S. S. Kresge Co., 316 U.S. 203, 205 (1942). In Park ‘N Fly, the Supreme Court again pointed out the importance of federal protection of trademarks for both the registrant and consumer.
The Lanham Act provides national protection of trademarks in order to secure to the owner of the mark the goodwill of his business and to protect the ability of consumers to distinguish among competing producers. National protection of trademarks is desirable, Congress concluded, because trademarks foster competition and the maintenance of quality by securing to the producer the benefits of good reputation.
Park ‘N Fly v. Dollar Park and Fly, 469 US 189, 198 (1985)(citations omitted). If a state law interferes with the use of a trademark in commerce then those state laws are an obstacle to the fulfillment of the federal law’s goals. In such a case “state law is nullified to the extent that it actually conflicts with federal law. ” 471 U.S. 707, 713.
II. The Copyright Act and Preemption of State Laws
B. The California Resale Royalty Act
In 1977, the California Resale Royalty Act, (the "CRRA") was enacted to enable artists to collect royalties on the resale of their artwork by subsequent owners, if the work is sold in California or the seller resides in California. The CRRA provides that "[w]henever a work of fine art is sold and the seller resides in California or the sale takes place in California, the seller or the seller's agent shall pay to the artist of such work of fine art or to such artist's agent 5 percent of the amount of such sale." Cal. Civil Code § 986(a). There are various requirements for an artist to qualify this 5 percent resale royalty, such as that the artist must be a U.S. citizen or have been a resident of California for at least two years (§ 986(c)(1)); the work must be sold for more than the seller originally paid for the work (§ 986(b)(4)); and the work must be sold for a gross price of more than $1,000, or exchanged for one or more works of art or for a combination of cash, other property and one or more works of fine art with a fair market value of more than $1,000 (§ 986(b)(2) and (b)(5)). In addition, the CRRA applies only to "fine art," defined as "an original painting, sculpture, or drawing, or an original work of art in glass." Cal. Civil Code § 986(c)(2). Therefore, photographs, prints, or jewelry would likely not qualify as fine art under the CRRA. The work must be sold during the artist's lifetime or within 20 years of the artist's death. Cal. Civil Code § 986(a)(7). The seller has an affirmative obligation under the CRRA to locate the artist and pay a royalty to the artist.
The CRRA is based on a resale royalty right which exists in several European countries, including France, Germany and the UK, also known as the "droit de suite," literally meaning "follow-up right." The Act came about as a response to the scenario in which an unknown artist sells an artwork at a relatively low price, and later the work is resold at a great profit. The immediate impetus for passage of the CRRA was a 1973 auction in which taxi baron Robert Scull sold for $85,000 a Robert Rauschenberg painting, entitled "Thaw," that he had acquired in 1958 for $900. While the CRRA was enacted over thirty years ago, it has until recently been largely ignored and seldom litigated.
In October, 2011, artists Chuck Close, Laddie John Dill, the foundation of the late Sam Francis and the estate of Robert Graham commenced three class action lawsuits against the three entities the plaintiffs believe are the largest offenders of the CRRA: eBay, and the auction houses Christies and Sotheby's. The complaints allege that the defendants are "engaged in a pattern of conduct intended to conceal from plaintiffs and class members those circumstances in which a Fine Art sale - entitled plaintiffs and class members to a Royalty" under the CRRA. The plaintiffs allege that this conduct includes the misrepresentation of the domicile of the seller, as well as the location of the sale, because the auction houses and eBay have insisted on keeping the buyers' and sellers' information confidential. Estate of Robert Graham v. Sotheby's, Inc., 2:11-cv-08604-JHN-FFM (Filed 10/18/11). The Sam Francis Foundation also filed suit against nine other California art galleries on similar grounds.
2. Case Law
In 1977, a Los Angeles art dealer named Howard Morseburg brought a case, arguing that the CRRA was unconstitutional and preempted by the Copyright Act. Morseburg v. Balyon, 621 F.2d 972 (C.A. Cal., 1980), writ of cert. den'd, 449 U.S. 983 (1980). The court found that the CRRA was in fact constitutional and was not preempted by the Copyright Act. However, the Morseburg case was brought under the 1909 Copyright Act, because at the time the suit was filed, the 1976 Copyright Act had not yet gone into effect. The 1909 Copyright Act did not have a preemption provision. In contrast, the 1976 Act explicitly states that the federal copyright law is the exclusive law on copyright and preempts all state attempts to regulate and legislate copyright matters. Therefore, Morseburg may have limited practical application today.
The preemption issue was addressed most recently in a California District Court case, Baby Moose Drawings v. Dean Valentine et al, 2011 U.S. Dist. LEXIS 72583. In Baby Moose Drawings, the assignees of artist Mark Grothjahn's royalty rights sued a dealer to collect the 5% royalty due under the CRRA. The biggest sale in dispute took place in 2008 at the New York auction house Phillips de Pury and Co., when Valentine sold an untitled oil on linen painting from 2005 known as "Blue Face Grotjahn" for $1,217,000, including premium. The defendant removed the case to federal court, arguing that removal to federal court was justified because the Copyright Act preempted the CRRA. (Id at 6.) The plaintiff moved to remand the case to the California State Court. The California District Court, addressing the preemption issue, held that the California State Court was the appropriate venue because the federal court did not have original jurisdiction. (Id at 12.) A federal court has original jurisdiction over ". . .any civil action arising under any Act of Congress related to . . . copyrights." (Id at 1.) The California District Court held that the Copyright Act did not preempt the CRRA, because the 5% royalty added an extra element of protection to artists. (Id at 8.) This extra element did not "infringe upon the exclusive rights provided by the Copyright Act." (Id.) In addition, the "royalty right on resale amounts to artists is qualitatively different from the rights granted to copyright holders under the Copyright Act." (Id at 9.) Finally, the court looked to Congressional intent to determine that the CRRA did not interfere with the federal law, citing the Judiciary Committee report on Amendments to the Copyright Act in 1990, which stated:
[s]tate artists' rights laws that grant rights not equivalent to those accorded under the proposed law are not preempted, even when they relate to works covered by [the Copyright Act]. For example, the law will not preempt a cause of action for . . . a violation of a right to a resale royalty." (Id at 10. Emphasis added.)
The California District Court therefore remanded the case to State Court. The case is still pending, but trial has been set for March 6, 2012.
a. First Sale Doctrine
One argument that defendants might make in favor of preemption is that the CRRA would impose an impermissible restriction on the right to sell and distribute works under the First Sale Doctrine. Section 109(a) of the Copyright Act of 1976, which codifies the common law First Sale Doctrine, provides that the owner of a copy of a creative work has the right to dispose of it without the authorization of, or payment to, the creator, as long as the copy itself is not an infringing copy. Defendants will likely argue that the CRRA is preempted under the express preemption statute, because the CRRA regulates an exclusive right provided by the Copyright Act. Other European countries which have a "droit de suite" do not have a first sale doctrine. By placing restrictions on the downstream sale of non-infringing works, and granting rights to copyright owners arising from such sales, the CRRA may run afoul of the First Sale Doctrine. The plaintiffs will likely argue that the CRRA does not interfere with the First Sale Doctrine, because it does not bar resales of copyrighted works, but rather regulates an extra element.
b. Takings Clause
Another argument might be made that the imposition of a mandatory resale royalty under the CRRA imposes a taking without just compensation, in violation of the Takings Clause of the Constitution. States have the power to tax their own residents, but if the royalty is found to be more than a tax, it could be construed as an unconstitutional taking. Emily Eschenbach Barker, “The California Resale Royalty Act: Droit de (not so) suite,” 38 Hastings Const. L. Q. 387 (Winter 2011). The takings problem exists with respect to works whose current owners did not originally pay the five percent royalty when they acquired the works, but would be subject to paying it upon sale. "As the Resale Royalty Act applies to all transactions, without regard for the likelihood that the mandatory five-percent royalty never inhered in the owner's title, the statute effects a taking under the Fifth Amendment, as applied in the majority of cases, and the government must pay just compensation." Id. Thus, the CRRA should be found to be invalid if the art owner was not subject to the CRRA when he originally bought the artwork. If he bought the artwork subject to the CRRA, then he in fact did not buy the artwork in fee simple. If, however, he bought the artwork not subject to the CRRA, he would have bought the artwork in fee simple, not subject to any expectation that he might have to relinquish part of the sale price in the artwork in the future. "The California government has chosen to play Robin Hood, taking property from the 'rich' art seller to give it to the 'poor' artist, and it has done so on an individualized basis." Id. Emily Eschenbach Barker believes this conflict could be eliminated if the statute were rewritten to convert the royalty to a tax to benefit artists in general, rather than the specific artist who created the work being sold, and if the five percent were applied to the profit rather than the sales price. Ibid.
c. Visual Artists Rights Act
Finally, defendants might argue that the CRRA is preempted by the Copyright Act under conflict or field preemption theories, because Congress deliberately left out the moral right "droit de suite" in enacting the Visual Artists Rights Act. The Visual Artists Rights Act codifies only the moral rights of attribution and integrity, bringing the United States into partial compliance with the Berne Convention. By specifically omitting other moral rights, Congressional intent was clear that the Visual Artists Rights Act was intended to be the only moral rights law under the laws of the United States.
It is likely that the preemption issue will arise in upcoming cases and appeals brought under the CRRA, and that precedent may not be instructive as to whether or not the CRRA is preempted by the current Copyright Act.
B. State Labor Laws and the Work for Hire Doctrine
State labor laws governing the classification of workers as either employees or independent contractors pose another preemption problem when examined in the context of the Work for Hire doctrine. Several states have made specific reference to artists or performers within such state legislation.
The Copyright Act codified the work for hire doctrine in 17 U.S.C. § 26, which defines the word "author" as including "an employer in the case of works made for hire." Accordingly, an employer may claim to be the "author" of a work created by another under one of two prongs: first, if the work is prepared by an employee within the scope of the employee's employment; and second, if an independent contractor and employer agree in writing that the work created by the independent contractor shall be considered a "work made for hire". When determining who owns a written work, the first question to ask is whether the creator of the work is an employee or an independent contractor. Generally, if the creator of the work is an employee, it is presumed that the employer owns the copyright.
The Supreme Court examined the work for hire doctrine in Community for Creative Non-Violence ("CCNV") v. Reid, 490 U.S. 730 (1989). CCNV v. Reid involved a dispute over ownership of a sculpture commissioned by a nonprofit organization. The Court held that the artist was an independent contractor and not an employee since the sculptural works did not fall within one of the nine specific categories of "commissioned" works listed in the Copyright Act, and no written agreement existed between the parties. In reaching this conclusion, the Court examined the common law agency principles, including: (1) the hiring party's right to control the manner and means of creation, (2) who provided the materials and tools, (3) the skill required by the hired person, (4) the location of the work, (5) the length of the relationship between the parties, (6) how the hired party was paid, (7) who hired and paid assistants, (8) whether the work was part of the regular business of the hired party and (9) the tax treatment of the hired party.
If the creator of the work is not an employee, then three requirements of the independent contractor prong must be satisfied in order for the hiring party to own the original work. The requirements are: (1) prior to the commencement of the work, the parties must agree in writing that the work shall be considered a "work for hire"; (2) the work must have been "specially ordered" or "commissioned" by the employer; and (3) the work must fall within at least one of nine statutorily mandated categories of commissioned works listed in the Copyright Act. The nine categories include: using the work as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas. 17 U.S.C. § 101.
Should a work for hire dispute arise in a jurisdiction in which a state statute regulates the distinction between “employee” and “independent contractor” an argument for copyright preemption will likely arise. Because the Copyright Act does not provide a test for determining whether a work for hire relationship exists, but rather, case law has established common law agency principles as a guide in this analysis, express preemption would not exist. Rather, the state law would have to be analyzed under conflict or field preemption.
1. New York
Section 511.1(b)(1-a) of the New York Unemployment Insurance Law characterizes the services of performing artists at certain establishments as “employment” unless there is a written contract stipulating that they are employees of someone else. The New York State Department of Labor's Guidelines for Determining Worker Status provides that "professional musicians or persons otherwise engaged in the performing arts, who perform services as such for a television or radio station or network, a film production, a theater, hotel, restaurant, night club or similar establishment" shall be considered employees by law, "even though the circumstances under which they work may not meet the common law tests of an employer-employee relationship."
However, the courts and the Unemployment Insurance Appeal Board have held
that the statute creates a presumption of employment which can be rebutted through application of common law tests of supervision, direction and control. Because this is a rebuttable presumption, the statute may not be in conflict with the Copyright Act's work for hire doctrine.
California's Unemployment Insurance Code §686 provides that a person who commissions the creation of a specially ordered work is an "employer" when the parties expressly agree in writing that the work shall be considered a work for hire and that the "employer" retains ownership of all the rights comprised in the copyright of the work. Because the Copyright Act contains a work for hire provision, and §686 presumes to govern this same area of the law, the state law could be found to be preempted. However, the argument may be made that only the definitions of "employer" and "employee" are impacted under the California Unemployement Insurance Code, not the definition of a work for hire, and that the Copyright Act does not expressly define “employee” and an “independent contractor” for the purposes of preemption law. Therefore, the California Unemployment Insurance Code provides an extra element, and may be found not to be preempted by the Copyright Act.
In 1990, Massachusetts enacted the Independent Contractor Law, M.G.L. c. 149, §148B (“the MICL”). The MICL was amended on July 19, 2004. The MICL creates a presumption that “an individual performing any service” is an employee. On November 18, 2005, the Massachusetts Department of Revenue issued regulations further clarifying the classification of employers versus independent contractors in the performance and entertainment industries. 830 CMR 62B.2.1 states that "[a] person or entity that pays performers or performing entities compensation for one or more performances shall withhold. Compensation may not be paid to a performer or a performing entity unless the required tax has been withheld." Examples of performers include athletes; agents or managers of performing entities or performers; referees, coachers or trainers; members or a production crew; a paid entertainer or speaker, such as an actor, singer, musician, dancer, circus performer, comedian, celebrity, public speaker or lecturer; writers, directors and members or a sound, light, stage or production crew.
In addition, the Commonwealth has restricted the definition of an independent contractor so that it is more difficult to be classified as such. To overcome the presumption that an individual performing any service is an employee, the party receiving services must now establish:
(1) that the worker is free from its control and direction in performing the service, both under a contract and in fact;
(2) that the service provided by the worker is outside the employer’s usual course of business; and
(3) that the worker is customarily engaged in an independent trade, occupation, profession or business of the same type.
Again, the argument may be made that only the definitions of "employer" and "employee"is impacted under the MICL, not the definition of a work for hire, and that the Copyright Act does not expressly define an employee versus an independent contractor for the purposes of preemption law. Therefore, the MICL may be found to regulate an extra element and in that case would not be preempted by the Copyright Act.
However, these labor laws could have an impact on the application of the work for hire doctrine across the country and could create a split among the jurisdictions in how to apply the work for hire doctrine. The Copyright Act might therefore be found to preempt the MICL under the theory of field preemption or conflict preemption.
III. The Lanham Act and Preemption of State Labeling Laws
A. State laws interfering with the use of Trademarks are barred under the Dormant Commerce Clause as unduly burdensome.
Under the Dormant Commerce Clause, state actions are barred when they impose an undue burden on interstate commerce. This determination requires a fact-intensive balancing test, weighing local public interest against interference with interstate commerce, which must be carefully examined in every case. In Pike v. Bruce the court found that “where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142 , 90 S.Ct. 844, 25 L.Ed.2d 174 (1970). More recently the court has reaffirmed that “even nondiscriminatory burdens on commerce may be struck down on a showing that they clearly outweigh the benefits of a state or local practice.” Department of Revenue of Kentucky v. Davis, 553 U.S. 328, 330, 128 S.Ct. 1801 (2008).
State labeling laws, even in cases where enforcement was not interfering with the use of a trademark, have been struck down as too burdensome as weighed against any local interest. Bioganic Safety Brands, Inc. wanted to include the claim “Safe for Kids” on its insect repellant labeling sold in every state. Colorado labeling regulations, § 35-9-120, C.R.S., prohibit making claims such as “Safe” on insect repellant, whereas other states do not impose such restrictions. The court found that Colorado labeling requirements violated the Commerce Clause of the United States Constitution; “Further, a state's law may create an undue burden on interstate commerce, and thus run afoul of the Dormant Commerce Clause, even if it does not conflict with any other law, whether state or federal.” Bioganic Safety Brands, Inc. v. Ament, 174 F.Supp.2d 1168, 1184 (D.Colo. 2001).
Missouri enacted regulations, Missouri Revised Statute § 311.360.2., requiring that “Any malt liquor which is offered for sale in this state and manufactured at other than a facility owned by the person whose name appears on the label of the container shall include on the label the name and location of the owner of the facility which produced and packaged the malt liquor.” In Pete’s Brewing the court found that “the benefits to the State of Missouri are minimal, yet the burden placed on interstate commerce is significant both in dollars and injury to the business of Plaintiffs. . . Accordingly, the Court concludes that even if [the labeling regulation] does not overtly discriminate against out-of-state commerce, it unduly burdens interstate commerce and is unconstitutional.” Pete's Brewing Co. v. Whitehead, 19 F.Supp.2d 1004, 1017 (W.D.Mo. 1998). In Beatrice Foods, where the enforcement of labeling regulations interfered with labeling generally, and also specifically with the use of a federally registered trademark the court found in favor of the registrant. Beatrice Food Co.’s labeling, including its federal trademark, ran afoul of state labeling laws. Since Wisconsin is known for its dairy, it is not surprising to learn that Wisconsin has a particular interest in drafting and enforcing labeling laws that pertain to dairy products.
In an effort to protect consumers from confusion, Wisconsin statute §100.36 requires that to use the word butter, the product must contain 40% butterfat and the word “butter” never be used in conjunction with the sale of butter substitutes without being labeled in such a way as to distinguish it from butter. Under Wisconsin statute§ 97.03(1)(a) “A food is misbranded: If its label is false or misleading in any particular.” There are penalties for those who distribute misbranded food and misbranded food may be seized.
Beatrice Foods Co. marketed a butter substitute product under the federally registered “BUTTERMATCH” mark in interstate commerce, including Wisconsin. This product contained only 20% butterfat, not enough butterfat to be marketed as butter in Wisconsin.
Wisconsin issued a Notice of Misbranding, seized a BUTTERMATCH shipment, and threatened both civil sanctions and criminal prosecution against Beatrice Foods. Among other complaints, Wisconsin objected to the word “Butter” paired with “Match” in the product name, arguing that it was misleading. Wisconsin effectively banned the sale of the BUTTERMATCH product until such time as Beatrice Foods changed the labeling of the product including the use of the federally registered trademark.
Beatrice Foods sought and was granted a preliminary injunction barring Wisconsin from interfering with the distribution or marketing the BUTTERMATCH product.
In reaching its decision in Beatrice Foods the court questioned the constitutionality of the ban under the Dormant Commerce Clause, looking to the Pike v. Bruce test for undue burden. The Pike test requires determining; whether the alleged purpose of the statute is legitimate, see Sporhase v. Nebraska ex rel. Douglas, 458 U.S. 941 at 954-55, 102 S.Ct. 3456, 73 L.Ed.2d 1254 (1982); whether the statute effectuates the alleged purpose Id. at 954-956; and whether the statute treats residents and non-residents evenhandedly if not equally Id. at 955-956. If those requirements are met the court turns to a consideration or balancing of local interests against impact to interstate commerce. The statute will be upheld where the burden is not “clearly excessive". Pike v. Bruce at 142.
In Beatrice Foods the court found that protecting consumers from confusion is a legitimate interest and, that the statute effectuates that purpose and does so for both residents and out of state interest evenhandedly. In examining the burden on interstate commerce however, the court found that while the state could require a clearer designation of the product as being a blend, requiring a change to a federally registered trademark was too burdensome. Specifically the court found that “[t]here are many less burdensome ways to accomplish this goal than to require plaintiff to change the registered name of its product” Beatrice Foods Co. v. State of Wisconsin et al., 223 USPQ 75, 78 (W.D. Wis. 1983). In summarizing to the balancing aspect of the Pike test the court said “that state has stated a legitimate interest in preventing consumer deception, I find that the possibility of the threatened harm to Wisconsin's consumers does not outweigh the injury caused to plaintiff” Id. at 79.
B. Current Litigation over “Organic” Trademarks
The conflict between Federal trademark law and state law is occurring again in California. In June of 2011, the public advocacy group The Center for Environmental Health (CEH) filed suit in California against 26 cosmetic companies alleging that these companies sold their products in violation of state labeling laws. In particular CEH objects to the defendant’s use of the term organic on product labels, and is seeking an order enjoining defendant’s “false and misleading labeling.”
The California Organic Products Act of 2003 (COPA) requires that any cosmetic product sold as “organic” must contain at least seventy percent organically produced ingredients. If the product contains less than seventy percent organic ingredients, the term organic may appear only in the ingredient list. The definition of an organic ingredient is essentially one produced in accordance with the Organic Foods Production Act of 1990’s National Organic Program.
Under COPA, "Sold as organic" means any use of the terms "organic," "organically grown," or grammatical variations of those terms, whether orally or in writing, in connection with any product grown, handled, processed, sold, or offered for sale in this state, including, but not limited to, any use of these terms in labeling or advertising of any product and any ingredient in a multi-ingredient product.
CEH argues, that if a trademark includes the term organic, and the product does not meet COPA criteria, then the registrant may not use that trademark without conflicting with COPA regulations and being subject to suit. CEH includes in its complaint several trademarks that include the term “organic”, or a variation of the term. CEH is demanding that the registrants not use their federally registered trademarks.
To prevail, CEH will have to overcome the teaching in Beatrice, where the state was enjoined from enforcing its labeling requirements as against the trademark holder. Likewise, CEH will have to overcome Bioganic and Pete’s Brewing where the courts concluded that just a change to the labeling, much less than a change to the trademark, was considered unduly burdensome and therefore unconstitutional under the Dormant Commerce Clause.
In order to avoid a similar fate therefore, CEH will have to show that the state has a legitimate interest in forcing the alteration of a federally registered trademark, that the effect on interstate commerce is “only incidental”, and that this effect on commerce is outweighed by the benefit to the state.
While avoiding consumer confusion is of course a significant interest, the cost to interstate commerce from forcing a company to either abandon its registered trademark, or not do business in a state, especially a market as large as California, is a tremendously burdensome. It seems likely that, as in Beatrice, and Bioganic and Pete’s Brewing, CEH’s enforcement of COPA as against the trademark holders will be held unduly burdensome to interstate commerce in violation of the Dormant Commerce Clause.
Similarly CEH’s application of COPA as to trademarks clearly puts COPA in conflict with federal legislation and triggers a conflict preemption analysis as discussed above. If COPA regulations prohibit the use of trademarks, then COPA is an obstacle to the attainment of the goals of the federal trademark legislation. Just as conflicting state legislation was in Park ‘N Fly, it seems likely that COPA will be “nullified to the extent that it actually conflicts with federal law.” 471 U.S. 707, 713
 The Copyright Act of 1976 went into effect in 1978.