Opinion ID: 3034224
Heading Depth: 3
Heading Rank: 2

Heading: m&m iii

Text: [3] In M&M III, the Second Circuit held that M&M Produce Farm & Sales (“M&M”) could challenge the validity of IPC’s certification mark for Idaho potatoes in spite of a nochallenge provision in a licensing agreement between the two. 335 F.3d at 139. M&M’s former licensing agreement contained a provision, like the one in G&T’s license, in which M&M recognized the validity of IPC’s certification marks and promised not to challenge the marks during the license term or after its expiration. See id. at 134. M&M sought to challenge the validity of the certification marks nonetheless, arguing that the no-challenge provision was unenforceable because it violated the public policy underlying the Lanham Act. Id. The Second Circuit applied the balancing test articulated by the Supreme Court in Lear, Inc. v. Adkins, 395 U.S. 653 (1969), to determine that the provision should not be enforced. See M&M III, 335 F.3d at 135-37. Lear involved a dispute between a patent holder and a licensee who sought to challenge the validity of the patent based upon which it had agreed to pay royalties. 395 U.S. at 655-56. The Court held that licensee estoppel did not preclude the licensee’s challenge, overruling a previous decision holding that a licensee operating under a license agreement generally could not simultaneously challenge the validity of the underlying patent. Id. at 670-71; see also Automatic Radio Mfg. Co. v. Hazeltine Research, Inc., 339 U.S. 827, 836 (1950). The Court reasoned that: Surely the equities of the licensor do not weigh very heavily when they are balanced against the important 13928 IDAHO POTATO COMMISSION v. G&T TERMINAL public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain. Licensees may often be the only individuals with enough economic incentive to challenge the patentability of an inventor’s discovery. If they are muzzled, the public may continually be required to pay tribute to would-be monopolists without need or justification. We think it plain that the technical requirements of contract doctrine must give way before the demands of the public interest in the typical situation involving the negotiation of a license after a patent has issued. Lear, 395 U.S. at 670-71. The Court also refused to enforce a provision of the parties’ license agreement that would have required the licensee to pay royalties until a court held the patent invalid. Id. at 671-74. It noted that: The parties’ contract, however, is no more controlling on this issue than is the State’s doctrine of estoppel, which is also rooted in contract principles. The decisive question is whether overriding federal policies would be significantly frustrated if licensees could be required to pay royalties during the time they are challenging patent validity in the courts. Id. at 673. The Lear court thus balanced the policies underlying state contract law against those animating federal patent law in placing limits on the parties’ contractual obligations. In M&M III, the Second Circuit noted that courts had frequently applied the Lear balancing test to trademark licensing contracts. 335 F.3d at 136. It went on to observe that courts have generally precluded licensee challenges to trademarks after weighing the public interest in trademarks against contract principles. Id. (citing MWS Wire Indus., Inc. v. Cal. Fine Wire Co., 797 F.2d 799, 803 (9th Cir. 1986), and Beer Nuts, Inc. v. King Nut Co., 477 F.2d 326, 329 (6th Cir. 1973)). It IDAHO POTATO COMMISSION v. G&T TERMINAL 13929 concluded that the trademark cases were not controlling in the certification mark context, however, because the two types of marks serve different public interests. Id. at 138. Trademarks protect the public from confusion by accurately indicating the source of a product. They preserve a producer’s good will “in order that the purchasing public may not be enticed into buying A’s product when it wants B’s product.” Id. (quoting T & T Mfg. Co. v. A. T. Cross Co., 587 F.2d 533, 538 (1st Cir. 1978)). Trademark owners have a monopoly over their marks, which they can license as they see fit as long as such licensing does not cause public confusion. Id. A certification mark, on the other hand, is a mark used by someone other than its owner to signify that a product or service has a certain characteristic. 3 McCarthy on Trademarks and Unfair Competition § 19:91 (4th ed. 2005) (“McCarthy”). The certification mark owner is required to license the mark to anyone who meets the certification criteria. M&M III, 335 F.3d at 138 (citing McCarthy § 19:96). The M&M III court observed that the distinction between certification marks and trademarks reflects different underlying public interests. While certification marks resemble trademarks in that they attempt to prevent consumer confusion by communicating information regarding a product’s characteristics, certification marks also have another purpose. Id. M&M III reasoned that certification marks protect “a further public interest in free and open competition among producers and distributors of the certified product.” Id. This is achieved by protecting certification mark licensees from the certification mark owner’s influence in an attempt to ensure the broadest possible competition in the market for certified goods. Id. (citing 15 U.S.C. § 1064(5), which allows cancellation of a certification mark when the owner: produces or markets goods to which the mark is applied; permits use of the mark for purposes other than to certify; or discriminately refuses to certify one who maintains the standards the mark signifies). The court viewed this public interest as “akin to the public interest 13930 IDAHO POTATO COMMISSION v. G&T TERMINAL in the ‘full and free use of ideas in the public domain’ embodied in the patent laws.” Id. at 138-39 (quoting Lear, 395 U.S. at 674). [4] The Second Circuit held that IPC could not enforce the no-challenge provision against M&M because the public injury that would result outweighed the general interest in enforcing written contracts. Id. at 139. In reaching this conclusion, the court first observed that the provision restricted licensees in a way unrelated to controlling the quality of the certified product. Id. This restriction inured to the benefit of IPC in contravention of its duty not to interfere with a free market for Idaho potatoes. Id. Next, the court noted that parties having at some point entered into an IPC licensing agreement might be the only ones with sufficient economic incentive to challenge any of IPC’s conduct that arguably compromised its neutrality as a certification mark holder. Id. Finally, the court looked to the public interest underlying the merits of M&M’s challenges. Id. It reasoned that M&M’s specific allegations regarding violations of IPC’s duties as a mark holder implicated the public interest in creating a free market for Idaho potatoes unaffected by IPC’s potentially conflicting economic interests. Id. IPC makes three primary contentions in arguing that we should disapprove the district court’s reliance on M&M III. First, it argues that the policy underlying certification marks mirrors that of trademarks and that M&M III therefore erred in treating certification marks differently. Next, it contends that M&M III improperly imported into its analysis patent law principles inconsistent with the policies underlying the Lanham Act. Finally, IPC points out that a large number of certification mark holders share its concerns regarding M&M III’s holding.