Contract Consideration – FAQ

WhatQuestion for Trademark lawyer does it mean for a contract to be not enforceable because of a lack of consideration?

Answer: In order for a contract to be enforceable, the mutual promises of the parties must be supported by “consideration.” Considerations means each party gives something of value to the other.  The reason that the courts and legislatures generally require some form of consideration is to insure that the promises being made are not merely a casual statement, and accident, or gratuitous – in short – to make sure the people making the agreement really mean it. Consideration looks at whether the parties have assumed an obligation on the condition of an act or forbearance of another. Except in cases of employment matters, Minnesota courts generally do not look at the adequacy of the consideration being offered – only whether some consideration has been exchanged. For written agreements, the court presumes valid consideration. While adequacy of consideration is not usually analyzed, vague or indefinite terms of consideration (including other conditions of the agreement) may invalidate an agreement, unless it is clear from the subsequent actions.

In contracts related to copyrights and trademarks, this mean that things like royalties might be subject to discontinuance if the only thing that it does is to grant a right to use the IP and it turns out the licensor in fact does not have the rights in the first place (assuming the licensor did not know that the rights were invalid). However, if the contract also goes on to provide that the licensor will discontinue use of the rights for their own use, this forbearance may be enough to be deemed adequate consideration to enforce the contract.

Consideration is important as a part of any contract.   When setting up a licensing arrangement it’s important that you evaluate what the parties are exchanging.

Sometimes They Don’t Quite Get It.

Courts sometime get the right answer for the wrong reason. In a recent case in the US Tenth Circuit (Enterprise Management Limited, Inc. v. Warrick); the court discussed a diagram of a basic idea which was the basis of the defendant copying a similar diagram to explain the same concepts.    While the end result was correct in this circumstance, the reasoning used falls short.

Where concepts or ideas are being presented there is a general rule that expression and ideas are sometimes merged and therefore the copying is allowed to not allow the copyright owner to weld exclusive rights to the idea.   The Enterprise Management court articulated this by noting:

“In short, the copyright law is not a patent law: it protects the expression of ideas rather than the underlying ideas themselves. Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 344-45 (1991) (“The most fundamental axiom of copyright law is that no author may copyright his ideas or the facts he narrates.”) (quotations omitted). And, when a work expresses an idea in the only way it can be expressed, courts deny those expressions protection under the “merger doctrine” to avoid giving the author a monopoly over the underlying idea. See Gates Rubber Co. v. Bando Chem. Indus., 9 F.3d 823, 838 (10th Cir. 1993). Conversely, when an idea is capable of many different “modes of expression,” the expression of the idea is eligible for copyright protection. Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1253 (3d Cir. 1983).5”

Infringing Diagram

Original Diagram

The court analyzed a fairly basic diagram similar to what we have all seen on countless Power Point slide, comprising a series of rectangles.  Although the original was no longer in use, but a modified version using different shapes, the court held, correctly, that the diagram is protected by copyright.   The real issue in my mind is to what degree that protection extends – with a diagram based on common shapes, typefaces, and general structure the strength of the copyright protection is limited, as the protection is limited by the limited methods in which to express the idea.  The diagrams are virtually identical, excepting for the border around the title page.  While that the court was correct in its’ holding, the court seemed to indicate it would find the same even of the diagram had included a significant deviations to the aesthetic elements, instead basing the similarities on the use of boxes and other common design elements and implying the only acceptable method of circumventing this thin copyright was to use an entirely different diagramming method in affect allowing the copyright holder to lay claim to entire concepts based on the charting tool used.   Using the court’s analysis, parties wishing to lay broad claims to concepts and ideas could circumvent the merger doctrine, by going into any basic diagramming program, entering in the data and allowing the program to kick out different charts.