Recent Case Demonstrates the Importance of Protecting Intangible Property Rights

June 15th, 2010

A recent decision by the Maryland Court of Special Appeals illustrates the fundamental importance of seeking affirmative legal protection for your intellectual property rights. While Brass Metal Products, Inc. v. E-J Enterprises, Inc., 984 A.2d 361, 189 Md. App. 310 (Md. App. 2009) involves an inventor’s loss of rights as a result of his failure to obtain a patent for his invention, the principles applied by the Court are equally applicable to other forms of intangible property.

In Brass Metal Products, Brass Metal, a distributor of aluminum construction railing products, entered into a wholesale supply agreement with E-J Enterprises (“E-J”), under which E-J would purchase unique aluminum railings from extrusion mills for resale to Brass Metal on an as-needed basis. The railings were designed by Brass Metal’s owner, James Burger, but Burger never obtained patents on his designs. Several years later Brass Metal authorized E-J to sell its excess inventory of railings extruded from Burger’s designs.

Eventually, E-J began selling railings it had purchased for Brass Metal to Parthenon, a new company owned by Brass Metal’s top salesman. When E-J refused Brass Metal’s request to stop these sales, Brass Metal filed suit against Parthenon and E-J. However, since neither Brass Metal nor its owner had obtained patents for the designs, Brass Metal was limited to basing its claim concerning use of designs on the tort theory of conversion rather than a statutory patent infringement. Brass Metal settled with Parthenon before trial, but lost its case against E-J and then appealed.

Conversion is essentially theft (“any distinct act of ownership or dominion exerted by one person over the personal property of another in denial of its right or inconsistent with it”). Darcars Motors of Silver Spring, Inc. v. Borzym, 379 Md. 249, 261 (2004). Fundamental to any claim for conversion is that the claimant must have a property interest in the thing that it claims was converted. This requirement imposes unique hurdles to protect intangible property rights. To succeed on a claim for conversion of intangible property, the Maryland courts have held that the owner’s rights must be “merged or incorporated into a transferable document.” Allied Inv. Corp. v. Jasen, 354 Md. 547 (1999). Burger and Brass Metal failed to meet this requirement in this case, at least as to E-J.

Brass Metal also asserted that custom and usage in the industry demonstrated that E-J understood that Brass Metal’s rights in the railings’ design were protected. The court denied this claim, citing Brass Metal’s failure to meet the “clear and convincing evidence” standard for establishing the custom and usage of the aluminum extrusion industry.

Absent the prerequisites for a claim for conversion of intangible property, since Brass Metal failed to obtain a patent for Burger’s design, it did not have the right to prohibit E-J from selling to Parthenon (or anyone else) aluminum railings extruded from Burger’s designs or extremely similar ones provided by to E-J by Parthenon. As a result, the trial court ruled in favor of E-J Enterprises on all claims.

The Maryland courts have held that, subject to the limitation discussed above, claims for conversion may succeed for forms of intangible property other than patents, such as partnership interests and copyrights, although conversion claims for copyrightable materials may be subject to preemption by the federal Copyright Act. See U.S. ex rel. Berge v. Bd. of Trustees of the Univ. of Alamaba, 104 F.3d 1453 (4th Cir. 1997).   Before entering into any transaction involving any type of creative work, including technical designs or specifications, business people should be sure to take all steps necessary to fully protect their intangible rights and write contracts properly safeguarding these rights.

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