Subscribe
Share
Share
Embed
Conversations with business leaders and changemakers on how they built their business and what keeps them going.
Pankaj Raval (00:03)
Picture this, your product just went viral, sales triple overnight, and then bam, you get hit with the cease and desist for trademark infringement. Or worse, your AI generated logo turns out to be similar to someone else's trademark. Welcome to the new IP Wild West.
Welcome to Letters of Intent. I am Pankaj Ravel and I'm joined by my co-host Sahil Chaudry. Sahil, how are you today?
Sahil (00:26)
doing great and I'm very excited about our topic today.
Pankaj Raval (00:30)
Yes, Sahil is talking to us from the other side of the world in India, with his ear to the to what's terms of global trade. today we've got a very exciting episode. Today we're talking about how AI and e-commerce are rewriting the rules of ownership. going to be diving into intellectual property as your biggest asset and also your biggest liability, in the world of e-commerce and AI. So if you have an AI business, you have an e-commerce business, if you
are involved in those businesses. This is an episode that's for you and you wanna make sure you're paying special attention and reach out to us if you have any questions because I think we're gonna cover a lot of really important stuff that's going on today. The world's moving fast and you gotta be in the know otherwise you're gonna be facing serious exposure.
Sahil (01:08)
So, Pankaj you you're right. in Mumbai and today the world has never felt smaller. I mean, between being able to video chat, I mean, the world ChatGPT at their fingertips, e-commerce, your manufacturer, your selling, we are in a very interconnected global people are working together, people are designing together, people are creating together, and people are stealing IP from each other too.
So I wanna give an example here. Your product listing just went viral, sales tripled overnight, and then bam, you get a cease and desist for trademark infringement, or worse, your AI-generated logo turns out to be similar to someone else's trademark. Welcome to the new IP Wild West. Pankaj you have a lot of experience with IP, and it seems like the space is being transformed, so I wanna...
kick off this conversation by asking you, what would you do in a situation like that? How are we supposed to think about the new rules around IP?
Pankaj Raval (02:04)
Yeah, know, Sahil, is real life example. I we're seeing this happen right now. We are getting notices from clients who have been accused of trademark infringement, of copyright infringement, even for one client who was publishing blogs early ChatGPT first came out, and they got a cease and desist letter, a kind of a nasty demand letter from a competitor.
and the competitor's saying, you you're essentially stealing our blog content. And while my client created it in ChatGPT, interestingly enough, content that my client was using was somewhat similar to what was being on the competitor's website. So means that ChatGPT probably used that data for training and then spit out something similar. So it just shows you that you've got to be extremely vigilant today with the content you put out, even if it's
done by AI and ChatGPT people have got to know that it's trained on content that's already out there. And oftentimes it's copyrighted content. Oftentimes is content from major news sources. They don't always have the access or the rights to this as we've discussed in the past. now there's a big York Times and Anthropic. There's also a lawsuit in the UK going on.
right now Stability AI. So this is all working its way through the courts and there's gonna be a lot of about this. I know there was like a $1.5 billion resolution recently with Anthropic. So it was a settlement. this stuff is all coming to head now and people are gonna recognize that law generally is slow to catch up, but it will catch up and people are gonna figure out monitor this, to monetize this.
And a matter of time until you might get a cease and desist unless you're doing the right work ahead of time as far as clearing your copyrights, clearing your trademarks, making sure that no one else has a confusingly similar brand even if you created something using AI.
Sahil (03:51)
So to kind of take a step back, if you are a small business or a large business today, you're dealing with AI art scraping, counterfeit products, software code reuse, other forms of data scraping. You are in a landmine in terms of figuring out what is protected and owned versus what is
available for you to use and the blur there's a very blurry line now between infringement and inspiration ⁓ and it's it's not just you know big brands anymore small businesses are getting caught in the crossfire and it seems like they're often both the victim and the violator without realizing it ⁓ yeah have you seen that play out for our clients where they're both the victim and the violator
Pankaj Raval (04:23)
Yeah, absolutely.
Absolutely,
I think it does happen in a lot of different contexts. We've had issues with clients had patent disputes and they were a victim in the sense that they bought the products from a distributor out of China who said, yeah, this is our booklet of all the different items you can sell. You can put your brand on them and you can sell them. And then they were also the violator, which it turns out that
well, actually, these some of these items were patented by a very large company and they had no idea. the issue is then what do do? Right. Can you go after this company in in China? Are they going to indemnify you? Probably not. You know, this is where it gets really complex when you talk about cross border deals and people have got to know what are the rights? What are the remedies when dealing with someone cross border? If you're dealing with some of the US, that's one thing you have contractual rights. You can enforce those rights in certain states based on
choice of law, but it gets a lot more complex and potentially a lot more expensive now when you're dealing with someone overseas. How do you enforce the law? Where do you enforce the law? What are they gonna do? Are they gonna pay you? Do they have money to pay you? So these are all things you gotta think about when you're entering into deals in cross-border transactions and why I believe, not to toot our own horn, but why counsel is so important because you can really be caught with your pants
not careful.
Sahil (05:57)
That is so true. As counsel for a number of fashion brands, I found that the supplier agreements were often handshake deals. And we would implement contracts and supplier agreements that would include IP provisions. But most of the time, small to mid-sized businesses are getting involved with a supplier, not knowing where the artwork is coming from that is being used as part of the manufacturing.
not knowing if there's a license involved when they are using or some kind of design element. And like you're saying, this creates a downstream effect where you can be the victim of someone else's copying infringement without knowing it. And then now you become the violator and you're passing that downstream.
So what are some tools that our clients could use to try to avoid that? must be some kind of defensive measures, some kind of preventative measures client could use when they're working, let's say, with a manufacturer.
Pankaj Raval (06:54)
Yeah, know, it's a great point. It's a great question would think in today's age, there's going to be more tools to help people kind of clear these things. know on the trademark side, because we do so much trademark work, there are a lot of like great tools out there that we use, that we pay a lot of money for to help clear trademarks to help, at them, look at the use because the thing is, to create a brand, you got to look at not just the rights here in the US, but really should be looking at, who's using this name globally?
because if you're trying to expand into other countries, you may have problems using that name in China or the UK, because now that could severely restrict, especially if you're an e-commerce product, where you could sell it. So of course it depends on the type of product, if it's a service, it may not matter as much, things to keep in mind. then on the copyright front, yeah, you should be clearing copyrights, you should be understanding, okay, you created it on...
using AI, you want to make sure you're using an AI service that has rights to it. So for example, Adobe, believe, Adobe Fireflies, I think trains its graphic generation on its own if you create it in their Adobe, then have the license to it. But those are things to keep in mind, because if you're now using other services out there, other models that maybe...
train on data it doesn't have license to it just scrapes. Now you could be running into issues later it used and repurposed data or images have rights to. copyright, trademark, these are not like okay exact match issues. There's not even, you there's a myth out there that's saying if you use less than 70 % of an image then you then you're not violating the copyright. That's not true. You copyright is all seen on a case-by-case basis.
Sahil (08:21)
Right.
Pankaj Raval (08:27)
And you have to recognize there's statutory damages involved in copyright law, where if you're found to be in violation of a copyright, now you could $750,000 to $15,000 initially. If it's willful, a whole lot more, up to $150,000. These are significant amounts of money that you could be looking at. So you want to think about registration of the copyright, and also you want to think about trademark or patent, the offensive mechanism, but also defensively.
clearing these things, clearing patents, trademarks, clearing copyrights, and even evaluating your trade secrets too to determine what can be protected, how do you protect it, because the name of the game is IP going forward, and you want to make sure you have a very strong system and process around protecting it and ensuring that you can secure the integrity of that IP.
Sahil (09:13)
brought up something really interesting, which I think we usually treat as boilerplate and just venue and choice of law. If you are a business today, that's a very, and you have IP, that's a very important provision to pay attention to. What do we usually suggest if someone's doing border transaction? Do we usually suggest an international arbitration group? Do we usually suggest that a client go with a certain country?
In terms of venue, how do you think about venue in Choice of Law?
Pankaj Raval (09:41)
Yeah, it's a great question. It's a very kind of complex question and very important though. A lot of people don't think about it. You're right. A lot of people just gloss over it in a contract. as lawyers, you and I deal with this daily pretty much, is a very important question and oftentimes can be a lot of back and forth because where venue is, where the choice of law could really matter in terms of your rights.
So yes, it's a truly international transaction, commercial transaction, then you can, and depending on the size of the parties, think international arbitration is great. services, there's courts that you can use for international arbitration. if you're a US company, if you can get the venue and governing law in the US even better for you, some clients are gonna want it in the UK, you just to think about.
travel, does that look like, you have to hire counsel there now if there's a better to have a home court advantage I think almost all situations. if there are, if these are large, two large companies, then I would say international arbitration is a great option.
Sahil (10:35)
You know know that we had a client that was selling t-shirts with the names of famous pop stars and it turns out those names are trademark and by putting the names on t-shirts that client was selling counterfeit goods. What level of exposure does someone have who's in a position like that? is this that serious?
Pankaj Raval (10:53)
Yeah, know, it's an interesting issue because people think, you see people selling t-shirts all the time outside Staples Center or sorry, crypto.com arena and all these other venues. You see it everywhere and people now are doing it online all the time. But if you don't have the rights to images, if you don't have the rights to those names, now you could be facing serious liability and that's actually considered counterfeit.
you violated counterfeit laws and those statutory violations could go up to $2 million if they're willful. It depends on what is actually violated. The reality is that oftentimes when we look at judgments by courts, even if they are pretty egregious, you don't see them to be in the million dollars or maybe in the hundreds of thousands of dollars, could get up there
now when you're looking at attorney's fees that could be also on the hook for, be a lot more than that. you're selling stuff online and you don't know always the source or if you know the source, you made these products and you didn't get clearance for some of the the trademarks could be the pop star names images, then be liable for significant damages.
was almost a six figure settlement. had to negotiate and that was after a long time where initially they asked for damages in the millions. So we were able to negotiate it down significantly, doing our diligence, looking at what other cases these people have filed. We worked hard to figure our angles to get this as low as possible and eventually we were able to settle on something over long period of time terms of payment.
that was feasible for my client, learned a hard and expensive lesson. And help him out. But these are issues that come up all the time. you do get a cease and desist, if you do get a lawsuit, someone files against you for copyright trademark, we can definitely help you and help try to negotiate a favorable resolution for you so you're not stuck litigating worst case with a massive judgment that you've now got to deal with.
Sahil (12:39)
So I want to kind of, for the sake of our audience, just go through briefly we just talked about trademarks, which are logos, brand names, product names, but there are other categories of IP. We have copyrights, which are your content images, music code, AI outputs, your patents, which are inventions, designs, processes. You have trade secrets.
formulas, algorithms, data. So want to ask you of these categories, where do you see for a business today is the highest risk of potential infringement?
Pankaj Raval (13:10)
That's a good question. The highest risk of potential infringement, would say, a lot of use of AI-generated images out there, but even content, blog content, something we've seen. I I've seen that actually firsthand where people argue of the text used without also falls under copyright. So think copyright...
is one of the biggest areas that we're seeing, but also trademarks. If you're seeing people creating digital goods similar trademark names, very much see a trademark claim come up as well. So think trademarks, copyrights for sure are big ones. are interesting. I haven't seen as much on the patent side of things.
AI disputes, I'm sure there will be. then trade secrets are more internal formulas, secrets are generally protected by contract, so you're not going to much. if someone does steal trade secrets, that's still going to be... could even come I could foresee someone putting in trade secrets into ChatGPT or Claude.
And now is that disclosure? Does that void your claim to trade secrets? I bet you that could be a case that we could see in the future.
Sahil (14:17)
ground is moving beneath our feet, I think, as we speak. And speaking of cases, are, yeah, not just because we're in California, the legal landscape is changing beneath our feet. ⁓ And I'll briefly go through because there are some really interesting cases that touch on certain forms of artistic expression. So basically, there was this case
Pankaj Raval (14:19)
Very much so.
And not just because we're in California. That's because we're in California.
Yes.
Sahil (14:37)
Hermes versus Metabirkins. And Mason Rothschild created and sold NFTs called Metabirkins which are digital stylized version of Hermes-Birkin handbags. Hermes sues Rothschild for trademark infringement, trademark dilution, cyber-squatting, and unfair competition. Rothschild argued that his NFTs were protected as artistic expression, claiming they were commentary rather than a use of the trademark in commerce. This kind of reminds me of
Nathan for use dumb Starbucks, right? That's the argument is this is a form of parody or commentary. But the court completely disagreed and on all accounts, trademark infringement, dilution and cyber squatting, Mason Rothschild was found to be infringing and damages of $133,000 were awarded. So I just want to kind of use this as a way, as kind of a
Pankaj Raval (15:07)
Right, Right.
Sahil (15:26)
cautionary tale for our own clients. You know, probably was an argument for some sort of commentary, but it seems like courts are coming down the other way. Courts are coming down on enforcing brand's rights and in a way that I think could have gone either way. I mean, we do see often people using parody or let's say the news exception.
as far as fair use is concerned, but it seems like courts are coming down on the side brand alleging infringement. Do you find that to be the case?
Pankaj Raval (15:56)
Yeah, absolutely. I think we are seeing that a lot. And also, I think one key distinction here, as people have to realize, is that Hermes and Birkin are famous brands, are famous marks. And when you have a famous mark, you're afforded additional protection that maybe you wouldn't get as a smaller mark. So that's the issue here. It's like Coca-Cola and Nikes, they're going have a much stronger right to protect their trademark than a smaller company like a mom and pop shop.
So that's also the problem here is that because they're so well known, they're susceptible to trademark dilution, is what's happening, which is what the claim was here is that, by this NFT using this term, they're diluting the strength of the mark and that's not okay. There's laws against that. I think that was the issue here. So I think we're going to see a lot more of this. think there's going to be, especially in the, you know, the NFT world, the crypto world. I know there's all these like meme coins. Actually, someone came to us wanting to create a meme coin using
a very brand and we said, well, do you have the rights to it? They said, no, but I think we can really appeal to them. said, well, if you're using the brand name, you're going to make sure you get the rights. kind of quickly backed out. also, it's big opportunity for these sports brands to expand in these different areas, which I think we see a lot of them doing right now.
Sahil (17:08)
Yeah, I think are seeing the way that the internet and now AI is expanding the scope and rapid rate of potential infringement. mean, this has existed in fashion for a long time. So having represented mean, is rampant in fashion in terms of the rumors related to fashion. I mean, I Pankaj, you have a lot of experience with it too. There were these rumors that like,
If you change something are avoiding infringement, which is not true. fashion, even if you look at major brands, Zara effectively is fashion and copying it more affordable version and reselling the mass market. They're doing it in a stylized way, but that model of taking what
Pankaj Raval (17:35)
Yeah.
Sahil (17:55)
high fashion is doing and then bringing it down to a more affordable level is kind of fashions, the fashion industry is oxygen. mean, the whole business runs on this. You look at someone Shein or Fashion Nova, that's the whole business model. And people do it at the mid-level, people also do it, but it's really rampant and very obvious in the fast fashion segment. That's where you see, you know, copying where you're just seeing designs that are
Pankaj Raval (18:04)
Yeah.
Yeah.
Sahil (18:22)
not just major brands, even independent designers will come up with concepts and you'll just see these fast fashion companies walking trade shows, they'll be going to boutiques, they'll be, today online it's very easy to just take a screenshot, send it to your design team and make a similar version of that for your site. And so,
these getting hit with copyright infringement claims left and right for unauthorized reproduction of artwork. And yet these companies are not backing down. mean, the business model really hasn't changed. And so you're kind of seeing the opposite of what we saw in the Hermes-MetaBirkin case where with Shein and Fashion Nova and other fast fashion retailers, it seems like
Pankaj Raval (19:01)
Mm-hmm. ⁓
Sahil (19:07)
Some of the, know, lot of these claims get settled. They're kind of speeding tickets in the grand scheme of things. But what could be the reason you think fashion is kind of, at least the major players have been unaffected by these allegations of infringement and copying.
Pankaj Raval (19:20)
You know, one of the I started was the Fashion Law years know, we have a background both in fashion an interesting philosophical debate that I've always been fascinated by is that, you know, does
the lack of protection fuel innovation. Because if you look at it, there's a great book actually that was published in 2012 I read many years ago called The Knockoff Economy. And it's really about that. Like do we see more innovation because there's less protection or is there less innovation because people don't want to enter those markets because they know they can't protect their ideas. You could argue that you probably see more innovation in fashion. Look how much there's changing in fashion all the time versus maybe other industries where there's more gatekeeping, right?
protections, there's more guardrails, in patent law, things like that. So maybe you see less innovation because people can iterate as easily someone has patent protection and they're afraid of getting sued. So it's an interesting question. there's just not a lot of protection for fashion. When it comes to copyright, tangible that people wear, there's not a lot of protection for that. There is protection for the images, right? If you take a
Sahil (20:21)
Right.
Pankaj Raval (20:21)
photo
of it, you can't copy that image because that's the tangible expression of this idea of this fashion piece, itself is not protected. Now I think in Europe it's a little bit different, I think there's a little bit more protection in Europe, but in the US there's not. Same for example in question is how much protection is around for jokes? I think limited copyright there too. So it is interesting that
It also depends on the form different IP. But I think fundamentally, we're not going to see, unless there's a big change in law, we're not going to see any protection. I think Ralph Lauren, I think was the one that said one of the biggest culprits of designs for the last 30 years. admits it freely.
It is an interesting issue, but I think you have to be aware as an artist, as a business person, is protectable as IP and what is not. And that's why it's important to go back to look at, OK, trademark, copyright, the four buckets, and figure out, what you created falls into any of those buckets, or if there's exceptions to the protection, such as fair use, which we could probably talk for another episode about that.
Sahil (21:19)
Yeah.
So, for example, just for our audience, in fashion, the silhouettes are not copyrightable, but the design elements usually are. ⁓ The pattern, right, well, it's funny because actually patterns are usually referred to the silhouette. ⁓ But yes, the graphics, the design within that garment are usually copyrightable, but
Pankaj Raval (21:29)
Like the pattern, the pattern, right.
Okay.
Sahil (21:44)
Like we're saying, oftentimes there are iterations of that. And so it's very hard to tell if the design is actually independently generated or if it is a copy of something else that's just a derivative use. So like you're saying, I mean, it's important to see, least in the examples we just talked about, the trademark is an easier element to enforce oftentimes in the design itself when it comes to fashion. Yeah.
Pankaj Raval (21:55)
Right.
Right. Right. And I
good point you make is people need to recognize what a copyright even protects. And it protects reproduction of that that item as well as all derivative uses. the $100,000 or whatever can be very expensive question to figure out is what you create a derivative use? It comes in maybe
in television, movies, derivative that copyrighted work was? Because if it is derivative, then yes, you've committed copyright infringement, again, enough creativity involved that it changes it, transforms it in some way, that it makes it a new work? And that is a massive question and is usually determined on a basis.
Sahil (22:46)
Pankaj thank you so much for this deep dive into IP. think, this is going to be a continuing segment for us because. IP is an extremely valuable asset. the ability to protect your IP has become even more important in the age of AI. It's complicated. requires a tremendous amount of legal architecture to protect those assets because.
Those are the assets that are going to be valuable in your business. They're assets that you can sell, that you can license, and that you need to protect. So you need to have an understanding of what you're actually building, especially today where so many of our businesses are IP based. If you're participating in the app store, if you are selling online, if you are using ChatGPT, you maybe perhaps unknowingly
Pankaj Raval (23:26)
HURRGH!
Sahil (23:36)
landscape and you're building intellectual property. And so we really encourage you if you're one of our clients or if you're not one of our clients yet and you have a question about IP, be sure to reach out to us. It's an expertise for the firm and it's a critical asset that you're going to use in your business.
Pankaj Raval (23:52)
Absolutely, Sahil. a few takeaways too that people should consider when they're thinking about IP for their business is just to audit your IP annually. Audit your assets annually. Make sure you understand what IP assets you have. It's not always clear.
Maybe there's assets you can license. Maybe there's some ways you can create some more value out of the IP you have. So working with us, working with someone who specializes in important to understand what is IP? Is it all protected effectively? So we can help with annual IP audits. File early, especially trademarks. Make sure you get your trademarks searched and quickly early because you don't want to risk someone else taking them. That means also globally. US, an element of use that you have to show.
countries, it's about first to file. So if you don't beat someone else and someone else in China sees you using that name here, may very well go and file there and now you're kind a tough spot. So file early, especially trademarks, and think about your global sure you're referencing IP ownership in contracts, so you're understanding who owns IP, especially in JVs. That could be very complicated.
agreements with your developers and your designers. Make sure there's an IP transfer agreement with all those developers and designers because you do not want any loose ends where people could be creating IP for you and then not have it properly transferred. And now that could also hurt you in the sale of later on. And lastly, don't ignore cease and desist if you get it. If you get a cease and desist, talk to us. We offer half an hour, hour consultations not a ton of money in the grand scheme of things.
that can help you kind of navigate these and desist letters. Because some firms are much more aggressive than others and you should know which ones and because doing this for many years, we kind of know which ones to look out for and to deal with each one specifically. So those are kind of some takeaways I think that people should keep in mind.
Sahil (25:31)
has been really informative. Thank you all for joining us again on this segment of Letters of Intent. We will be back next week and we hope that you will join us then. Until then, we thank you all for being part of this community. This is a community for risk takers and deal makers and there's never been a more exciting time to be in the game.
Pankaj Raval (25:54)
Absolutely, I couldn't agree more. Sahil, thank you for joining us from across the world. Wonderful to always chat and have these conversations for Letters of Intent. If you guys do find this helpful, please like, share, comment. We want to hear back from you. We want to make sure this is as useful as possible for you all.
So until next time, dare to deal.