Don’t jump to instant conclusions about the Fujifilm-Polaroid litigation

It’s been a mere couple of days, and there has been a lot of Internet Indignation over the idea that PLR IP (the successor to Polaroid’s intellectual property) would demand that Fujifilm pay to license the square format for Instax Square. Most of what I have seen is based on incomplete suppositions about the law — and the history of instant film in the 21st century. A lot of comments say – in so many words – that PLR is just a bunch of greedy [——s] trying to cash in. You’re entitled to your opinion, but this is far more nuanced a situation than most reflexive internet commenters realize.

Why is PLR demanding royalties?

Three points here. First, the law of intellectual property (patents, trademarks, copyrights) is designed to confer legalized monopolies, not to promote competition or assure that consumers have the best selection or best price. It is designed to compensate creativity, innovation, and brand-building/maintenance by giving the creator or its successor exclusivity for some period – or in the case of trademarks, indefinitely. Don’t confuse IP law with antitrust law, which does things like preserving competition in price and preventing agreements, business combinations, or sales practices that improperly leverage market power to make consumers pay more.

Second, intellectual property is transferrable. You can deride the idea of “cashing in on an IP portfolio,” but however distasteful you think it is, it’s perfectly permissible under the law. In fact, you’ll see on pretty much every patent application ever filed that patents are assigned to workers, who then have to fork the rights over to their employers. Patents are licensed all the time, and there are thousands of instances where an inventor does not see any part of the profits because he or she cashes out. Some companies make it their business to own and license patents for money. Those same companies sometimes fund (or pay off) the work that led to the patent in the first place. The average inventor lacks the capital to realize ideas; if it weren’t for investors, most consumer products you use on a daily basis simply would not exist.

Finally, PLR absolutely has the right to “cash in” on any valid IP it obtained in the wake of the Polaroid bankruptcy. Bankruptcy does not automatically cancel a company’s IP; in most bankruptcies, that is liquidated to pay the creditors.  Think of it this way – General Motors Corporation went out of business about ten years ago. All of its rights in the various products it sold went to General Motors LLC  – which like PLR IP was a new company with none of the same owners. The current GM has the ability (from an ownership standpoint) to sue anyone for infringing any trademark that was ever used by any prior version of GM. So PLR IP stands in the shoes of old Polaroid for ownership. That doesn’t mean that the intellectual property is valid; it just means that PLR can sue.

How did this lawsuit start?

Next, let’s talk about how this lawsuit started: Fujifilm filed a declaratory action to establish whether or not it can sell Instax Square without paying a royalty. That is a proactive step to take. Fujifilm got a nasty-gram from Polaroid, Polaroid did not file suit, and Fuji wanted to bring the issue to a head before it distributed too much Instax Square and ran up too much in potential liability. So it was Fuji that decided to spend a few million on the exercise.

What is Fujifilm’s rationale?

I would posit that if this suit is not just being used by Fujifilm as negotiating leverage, this will be a long, expensive, dragged out piece of litigation and not necessarily because of anything PLR will do. It may well make this a mega-case. But Fujifilm’s own arguments are all based on concepts that are neither slam-dunks, nor ones that will be decided short of expensive expert work or a trial. Fujifilm has three principal arguments in its complaint (reproduced here but condensed and consolidated):

FUJIFILM does not use the “square within a square” form factor of its INSTAX instant film as a trademark, nor as any other indicia of the source of its products… FUJIFILM’s use of the “square within a square” form factor for its INSTAX instant film has not caused, nor is it likely to cause, confusion as to the source, affiliation, or sponsorship of FUJIFILM’s products and services or Defendants’ products or services.

Likelihood of confusion could be a challenging issue for Fujifilm. The issue is likely  going to be addressed in a confusion survey in which a couple thousand people are going to be shown an Instax Square print. For those in the survey group who aren’t familiar with Instax, what will they call the prints?

Defendants do not currently use and have not used in commerce the marks that are the subject of the PLR Trademark Registrations for any of the subject goods set forth in the PLR Trademark Registrations.

This is an abandonment argument. In general, there is a rebuttable presumption that when a party does not exercise a trademark for three years, that it is abandoned. That is not an ironclad rule because “intent to resume” is a way around that. Moreover, bankruptcy standing alone is not generally recognized to cause abandonment.

Abandonment requires clear and convincing evidence to prove – meaning that you don’t get a verdict or a judgment based on the 50.0000001% certainty standard in your garden variety civil case. In fact, “clear and convincing evidence” is the same heightened standard used to prove fraud. It is also more akin to “beyond a reasonable doubt.”

Now take a look at what is going to get presented to a judge (or a jury if PLR demands one):

  • Polaroid Corporation made SX-70 film (the subject of the trademark/trade dress dispute here) starting in the early 1970s.
  • Polaroid sued Kodak in 1976 when Kodak introduces line of integral film cameras that competed with the SX-70.
  • At about the same time Kodak instant went off the market, but before the Kodak case was resolved, Polaroid and Fujifilm settled their own patent dispute, resulting in (among other things) a territorial distribution agreement keeping Fujifilm integral out of the United States, licensing the patented integral technology to Fuji, and giving Polaroid access to Fujifilm’s video technology.
  • In 1991, Kodak and Fuji settled for $925 million, making instant film the biggest patent case in U.S. history.
  • In 1998, Fujifilm started making some sizes of Instax (its name for all instant films).
  • In 2001, Polaroid imported Instax Mini 10/20 film (which it sold as “300” film) and sold the  camera as the Mio. In the same year, it filed for reorganization and its assets were sold to an affiliate of  Bank One. The company that bought the assets was named Polaroid Holding Company, the old Polaroid Corporation became Primary PDC, Inc., and PHC began doing business under Polaroid Corporation.
  • In 2004, Polaroid stopped making the negatives necessary for integral film. This, it thought, would be a decade’s worth of stock. Wrong!
  • In 2005, Instax/Mio folded, as did Instax Wide, in the U.S.
  • In 2005, Polaroid Corporation (PHC) was sold to Tom Petters.
  • In 2008, Polaroid went out of business (when Petters was prosecuted for investment fraud) and stopped making chemical SX-70/600 style film (and in Europe, the raw materials stockpiled in 2004 had now been exhausted – 6 years ahead of predictions).
  • During the 2008 liquidation, Florian Kaps – the largest online distributor for Polaroid – bought the 50,000 remaining packages of SX-70 film. He got Ilford onboard and spent $3.1 million buying the production equipment at Enschede (NL). With the help of good old PR extortion, he got Polaroid Europe to cooperate in allowing the workers to keep the plant running (albeit with re-engineered products).
  • In the same year, Instax Wide and Mini came back under Fujifilm branding.
  • In 2009, Polaroid’s IP was transferred to a new entity owned by an investor group. Notably, “Polaroid” was still being used to sell books and other things recalling the SX-70/600 instant print.
  • In 2010, the Impossible Project released its first film based on Polaroid SX-70/600 format and concept.
  • In 2012, Wiacezlaw “Slava” Smolokowski bought 20% of the Impossible Project at the behest of his son, Oskar.
  • In 2014 (December) the Pohlad family bought the majority interest in new Polaroid for $70 million. Oskar Smolokowski becomes the CEO.
  • In 2014, Slava Smolokowski (his father) became the biggest shareholder in the Impossible Project.
  • In 2017 (January), Polaroid released the Pop 3×4 Zink (Zero Ink digital) amera that used the classic SX-70/600  borders.
  • In 2017 (April), Fujifilm introduced Instax Square. The SQ10 camera renders digitally taken images on (arguably) SX-70-proportioned prints, just like the Pop. The difference is that it uses chemical film/paper rather than sublimation printing.
  • In 2017 (May), Smolokowski (senior?) bought the Polaroid brand and IP, bringing both it and the Impossible Project under the same ownership. Presumably, Polaroid licensed its IP to Impossible. Certainly it licensed the name, and Impossible is now “Polaroid Originals.”
  • At around the same time, PLR made demands on Fujifilm.
  • In 2017 (November), Polaroid brought its trademark cancellation action in the Southern District of New York.

(and this is just the story of integral film – Polaroid and Fuji had other collaborations in pack film, for example, like Type 689, which reportedly was made by Fuji).

Ok. This is still not everything that has happened in the integral film world – but you get the point. A part of this suit, I’m sure, is going to be untangling exactly who owns what and what continuities exist. I’m also sure that both Fujifilm and PLR and Impossible Project spent a lot of money figuring this out in the few first months of the year. It’s actually interesting also that this suit does not name Polaroid Originals (née Impossible Project) or Smolokowski, since I think you’d want to resolve everything at once.

The alleged “design” of an instant film border frame with a thickened portion that is the subject of the PLR Trademark Registrations is purely functional…

This is probably going to be a lot of engineers doing exposition on ways to spread chemicals. Fujifilm will argue that a thickened border is necessary for the chemical pod. Too bad for curiosity’s sake that the papers that lay this all out will probably never see the light of day in terms of accessible court records. But query whether that will let them argue that the specific proportions of the print are functional. Dr. Land was a very detailed person when it came to designing things, so don’t be surprised if his notes reflect some intentional aesthetic choices.

The immorality of PLR’s demands?

PLR’s assertion of its rights is not unforeseeable, nor is there any indication that it is based on unethical thinking or behavior. First, the Smolokowski family has sunk probably tens of millions in Polaroid, a large sum in making the Impossible Project work, and getting the rights to resurrect SX-70 film – even in name. It has every incentive in the world to prevent what might be an assault on Polaroid’s historic core (and most recognizable) photographic product. If Fujifilm undercuts Impossible on price (which is almost a certainty), the only people who will buy Impossible film will be the ones who want both the SX-70 format and the particular camera that use the original style film.

Second, you might or might not wonder about why Fujifilm “just happened” to come out with a format clone of SX-70 if it isn’t to cash in on the hipster aesthetic. Is it a situation like in 2010: the Year we Make Contact (“All of these worlds are yours except Europa. Attempt no landings there”)? Or does every square format requires similar proportions? Is homage the most sincere form of flattery? Or is this a play on the back of a product that people remember even with a 10-year time-out under the Polaroid name? It could be all of these things – or none of them. That is what a court is going to decide in the Fujifilm case.

Finally, people should not harbor the illusion that Fujifilm is “committed” to film, operating a charity, or otherwise being some kind of noble stag attacked by the commoners. Like industry punching-bag Kodak, Fujifilm does things because they make money, and it has a pretty clear track record of stopping when those things does not. Because shareholders. Instax is supported because it makes money. Even according to Fuji’s own official histories, it was on its way out when a youth-oriented fad jumpstarted its failing heart. Other things (like pack film and many 35mm and 120 emulsions) were discontinued because they did not make money. If “SX-70” becomes another size in a portfolio of Instax formats that are in the meta sense disposable, it would be easy for Fujifilm to put Impossible out of business in year 1 (bricking every SX-70 and 600-series camera in existence) and blow away the format in year 3 because Wide (or whatever) sells better and the investment in camera and film cutting tooling is amortized. You may or not may feel comfortable putting all eggs in that green basket. Maybe you do if short-term price is your main concern.

Bottom line?

My prediction is that this will end in a settlement with a small royalty or cross-licensing of Fujifilm technology to Polaroid Originals. Fujifilm will get to sell square Instax, and Polaroid Originals will sell a slightly better version of its product. It’s an easy prediction. Both parties have a lot to lose here, and it’s how many IP fights are resolved.

 

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