National Labor Relations Board

The National Labor Relations Board (“NLRB”) is seeking comment through mid-December on its proposed rule establishing a joint employer standard, as set forth in 83 FR 46681.  One of our Fox Rothschild partners, Tami McKnew, submitted the following comment to the NLRB, which speaks to the implications of the joint employer rule on trademark licensors/licensees:

“The proposed rule specifically acknowledges the effects of the 2015 shift in joint employer analysis evident in the Board’s decision in Browning-Ferris Industries, 362 NLRB No. 186 (“Browning-Ferris”). Following the Browning-Ferris decision, franchisors, temporary employment firms, contract employers and others whose businesses necessitate some degree of interaction with and arguable control over non-employed workers found themselves as joint employers, despite decades of precedent otherwise. The effect on such businesses was immediate and profound.

With this proposed rulemaking the NLRB more clearly defines the conditions under which joint employment may be evident, and largely restores the pre-Browning-Ferris analytical framework. This is entirely appropriate, given the decades of business relationships and industries whose very structure incorporated and depended upon the prior established analytical framework. As recognized in the Notice, the proposed rule also reflects the pre-Browning-Ferris well-established and long-standing joint employment analytical framework.

However, that the Notice fails to adequately address, by specific acknowledgement or by example, the concerns of licensors and licensees of intellectual property, in particular patent, trademark or service mark licensors. Owners of such intellectual property rights must police and protect those rights; failure to do so may render such rights unenforceable. In legal jurisprudence, a patent owner’s policing obligations have been whittled down, especially given the elimination of a laches defense in infringement actions, SGA Hygiene Products Aktiebolag v. First Quality Baby Products, 137 S.Ct. 954 (2017), but affirmative action must be undertaken by the licensor to protect against infringement. The policing obligation remains for trademark owners, however. 15 U.S.C. §1064(5)(A).

Patent and trademark owners may license rights to practice patented technology or use trademarks or service marks. Such licenses require the licensee to abide by standards and/or to adhere to particular practices. Certain types of patents, for instance, process or method patents, may dictate an entire process and all the operations required to perform the method or process; the licensee has little or no choice as to the operations governed by the patent license.

Similarly, trademark or service mark licenses may dictate extensive quality control standards, processes and procedures. The most obvious example is the central role that trademark and service mark licensing have in a franchise system. But such licenses are not limited to the franchise industry. A dealer or distributor may sell products bearing the trademarks of one or more licensors; it may service products pursuant to licenses from different licensors; and it may lease products under license from yet a third licensor. The scenario is not unlikely. A tire dealer may be licensed to sell multiple brands; it may be licensed to provide recapping services, as directed in the license, by a different licensor; it may lease products under the service marks of yet a third licensor. Each of the licenses will include mandated procedures and operations over which the dealer has no control.

In each of these cases, control over significant operations in the licensee’s business is dictated by the licensor. Will the efforts of the licensors to police and enforce the licensed rights expose them to the risk of being considered the joint employer of the licensee’s employees whose employment is to perform such operations? And for a licensee who holds licenses from multiple licensors, as in the distribution example above, are multiple licensors potential joint employers? In each situation, the licensor can be said to offer “direct and immediate” control over the licensee’s employees, in that the licensor dictates the operations that form the central part of their employment. The ability of an owner of intellectual property to reap the potential financial benefits of a patent or trademark/service mark is ephemeral at best if enforcing those rights exposes one to the risk of becoming a joint employer of the licensee’s employees. More importantly in the context of the NLRB’s proposed rulemaking, it makes little sense to include such licensors at the bargaining table. Absent specific recognition in the proposed rule of the unique position of intellectual property licensors and licensees, the application of the joint employer analysis is unclear.

I respectfully suggest amending the proposed rule to include language which provides that the status of joint employment is inappropriate based solely on a licensor’s policing or enforcement of its patent, trademark or service mark requirements and standards. Intellectual property owners should not be dissuaded from enforcing their rights to control, police and enforce their patent, trademark or service mark rights.”

Credit: Tami’s comment was originally posted on Fox Rothschild’s Franchise Law Update blog.