12 FOR 2012

Here is a link to the materials from last night's IP presentation at the Brewhouse.

Thanks to all those who came, and especially to those who helped close it down.

POST-LICENSE USE OF TRADEMARK IS COUNTERFEITING

A former trademark licensee’s continued use of a trademark after termination of the license constitutes trademark counterfeiting. That is the holding in a recent District of Indiana default judgment case, Century 21 v. Destiny Real Estate. The court explained:

If an unrelated entity had created an identical trademark and provided authorized goods or services (or the kind provided by the owner of the mark) under that mark, there would be no question that there was counterfeiting. The Court can conceive of no reason why an ex-franchisee should escape liability for counterfeiting simply because that person had access to a franchisor’s original marks because of the former relationship and therefore did not need to reproduce an identical or substantially similar mark.

Other courts have come to differing conclusions on this issues, in various contexts. In a 1997 case, the 6th Circuit held that a franchisee’s holdover use of a trademark was not counterfeiting. The 9th Circuit held that the licensee’s holdover was counterfeiting in a 2005 case involving continuing use of the Idaho potato certification mark.

The significance is that pursuant to 15 U.S.C. § 1117(b), if he is found to be a counterfeiter, the former licensee can be liable for statutory damages(up to $2 million in cases of willful counterfeiting), and will be liable for three times profits or damages, whichever amount is greater, together with a reasonable attorney’s fee unless the court finds “extenuating circumstances.” If he is merely an infringer, statutory damages are not available and treble damages and attorneys’ fees are less certain to be awarded. They may be awarded “subject to the principles of equity.”

The Century 21 court’s damage, injunction and individual liability analyses also are noteworthy. Century 21 sought its actual damages plus treble damages. The court held that such an amount would be quadruple, rather than treble damages, one multiple too many. The court further reduced the award to two times damages, on the ground that the liquidated damages provided for in the license agreement and awarded by the Court coincided with the actual damages, and therefore to awarded treble damages in addition would again result in quadruple recovery.

On a cheerful note for trademark owners, the Court granted a permanent injunction, finding that “the injury especially justifying injunctive relief is the loss of control over and harm to its valuable name and trademark, in which it has invested substantial effort and money over time to develop goodwill.” If that is going to suffice under Ebay, trademark owners may not need to be as concerned that injunctions against infringers will be harder to come by.

The court declined to impose liability on Destiny Real Estate’s principal. After surveying the law on individual liability for corporate trademark infringement, the Court found that Century 21’s allegations that the individual was President of the company and authorized or approved of the misconduct were not sufficient bases to hold the individual liable for the corporation’s infringement.
 

INTENT TO USE A TRADEMARK MUST BE SUPPORTED BY DOCUMENTARY EVIDENCE

Trademark applicants filing intent-to-use applications must possess documentary evidence of their “bona fide intention” to use the applied-for mark in connection with the claimed goods and services. Failure to do so may result in a successful opposition of the application or cancellation of a resulting registration, as a recent decision by the Trademark Trial and Appeal Board confirmed (Spirits Int'l B.V. v. S.S. Taris Zeytin Ve Zeytinyagi Tarim Satis Kooperatifleri Birligi, Opposition No. 91163779, 99 U.S.P.Q.2d 1545 (T.T.A.B. 2011)).

To meet the “bona fide intention” requirement, applicants should have reasonably concrete plans to commercialize all of the claimed goods and services under the mark, and applicants should be taking steps to implement those plans, such as by undertaking product research and development, market research, or development of promotional materials. A mere hope or desire that business will expand at some point in the future to encompass additional goods or services is not sufficient. When an applicant does have a bona fide intention to use a mark, the applicant should produce documentary evidence of that intention, such as photographs of product prototypes, draft promotional materials or product specifications, draft business plans, or records of meetings such as presentations to potential investors. This written record could be key in saving an application or registration.

Trademark owners and applicants should also be careful in selecting the goods and services for listing in an application. It is sometimes very tempting, especially with goods such as clothing, to list a broad array of goods that applicant hopes to sell at some point in the future (or does not want someone else selling under the same mark). But without a bona fide intention to use the mark for those goods, supported by documentary evidence, the entire application or registration could be in jeopardy. It is also important to keep in mind that applicants must continue to have a bona fide intention to use the mark on all listed goods and services throughout prosecution of the application, and upon filing of a statement of use, the applicant must submit a sworn statement that the mark is used with all listed goods and services. There are procedures to divide out goods and services not yet in use so applicants can obtain a registration on the active goods and services and maintain a pending application on the remainder.

 

The foregoing is a guest post authored by Chris Kinkade of Fox Rothschild's Princeton, NJ office.

 

 

A TRADEMARK SURVEY CHECKLIST

Here is a six-step checklist for trademark infringement litigants hoping to prove likelihood of confusion through survey evidence. Litigants who carefully consider each of these issues should have a better chance of having their survey results admitted in evidence.  It is derived from last year’s summary judgment decision in Competitive Edge v. Staples in the Northern District of Illinois.

1. Universe - Be sure to correctly identify the “universe” of respondents. It should be consumers in the market at issue. If the universe is erroneous or undefined, the reliability of the survey is diminished.

2.  Sample – The sample population must represent the universe, and be neither under-inclusive nor over-inclusive.

3. Clear Questions – Survey Questions must be clear and precise..

4. Filter Questions – The survey should include some open ended questions. Acceptable answers should include “don’t know.”

5. Double Blind – Ideally neither the questioner nor the respondents should know the reason for the survey.

6. Data Collection and Recording – Questions must be asked, and responses recorded, consistently and accurately.
 

ABUSE OF PROCESS REQUIRED FOR A CASE TO BE EXCEPTIONAL UNDER THE LANHAM ACT

The Lanham Act authorizes courts to award attorneys’ fees to the prevailing party in “exceptional cases.” 15 U.S.C § 1117. The Seventh Circuit addressed what it means for a case to be exceptional last year in Nightingale Home Healthcare v. Anodyne Therapy. The Seventh Circuit settled on the following standard.

[A] case under the Lanham Act is “exceptional,” in the sense of warranting an award of reasonable attorneys’ fess to the winning party, if the losing party was the plaintiff and was guilty of abuse of process in suing, or if the losing party was the defendant and had no defense yet persisted in the trademark infringement or false advertising for which he was being sued, in order to impose costs on his opponent.

Abuse of process the court explained, is the misuse of legal process primarily to accomplish a purpose for which it was not designed, such as in a Lanham Act case, suing “to obtain a competitive advantage independent of the outcome of the case by piling litigation costs on a competitor.”

The abuse of process standard for exceptional Lanham Act cases in the Seventh Circuit is less exacting than the Federal Circuit’s test for finding an exceptional case for purposes of awarding attorneys fees in a patent case, discussed in my April 14, 2011 post. The Federal Circuit requires not only subjective bad faith but objective unreasonableness to qualify a patent case as exceptional.

The court surveyed precedent nationwide and found an absence of consensus on a precise standard. That portion of the opinion is a good resource for litigants in every circuit. A researcher can start there and then move to the authorities cited from the particular court in which he is litigating.
 

A THREE STEP CHECKLIST TO AVOID NAKED TRADEMARK LICENSING

The threat of a trademark being deemed abandoned as a result of naked licensing sometimes seems more theoretical than practical. Trademark abandonment is a harsh remedy, subject to a high burden of proof for its proponent, and there are multiple ways to structure a trademark license such that the trademark licensor can “police” the licensee’s use of the trademark without thoroughly inspecting every licensed product. A recent case from the Ninth Circuit reminds us, however, that there are minimum standards that trademark licensors must meet.

The concept behind the prohibition on naked licensing is intuitive. If a trademark owner allows a licensee to use his trademark without ensuring that the licensed products meet the standards the trademark has come to symbolize in the minds of consumers, the trademark loses its symbolic value and we might as well allow anyone else to use it.

In FreecycleSunnyvale v. The Freecycle Network, the Ninth Circuit affirmed a decision that a non-profit recycling group (which one might think would make a sympathetic trademark owner) failed to do the minimum. The opinion suggests the following three step checklist for trademark licensors to follow when licensing their trademarks.

1. Put it in the contract – This seems obvious. There should be written license agreement that specifies the standards to be maintained. The license should say that the licensor has rights to either inspect or supervise to ensure that standards are maintained.

2. Do what you say – Whatever you say you are going to do, be it inspection or supervision, do it.

3. Prove you can trust the licensee – It is permissible to rely on the licensee to handle the day-to day, if there is a “close working relationship.” If you are going to do that, include in either the body of the contract or the “whereas” clauses, the basis of the close working relationship and reasons why the licensee can be trusted based on past history or mechanisms in place. Be sure to permit more extensive scrutiny if the relationship changes, and if the relationship does change, re-evaluate the measures in place to determine if more control is needed.

By doing those three things, trademark licensors stand a better chance of avoiding the harsh punishment of trademark abandonment.
 

ARE WEB SEARCHERS IMMUNE TO INITIAL INTEREST CONFUSION?

Recent case law suggests that the theory of trademark infringement on the Internet based on initial interest confusion may be on the wane, and that companies may feel more comfortable including trademarks other than their own in their Website metatags and purchasing advertisements keyed to another's mark.

Metatags are words invisibly embedded in Web pages. They cause search engines such as Google to identify the tagged Web pages in response to queries containing the tagged term. Many trademark practitioners have objected to the practice of including trademarks other than one’s own in metatags on Websites.

The basis for the objection is initial interest confusion. The theory of initial interest confusion is that a consumer looking for a particular product, if wrongly directed to the source of a similar product, may buy the similar product instead. Picture, for example, a hungry family looking for McDonald’s who see a sign pointing east and follow it to Mac’s Diner. When they arrive, they might just eat at Mac’s rather than doubling back and continuing to search for McDonald’s. Translated to the Web, the thought is that if a competitor were to include the words “Fox Rothschild” in its metatags, one who sees the competitor’s site in the list of sites returned by search for “Fox Rothschild” might go to the competitor’s site instead of the Fox Rothschild site.

At least two courts this year have now rejected the initial interest confusion theory for Internet users. The first was the U.S. Court of Appeals for the 9th Circuit in Toyota Motor Sales v. Tabari, 610 F.3d 1171. In that case, Judge Kozinski wrote:

When a domain name making nominative use of a mark does not actively suggest sponsorship or endorsement, the worst that can happen is that some consumers may arrive at the site uncertain as to what they will find. But in the age of FIOS, cable modems, DSL and T1 lines, reasonable, prudent and experienced internet consumers are accustomed to such exploration by trial and error. They skip from site to site, ready to hit the back button whenever they’re not satisfied with a site’s contents. They fully expect to find some sites that aren’t what they imagine based on a glance at the domain name or search engine summary. Outside the special case of trademark.com, or domains that actively claim affiliation with the trademark holder, consumers don’t form any firm expectations about the sponsorship of a website until they’ve seen the landing page—if then. This is sensible agnosticism, not consumer confusion. So long as the site as a whole does not suggest sponsorship or endorsement by the trademark holder, such momentary uncertainty does not preclude a finding of nominative fair use. (citations omitted.)

The Massachusetts Superior Court adopted the same reasoning earlier this month in Jenezebar v. Long Bow Group, quoting portions of the Toyota opinion and elaborating that: “This court finds that this initial uncertainty does not qualify as confusion and is an inevitable part of Web searching.”

These two cases suggest a possible trend of judicial skepticism regarding initial interest confusion as a theory of trademark infringement on the Internet.
 

Green IP Litigation

On this day after Earth Day, are you considering advertising the environmental benefits of your product? Is your competitor already doing it, and perhaps overselling the environmental benefits of its product? Are you considering a trademark that includes words such as “green” or “eco” or “enviro?” Do you have an invention that promises environmental benefits?

If you said yes to any of those, know that the word green when used to mean “good for the environment” has a many shades as the color green. That uncertainty, of course, makes litigation concerning the proper use of the word green and related terms increasingly likely.

The USPTO is struggling with what it means to be “green.” Reports are that trademark applications including words associated with the environment are up, and the USPTO is giving such applications increased scrutiny. As green and other terms relating to the environment are included in more trademarks, infringement litigation is more likely, as are office actions and litigation involving allegations of misuse of such terms.

On the patent side, the USPTO has sought to encourage development of environmentally-friendly technology by fast-tracking “green” patent applications. At least one report, however, suggests that restrictive interpretations concerning what types of inventions qualify have rendered the program less effective than many hoped. USPTO representatives have been speaking about the program at a number of conferences, but I have been unable to attend. I’d love to hear from anyone who has heard the USPTO’s view on this concern. I wonder what might happen when a business tries to advertise the green benefits of an invention that is rejected for the USPTO program. Should that rejection in any way inform the decision as to whether such green advertising is false?

False advertising litigation should be the largest byproduct of the green ambiguity. By many accounts, assertions of environmental benefits, both legitimate and illegitimate, are up. “Greenwashing”, the practice of falsely advertising products as having environmental benefits is bound to be an area of increased litigation for business, consumers and the FTC. The Seven Sins of Greenwashing offers a method of analyzing so-called “green” advertising that could lead to some interesting litigation strategies.

The current issue of the John Marshall Law School Intellectual Property Law Review offers a number of interesting articles concerning these issues. In particular, Maureen Gorman’s article What Does it Mean to Be Green: A Short Analysis of Emerging IP Issues in "Green" Marketing and Eric Lane’s Consumer Protection in the Eco-Mark Era: A Preliminary Survey and Assessment of Anti-Greenwashing Activity and Eco-Mark Enforcement, offer much food for thought.
 

Design Patent Infringement- No Experts Please

There is some concern about a recent decision from the Southern District of Ohio in which the court, with little evidentiary analysis, relied on an expert opinion to bolster its own analysis that summary judgment should not be granted for the defendant because a jury could find infringement. Fortunately, a better view, that expert opinion should not be permitted on the issue of infringement, has been expressed in two other recent cases.

The test for determining infringement in design patent cases is the “ordinary observer” test, from the decision of the Supreme Court in Gorham Co. v. White 81 U.S. 511 (1871), more recently vindicated by the Federal Circuit in Egyptian Goddess v. Swisa, 543 F.3d 665 (Fed. Cir. 2008). The test as written by the Supreme Court is “if in the eye of an ordinary observer, giving such attention as a purchaser usually gives, two designs are substantial the same, if the resemblance is such as to deceive such an observer, inducing him to purchase one supposing it to be the other, the first one patented is infringed by the other.”

The Ohio court accepted the expert’s opinion that the ordinary observer would be deceived. That raises the obvious question “how could the expert know what an ordinary observer would think? He couldn't. That’s why the courts in HR U.S. LLC v. Mizco Int’l and Chef’n Corp. v. Trudeua Corp. excluded such testimony.

Excluding testimony concerning the ordinary observer test is consistent with the way similar issues are treated in copyright and trademark law. In copyright cases, expert testimony is not permitted on the issue of whether an ordinary observer would find the works in question “substantially similar.” Nor do we permit expert opinions concerning the “likelihood of confusion” of the typical consumer in trademark cases; we permit only surveys of actual consumers.


 

Connecticut Unfair Trade Practices Preempted

Connecticut, like many other states, decades ago enacted a "mini-FTC" Act, modeled after the federal law, 15 U.S.C. § 45(a)(1), prohibiting unfair trade practices. The Connecticut version is the Connecticut Unfair Trade Practices Act ("CUTPA"). Most states that have enacted such laws have either in the statutes themselves or in case law, narrowed their applicability to discourage unfair trade practice claims in ordinary business disputes. In Connecticut…not so much. As David Belt discussed in a Connecticut Bar Journal article roughly a year ago, assertion of CUTPA claims is commonplace in business litigation in Connecticut, and Connecticut seems to have more litigation by far concerning its state unfair practice laws than any other state in the country. CUTPA is particularly attractive to plaintiffs because it permits recovery of punitive damages and attorneys’ fees.

Recent cases remind us, however, that the preemption provisions of the Copyright Law and judicial interpretation of Article 4 of the Constitution with respect to the Patent Law restrict CUTPA claims in the intellectual property arena. The garden-variety patent or copyright infringement case (to the extent there is such a thing) cannot be asserted as a CUTPA claim. In a case decided this past October, RCE Nice Bearings v. Peer Bearing Company, Judge Vanessa Bryant of the District of Connecticut dismissed the plaintiff’s CUTPA claim insofar as it relied on accusations of wrongdoing pertaining to copyright infringement. Also this fall, Judge Stefan Underhill of the District of Connecticut dismissed, without prejudice, a CUTPA claim that he found did not include sufficient allegations beyond those necessary to prove patent infringement.

Unlike the copyright and patent laws, the federal trademark and unfair competition laws do not preempt state law claims based on similar facts.  Connecticut plaintiffs in trademark infringement cases can continue to include CUTPA counts in their complaints.  Diageo (maker of Johnny Walker Black Label) did that in a complaint it filed recently against the makers of the Johnny Barker Black Label product for dogs.

Courts have discretion in copyright and patent cases to award attorneys’ fees and increase damages. Before one asserts a CUTPA or other state unfair trade practices claim in a copyright or patent infringement case, one should expect that a motion to dismiss is possible.  One should weigh the likelihood and potential benefits of additional recovery of punitive damages and attorneys’ fees under CUTPA, against the potential costs and delays of such a motion.