Metatags are nominative fair use; lack of damages defeats other claims

Syncsort Inc. v. Innovative Routines International, Inc., 2008 WL 1925304 (D.N.J.)

The parties compete to sell sorting software for UNIX computers. Syncsort’s is called SyncSort UNIX and IRI’s is called CoSORT. Users write scripts to get each piece of software to sort data in various ways. Syncsort publishes a reference guide on writing scripts in the SyncSort language and grammar. Syncsort claims that the guide is a trade secret. With the assistance of (among other things) existing user scripts, IRI developed a product, SSU2SCL, to translate basic scripts from SyncSort UNIX to CoSORT, allowing users to switch products. (Shades of Lotus v. Borland—which is why I presume Syncsort swiftly dropped its copyright claim.)

At some point, IRI used “syncsort” as a metatag, because it offered converters for SyncSort mainframe and UNIX paramaters, though it’s since removed the metatag.

The main claim was that IRI used Syncsort’s trade secrets. IRI initially contended that it hadn’t used any proprietary information to develop its translator, but it turned out that the developer actually possessed a copy of Syncsort’s reference guide obtained from a Brazilian distributor. The trade secret claim survived IRI’s motion for summary judgment.

Syncsort also alleged false advertising and trademark infringement. The false advertising count was based on IRI’s statements that it had “the fastest sort software available for UNIX environments,” “the world’s fastest, and most widely licensed, commercial-grade sort package for UNIX systems,” “the world’s first, fastest, and most widely licensed open systems sorting package and extract-transform-load (ETL) accelerator,” and “the fastest (and most scalable) sort product available for the UNIX systems, period.” IRI counterclaimed for various business torts.

Syncsort ran into trouble on the issue of damages. For trade secret, it was required to show that IRI’s misappropriation was a but-for cause of its damages—not just that the converter was created using trade secrets, but also that the converter resulted in lost business or revenues. The court agreed that Syncsort lacked sufficient evidence of this—Syncsort could show that it lost business to IRI generally, and that consumers considered the converter a valuable feature, but not that the converter was a but-for cause of people choosing or switching to IRI. Thus, the court granted summary judgment on the issue of damages. (I’m a bit surprised. Evidence that a number of consumers considered the converter valuable seems like it should create a jury question; I would chalk this result up to a general trend in the federal judiciary to tell businesses not to expect any help from courts in fighting competitive battles except in very rare circumstances. See also what happens to the counterclaims, below.)

Syncsort’s tortious interference with contract claim also failed. Syncsort argued that its contracts, which prohibited customers from disclosing “any information related to the Software,” were breached when IRI acquired job control scripts from Syncsort customers. But reverse engineering the SyncSort UNIX language from customer scripts is not a misappropriation of trade secrets. As I understand it, the court concluded that therefore, any interference with the contracts was not tortious. Moreover, for the same reasons Syncsort couldn’t show trade secret damages, it couldn’t show damages here, so the court granted summary judgment to IRI.

On the false advertising claim, the court again used damages to dismiss the claim. Syncsort argued that showing actual falsity would obviate the need to show actual reliance by consumers. But, the court held, that’s the rule for injunctive relief, not damages. Without any evidence of actual customer reliance or deception, the court granted summary judgment to IRI.

On trademark infringement, the court noted that the issue was initial interest confusion. In the court’s view, the IIC doctrine is motivated by a concern for free riding on a plaintiff’s goodwill, even when there’s no purchase made as a result of confusion. Product relatedness and consumers’ level of care are relevant to weighing IIC.

But nominative fair use allows the truthful use of a competitor’s mark. The court applied the modified test found in Century 21 Real Estate Corp. v. Lendingtree Inc., 425 F.3d 211 (3d Cir. 2005). Under Century 21, the plaintiff must first prove confusion is likely, at which point the burden shifts to the defendant. To show fairness, the defendant must establish (1) that the use of the plaintiff’s mark is necessary to describe both the plaintiff’s product or service and the defendant’s product or service (this is why I thought that comparative advertising couldn’t be Third Circuit nominative fair use); (2) that the defendant uses only so much of the plaintiff’s mark as is necessary to describe plaintiff’s product; and (3) that the defendant’s conduct or language reflect the true and accurate relationship between plaintiff and defendant's products or services.

Nominative fair use is important because the standard multifactor confusion test would “inevitably point towards confusion where no likelihood of confusion may actually exist.” In particular, similarity and strength would always tend to favor a likelihood of confusion, even when no reasonable consumer would be confused. Using nominative fair use only after likely confusion has been “shown” according to the multifactor test is weird—nominative fair use makes more sense as a substitute for the test, since the premise of the doctrine is that the multifactor test is likely to give you the wrong result in certain situations. Implicitly recognizing this, but adding some weirdness of its own, the district court began with the multifactor test minus the big two of similarity of marks and strength of plaintiff’s mark.

Unsurprisingly, the result was ambiguous. Consumer sophistication in buying products that cost tens of thousands of dollars made confusion less likely; there was no evidence of actual confusion. Favoring confusion, the products were marketed in the same channels and media, to the same consumers, and they are nearly identical. There was no evidence of the length of time the metatag was used, or of IRI’s intent.

Finding that questions of material fact remained on the multifactor test, the court turned to nominative fair use. The use of “syncsort” was necessary to describe IRI’s product, which is a converter of SyncSort scripts to CoSORT. IRI only used “syncsort” once in its metatags, and it didn’t cause its site to appear above Syncsort’s website in searches. Finally, the site reflects the true relationship between the parties.

Syncsort argued that confusion would occur when a user searched for “syncsort” and IRI’s site would appear in the search results. But that’s not enough. Appearing on a search result page as one of many choices, another of which is the trademark owner’s site, isn’t confusing. Summary judgment for IRI.

On the counterclaims, IRI was equally unsuccessful in persuading the court that Syncsort acted outside the “rules of the game.” For example, asking Barnes & Noble what it “need[ed]” to choose Syncsort over IRI wasn’t an invitation to B&N to breach its nondisclosure agreement with IRI and reveal IRI’s price quote.