Monday, April 22, 2013

Contributory liability for distributor's alleged keyword infringement?

Elcometer, Inc. v. TQC-USA, Inc., 2013 WL 1433388 (E.D. Mich.)

Elcometer sued TQC and others, alleging that they engaged in a bait-and-switch, using the Elcometer mark to confuse consumers into buying TQC’s competing paint gauge products.  TQC is an authorized distributor of DeFelsko gauges that compete with Elcometer products; TQC’s founder Bialek is a former Elcometer employee and now a DeFelsko employee.  Defendants Paintmeter and Thoren, another former Elcometer employee, are authorized dealers and distributors for TQC. They allegedly “work hand-in-hand” with TQC to promote TQC and DeFelsko. 

Defendants run and bought Elcometer as a Google adword, so that the first sponsored link is:

Elcometer Meters & Rentals |
Call 18009742492 We Sell PaintMeters & Rent Coating Inspection Equipment

In addition, Elcometer alleged that the Paintmeter website appeared to be associated with or sponsored by Elcometer, so that it looks like an authorized distributor.  Potential customers who call the listed numbers allegedly falsely receive an Elcometer affiliation from Thoren or others who answer the phone, and these latter people also (contradictorily?) make false and disparaging statements about Elcometer products and Elcometer's reputation for truthfulness and fair dealing.

TQC moved to dismiss on the grounds that Elcometer impermissibly lumped TQC with Thoren and Paintmeter.  But Elcometer sufficiently alleged an agency relationship. (The court doesn’t describe the specifics if any, but says that the complaint alleges that the defendants each acted as agents for the others and that the infringing acts were committed within the scope of such agency.) TQC acknowledged that Paintmeter acted as a TQC dealer, and TQC warehouses many rental units for Paintmeter and Thoren, which meant that the motion to dismiss had to fail. Plus, Elcometer alleged that TQC knew of the infringement by virtue of Bialek’s prior employment with Elcometer, and that TQC continued to supply competing products to Paintmeter and Thoren, encouraging and facilitating the infringement within the Inwood Labs standard for contributory infringement.

The court then found that the complaint on its face stated a claim.  It rejected TQC’s argument that false advertising and Lanham Act claims were subject to Rule 9(b).  “Rule [9(b) ] provides that fraud claims must be pleaded with particularity, but it makes no mention of false advertising claims.”

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