Kickstarter infringement dispute, which as a side note
raises interesting questions of responsibility for third-party structuring of
tools. Plaintiffs Barrett Purdum,
Michael Armenta, and Michael Maher are the co-owners and founders of an
established San Francisco men’s clothing company, Taylor Stitch. They joined
forces with defendant David Wolfe to develop Olivers Apparel, LLC, a San
Francisco start-up specializing in the manufacture and retail of high-end men’s
shorts.
The facts of Olivers’ founding are disputed, but the parties
agreed to run a Kickstarter campaign to raise capital for the venture. The Kickstarter video featured each of the
four founders and represented to investors that the founders have “five years
experience running a tailored men’s wear company.” “The campaign was an enormous success, and in
thirty days, Olivers raised $271,043 from 3,307 individuals. Maher had
advertised Olivers to Taylor Stitch’s database of customers, and according to
Maher, many of the investors were Taylor Stitch customers.”
This unexpected success came with a relationship
breakdown. After plaintiffs demanded to
split with Wolfe and keep the company/its IP assets, Wolfe changed the
passwords to the Kickstarter page, all of Olivers’ social media pages, and
Olivers’ bank accounts containing the $270,000 in Kickstarter funds. Wolfe did
not disclose these changes to the approximately 3,300 Kickstarter investors,
but rather continued to communicate with investors on the Kickstarter page
using the name “David W, Barrett P, Mike M, Mike A.” In a footnote, the court noted Wolfe’s
assertion that he tried to remove plaintiffs’ names from the Kickstarter page,
“but pursuant to Kickstarter policy, the names in the ‘project by’ section
cannot be altered following the launch of a campaign.” (Should that
matter? Why not say that means he has to
terminate the project, if it’s now conveying a false message?) Wolfe didn’t otherwise try to communicate to
investors that the plaintiffs’ involvement in Olivers stopped in September
2013.
In state court, Wolfe secured a TRO against plaintiffs’ and
Taylor Stitch’s interference with Olivers’ supply contracts; the case was
removed and was pending at the time of the court’s opinion. Here, the court addressed plaintiffs’ request
for an order 1) enjoining Wolfe from selling any shorts manufactured without
plaintiffs’ assistance; 2) ordering Wolfe to turn over the passwords to
Olivers’ social media and bank accounts; 3) enjoining Wolfe from using photographs
copyrighted by Armenta; and 4) enjoining the use of the Olivers trademarks.
The court found that plaintiffs hadn’t shown likely success
on the merits of their breach of contract claim (or unfairness UCL claim) given
the disputed factual issues about the partnership, which I will not recount.
The court characterized plaintiffs’ trademark claim as an
unusual one: they didn’t explicitly claim to own a valid, infringed mark. Instead, they argued that trademark law is
supposed to protect consumers from confusion and ensure that the public “will
get the product which it asks for and wants to get.” They argued that the
Olivers goodwill was based, at least in part, on their five years of experience
in menswear with Taylor Stitch, given Olivers’ emphasis on this fact in the
Kickstarter campaign. But that
experience is now gone from Olivers.
“Plaintiffs’ position appears to be that trademark infringement occurs
when an element of the goodwill associated with the trademark has been altered
or no longer exists.” Wolfe rejoined that, as founder of Olivers and the
individual running the business, he could not be infringing anything. The court
agreed. First, there was little evidence
that Olivers’ goodwill was based on plaintiffs’ experience with Taylor Stitch—they
lacked an actual number of Kickstarter supporters who were also Taylor Stitch
customers or other evidence of reliance on plaintiffs’ participation. Plus,
“this type of alleged change in a mark’s goodwill” wasn’t the same as a
transfer in gross that causes consumer confusion; here, there was no sale or
assignment to a third party. The court
declined to address the novel theory that Wolfe’s conduct amounted to an
infringing “assignment” of the mark because of the factual thinness of the
record.
The court also found Intel Corporation v. Terabyte
International, Inc., 6 F.3d 614 (9th Cir.1993), inapposite. There, defendant relabeled legitimate Intel
chips from slow to faster, more expensive ones.
Terabyte argued that there was no confusion as to source, only as to
capability. The Ninth Circuit found that this ignored the “good will,
reputation, and consumer protection functions associated with a particular
trademark.” Intel didn’t establish that “infringement of a trademark occurs
when an alleged element of the goodwill associated with the trademark has been
altered or no longer exists, especially since Plaintiffs have not established
the existence of the goodwill that they claim is associated with the mark.”
The copyright infringement claims weren’t a basis for a
preliminary injunction because Wolfe removed the contested photos from the
website and there was no reason to think they’d reappear.
Separately, the court found plaintiffs failed to show likely
irreparable harm. The theory was that
Wolfe’s manufacture of shorts without the benefit of plaintiffs’ expertise
would hurt their reputation, because consumers who receive shoddily
manufactured shorts would believe that plaintiffs were involved with their
production. But plaintiffs didn’t
provide any evidence of shoddy manufacturing, making their theory of
irreparable harm “purely speculative.”
(Paging Mark McKenna! This “risk of crappy products” theory is a huge
part of the theory that losing control of a mark is itself inherently
injurious, and it’s significant that courts are picking up on the cautions of
Herb Reed Enterprises, LLC v. Florida Entertainment Management, Inc., 736 F.3d
1239 (9th Cir. 2013).)
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