Thursday, January 01, 2015

Accusation of "instability" actionable but use of generic term isn't confusing

EndoSurg Medical, Inc. v. EndoMaster Medical, Inc., No. GJH–14–2827, 2014 WL 7336691 (D. Md. Dec. 19, 2014)
Plaintiff EndoSurg makes endoscope replacement components, and plaintiff EndoCure makes custom rigid and small diameter flexible endoscopes.  (Endoscopic surgery requires inserting an imaging instrument into a human body.)

Defendant Leung was formerly the chief technology officer at plaintiff MedServ, owner of the other two.  He resigned, started a competing business, EndoMaster, that provides the same repair services as EndoSurg, and hired several of plaintiffs’ employees. 

Plaintiffs sued, bringing a variety of claims.  At the preliminary injunction hearing, it could not produce noncompete agreements for defendants/ex-employees.  Plaintiffs’ motion for preliminary injunction on breach of contract claims was denied, and the count was dismissed for failure to properly allege an agreement.  Similar results obtained for tortious interference with employment relations.  The court found that there was no cause of action for “employee piracy and corporate raiding.”  Plaintiffs’ fraud claim was also dismissed for failure to allege that plaintiffs relied on defendants’ alleged misrepresentations; claims for breach of the duty of loyalty survived.
The court also denied a preliminary injunction on tortious interference with actual and prospective business relations, but denied defendants’ motion to dismiss.  Allegedly contacting one of plaintiffs’ clients and telling it that MedServ was “unstable” could constitute tortious interference.
Trade secrets: the alleged trade secret was plaintiffs’ customer list (along with repair methods and training processes), but defendants testified that they didn’t use it and the court didn’t think it was likely that plaintiffs would prove to the contrary, though discovery might paint a different picture.  No preliminary injunction, but motion to dismiss denied.
Trademark: The court found the marks EndoSurg Medical, Inc. and EndoCure Technologies, Inc. to be suggestive “because they stand for ideas—endoscopes, surgery, curing, medical, and technologies—that require a consumer’s imagination to connect them with the making and repairing of endoscopes used in surgery.”  Comment: what is it with this idea of suggestiveness, that a mark is “suggestive” if you can’t divine the goods or services only from knowing the mark?  Am I just yelling in the wilderness, wrongly wanting courts to apply the same definition that the PTO does?  Because they sure say they do, even when they then do what this court does.  If this is really the definition, why isn’t “Acme” suggestive? 
It gets weirder: the court agreed that “endo” and “endoscopes” are “likely” generic.  Thus, a business named “Endo” would likely be generic.  “Endoscope Manufacture and Repair” would likely be descriptive.  But EndoSurg and EndoCure “provide the consumer with ‘no way of knowing what is being sold without using their imagination or taking further steps to investigate the products and services,’” making them suggestive.  (Nope, sorry, my skin still crawls.  I do not think that word means what you think it means.)
However, suggestive marks can still be weak (when they’re descriptive).   “The combination of two generic or descriptive terms typically results in a relatively weak mark.”  Plus, frequent use in the market weakens a mark, and defendants provided a list of 17 businesses with names beginning with “Endo” registered in Maryland.  Because plaintiffs’ marks combined two generic words and Endo was in common use, their marks were weak.
Similarity weighed heavily against plaintiffs.  The similarity in sight, sound, and meaning all came from the generic portion of the name, which can’t be appropriated by one trademark owner.  Medical, Inc. was the final phrase in both EndoSurg Medical, Inc. and EndoMaster Medical, Inc., but the suffixes “Surg,” “Cure,” and “Medical,” weren’t similar in sight or sound and have different meanings.
The logos were also dissimilar. EndoSurg’s logo had three small gray and light blue circles next to the words ENDOSURG MEDICAL in gray. EndoMaster’s logos were “visually very different”: one was just the words against a gray background and the other had a picture of what appeared to be an endoscope on a dark blue background with the words underneath.
The key was that plaintiffs couldn’t appropriate the generic term “endo” for their exclusive use. Plaintiff MedServ’s president even noted that one of its customers used the name EndoSolutions. “Without endo, the marks are not similar enough for the Court to determine that the Plaintiffs have shown that they are likely to succeed in proving a likelihood of confusion among customers.”
Similarity of goods weighed in favor of plaintiffs, and one of plaintiffs’ businesses was on the same block as defendants’ brick and mortar location. The court had no examples of ads to compare, and considered the similarity of advertising factor to weigh against plaintiffs.
Despite its conclusion about the genericity of “endo,” the court nonetheless weighed intent slightly against defendants because newcomers are supposed to stay away from existing competitors.  “EndoMaster was the new comer and would have been wise to choose a completely different name and a different location.”  But defendants did distinguish themselves from plaintiffs in emails to potential customers.
Actual confusion:  A representative of ConMed Canada sent an email attaching an EndoMaster price list and wrote, “[h]ere is some intelligence info on a call I got this morning from a lab in Baltimore ... not yours is it?” MedServ’s president also testified that three other customers reached out to him: (1) EndoSolutions asked him if his company had changed its name; (2) MedEquip called him to say that EndoMaster had contacted MedEquip and had said that MedServ was unstable; (3) a representative of MedServ’s single largest account contacted him to inform MedServ that EndoMaster had contacted the company. In addition, MedServ’s accountant and mail carriers were confused over the name.
Accountants and mail carriers weren’t relevant consumers.  “The two customers who simply informed MedServ of EndoMaster’s existence certainly do not believe the entities are affiliated.”  And the question “not yours is it?” indicated lack of confusion, making one instance at most.  But most of the client statements indicated understanding of the difference.  This was “nominal” evidence of actual confusion.
Defendants argued that sophisticated consumers wouldn’t be confused by use of a generic term; plaintiffs didn’t argue that customers were confused by EndoSolutions, another endoscope repair company.  The testimony was that the customer base was relatively small and the products being sold were sophisticated and innovative, “thus making it likely that customers would recognize EndoMaster as a new player in the field.”
As a whole, the court wasn’t convinced of likely success on the merits, though the claim was not dismissed.
False advertising: defendants argued that an accusation of instability was not a statement of fact but a general and subjective term.  “However, the stability of a company can be verified through empirical data.”  In addition, plaintiffs alleged that defendants highlighted plaintiffs’ former employees in marketing materials, creating an impression of affiliation.  (Nominative fair use?)  Implying authorization or approval can be a form of false advertising; even if true, it could be misleading.  Thus, the claims would not be dismissed.
The court cautioned that, though it allowed certain claims to proceed, “the evidence adduced at the hearing gives the Court serious concern about their merits.”  Discovery might help, but so far the evidence appeared at odds with the complaints’ allegations.  Thus, the court reminded plaintiffs of their Rule 11 obligation and noted that it would look with disfavor on “frivolous litigation designed solely to squelch competition.”

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