Monday, February 02, 2015

Laches bars Fitbug's TM claim against Fitbit

Fitbug Ltd. v. Fitbit, Inc., 2015 WL 350923, No. 13-1418 (N.D. Cal. Jan. 26, 2015)
Fitbit and Fitbug both make wearable electronic fitness tracking devices that connect to the internet and to other devices. They both have federal registrations. Their logos:

Fitbug comes from the UK and was one of the first companies to enter the market. It sells directly to consumers and to businesses such as health insurance plans and corporate wellness programs, usually involving incentives like bulk discounts as well as special tools for tracking group fitness goals or running fitness competitions. In 2005 it sought to enter the US market, with limited success.
Fitbit is one of the leading providers in the market. At the time the name was chosen, as far as its co-founder Park was aware, nobody at Fitbit was aware of Fitbug’s existence. But before the launch of Fitbit’s website or the sale of its first products, the founders were aware of Fitbug, though Park thought little of it at the time. Early on, only a small amount of Fitbit’s sales were B2B, but over time they grew substantially in both B2C and B2B.
The day Fitbit announced its product in late 2008, Fitbug received several emails and other contacts about it, a representative of Fitbug sought (unsuccessfully) to contact Fitbit to explore a potential business partnership. Over the next weeks and months, Fitbug expressed concerns about potential competition from Fitbit, and contemplated a C&D. But it first asserted infringement claims in a December 2011 letter. When subsequent letters didn’t resolve the issue, Fitbug sued in March 2013.
The court only found it necessary to rule on laches, a defense both to state and federal claims. Laches requires unreasonable delay in suing plus prejudice. Unreasonable delay is measured from the time of actual or constructive notice. September 2008 was when Fitbug had actual notice, and it continued to be reminded. Emails recognized Fitbit as “[a]nother competitor,” suggested aspects of Fitbit’s user interface are a “total ripoff,” and noted that while Fitbit’s entry into the market is “[n]othing to panic about, ... [Fitbit] will become an issue and I’d rather be one step ahead.” Over the next several months, Fitbug explored potential responses, including partnership. In October, an attorney said, “I was wondering if they were infringing on your IP—sounds like some improvements on your idea, but pretty close to [F]itbug including the name.” A month later a Fitbug employee wrote to the CEO “to remind [him] of Fitbit” because he was “thinking of sending them a cease and desist.” Around that time, the CEO referred to Fitbit as “thieving bastards[.]”
Still, Fitbit didn’t begin shipping until September 2009. After then, Fitbug received several further emails regarding Fitbit’s activities. Another lawyer contacted Fitbug’s chief marketing officer to point out that Fitbit “could cause confusion in the classic trademark sense.” That’s the key question, because we want to know when Fitbug knew or should have known of its cause of action—here, likely confusion. Given the high degree of similarity in products and names, Fitbug knew or should have known of the problem in September 2008. “[A] prudent business person should have recognized the likelihood of confusion at that point.”
Fitbug argued that the laches period shouldn’t run before a defendant actually sells something. But Fitbit was selling in 2008; it just wasn’t shipping the products that were ordered. Anyway, the laches period can run pre-sale, even if that makes some of the Sleekcraft confusion factors difficult to evaluate; Sleekcraft is not to be mechanically applied. Fitbug’s argument that “evidence of widespread actual consumer confusion was not available until 2012” also failed, because actual confusion is not required.
Also, Fitbug’s argument that it wasn’t clear that Fitbit would succeed instead of going out of business, was “irreconcilable with the purpose of laches.” It’s inequitable for a trademark owner, with full notice, to wait while the alleged infringer spends a lot of money and intervene only when there’s success. As Learned Hand wrote, “Delay under such circumstances allows the owner to speculate without risk with the other’s money; he cannot possibly lose, and he may win.” The court commented, in an interesting demonstration of just how much law & economics has taken over law, “[t]hat result is not just inequitable, it is also inefficient, and renders this argument untenable.”
Thus, Fitbug’s delay was about four and a half years. If Fitbug’s claims were filed within the analogous state limitations period, the strong presumption is against laches. Courts have mostly assumed without analysis that the analogous period is four years. Fitbit argued that the California Supreme Court considers trademark infringement to be a species of tort, triggering a two-year limitations period. The court found this argument meritorious, but didn’t need to resolve the issue, because even four years made Fitbug’s claims untimely and created a presumption of laches.
Next, the court considered Fitbug’s explanations. Fitbug argued that the doctrine of progressive encroachment justified its delay. Progressive encroachment allows a trademark owner to tolerate de minimis infringement by the junior user, and sue when the junior user “redirects or expands its business into different regions or markets bringing it into direct competition with the trademark owner.” But growth of a junior users’s existing business and the concomitant increase in its use of the mark isn’t progressive encroachment. Fitbug argued that there was progressive encroachment into the B2C market, and that Fitbit wasn’t providing add-on services for business customers (like exercise games or challenges). Fitbit didn’t add a “Corporate Wellness” link on its website, targeting the B2B market, until April 2012. Fitbit’s B2B sales in 2009 were only a small percentage of Fitbit’s overall sales, compared to a substantially larger percentage in 2013.
But this was still all the growth of existing business, not expansion into a new market. Fitbit was selling its products directly to consumers and businesses from the outset. From its inception, Fitbit received inquiries about B2B and made B2B sales. As the Ninth Circuit has said, “growth alone does not infringement make.” Fitbit’s use of the mark was “substantial from the outset, and Fitbit received both national and international media attention at the beginning.” Moreover, in 2009 the parties competed directly to provide a fitness program for several schools. Though the program was to take place in Europe and Fitbug’s CEO was apparently unaware of Fitbit’s participation, a potential customer copied both Fitbit and Fitbug, along with other companies, on the same emails. Despite the CEO’s personal unawareness, a reasonable person would have investigated further and discovered that Fitbit was in the B2B market from the outset.
In addition, the B2C and B2B markets weren’t different enough to count as progressive encroachment anyway, given the similarities in the products.
Other factors also mattered to whether the delay in suing was reasonable: “(1) the strength and value of the trademark rights asserted; (2) plaintiff’s diligence in enforcing [the] mark; (3) harm to [the] senior user if relief is denied; (4) good faith ignorance by [the] junior user; (5) competition between [the] senior and junior users; and (6) [the] extent of harm suffered by the junior user because of [the] senior user’s delay.” The first two factors favored Fitbit: the marks were descriptive or suggestive, and thus relatively weak, but Fitbit’s mark was substantially more valuable by virtue of its “rapid and continuing growth” relative to Fitbug. Second, Fitbug wasn’t diligent in protecting its mark.
Harm to Fitbug and competition between the parties weighed in Fitbug’s paper, or could be assumed to do so. The harm to Fitbug if relief was denied turned on likely confusion; here, there were genuine issues of material fact on some of the Sleekcraft factors (actual confusion, mark similarity, and purchaser sophistication). But even assuming that this factor weighed strongly in Firbug’s favor, it wouldn’t be enough to change the overall weight of the factors.
Fitbit’s good faith and harm suffered as the result of Fitbug’s delay weighed in Fitbit’s favor. Though Fitbit was aware of Fitbug’s existence before it announced its products, it selected the mark before it was aware of Fitbug, which is the key time. Even after it found out about Fitbug, Fitbit believed confusion was unlikely. (Interesting that the court doesn’t discuss the constructive notice created by registration, filed as an ITU Dec. 2004. I don’t think Fitbit selected the name before then.)
Also, because Fitbit “continued to build a valuable business around its trademark during the time that [Fitbug] delayed the exercise of its legal rights,” it suffered “expectation” or “economic prejudice.” Fitbit expended substantial resources to market its product and expand its business under the “well-known” Fitbit mark, garnering awards and substantial media coverage. “The economic prejudice would be severe if Fitbit were to now lose the rights to the Fitbit name.” Fitbug argued that there couldn’t be prejudice because Fitbit knew of Fitbug’s rights when making those investments. But the 9th Circuit has found prejudice even despite awareness before the prejudice occurred. Given Fitbug’s lack of objection, the court found substantial economic prejudice.
Finally, Fitbug argued that willful infringement barred laches. Fitbug argued that (1) Fitbit knew about Fitbug nearly one year before announcing any products; (2) Fitbit “borrowed significant design elements from Fitbug’s website, marketing materials, and original logo”; and (3) Fitbit continued using its marks after receiving a C&D. But at most Fitbug could show infringement, not willful infringement. Prior knowledge doesn’t necessarily indicate bad faith. There was no evidence disputing Fitbit’s asserted good faith belief in noninfringement, and no evidence of intent to capitalize on Fitbug’s goodwill. Knowing use in a belief that there’s no confusion is not bad faith.
Summary judgment for laches on the Lanham Act claims.
As for the UCL/FAL counterclaims claims, Fitbit alleged that Fitbug-affiliated people posted online reviews and comments about Fitbit products or compared Fitbit’s products to Fitbug’s without disclosing their affiliations with Fitbug. Fitbit stipulated that it didn’t have evidence of “particular instances where individuals who otherwise would have purchased Fitbit products instead purchased Fitbug products in reliance on or as a result of Fitbug’s conduct” that allegedly violated the UCL and FAL. While injury in fact may be presumed for intentionally deceptive advertising in Lanham Act cases, that didn’t mean Fitbit satisfied California’s statutory standing requirement of economic injury. Its sole basis for asserting an injury was speculation. Though Fitbug saw an increase in web traffic and sales following the alleged UCL and FAL violations, Fitbit couldn’t connect that increase with any “quantum of lost money or property” it suffered. Summary judgment on these for Fitbug.

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