Tuesday, September 20, 2016

Using photos of competitor's product confers statutory Lanham Act standing on competitor

Joseph Paul Corp. v. Trademark Custom Homes, Inc., 2016 WL 4944370, No. 3:16-CV-1651 (N.D. Tex. Sept. 16, 2016)

JP Homes sued Trademark, its principal, and homeowners for alleged violations of the Lanham Act and copyright infringement.  JP Homes alleged that it designs and builds custom homes, and that defendants copied and improperly appropriated original elements of JP Homes’s copyrighted work in one such home design, The Martinique. Further, Trademark allegedly used photos of a house designed by JP Homes in advertising its own products. JP Homes sought to halt the construction of the homeowners’ in-progress house and have it torn down or modified sufficiently so as not to infringe.

The court first rejected defendants’ arguments that the court lacked jurisdiction/JP Homes lacked standing. The court determined that this was a statutory standing question, not an Article III question, and thus governed by Lexmark under Rule 12(b)(6). Although JP Homes alleged that it was in the Lanham Act’s zone of interests, Trademark argued that JP Homes failed to plead facts showing injury or proximate causation, and that its allegations were merely speculative. The court disagreed.  JP Homes alleged that Trademark wrongly received recognition as a good builder because of its copying; that the parties competed in the same area; and that the statements were likely to materially mislead consumers.  This was a classic false advertising claim, and the allegations that JP Homes suffered competitive or reputational injury as a result of Trademark’s conduct were not too remote. 

Further, while JP Homes didn’t specify an amount of actual loss, that wasn’t required. Lexmark says that “potential difficulty in ascertaining and apportioning damages is not...an independent basis for denying standing where it is adequately alleged that a defendant’s conduct has proximately injured an interest of the plaintiff’s that the statute protects.” JP Homes might be entitled to injunctive relief or disgorgement of defendant’s profits even if it couldn’t quantify its losses with enough certainty to get damages.  

Turning to JP Homes’ motion for TRO/Preliminary Injunction, the court found that JP Homes failed to show irreparable injury.  JP Homes argued that likely success on a copyright claim raised a presumption of irreparable harm, but the Fifth Circuit never adopted that rule.  (No discussion of eBay v. MercExchange.)  JP Homes also argued that continuing infringement/construction of the house exposed it to the permanent loss of customers or lost goodwill. But JP Homes provided no evidence of this, only conclusory assertions.  JP Homes also didn’t explain why its damages would be unquantifiable or why money wouldn’t be adequate compensation.  JP Homes requested actual damages or statutory damages in its complaint, suggesting that it could develop a basis for a damage award.  (Careful about pleading in the alternative when it comes to irreparable harm.)

Reiterating its claims as arguments about damage to JP Homes’ “competitive position and brand” was unhelpful.  JP Homes didn’t allege wholesale copying of many of its key designs, but copying of a single work that wasn’t even identical copying.  Claims that harm to JP Homes in the community where that house was being built would spread elsewhere were “purely speculative.”  “While courts are willing to entertain a loss of customers or goodwill as a harm, the movant must come forward with evidence that such an injury is irreparable by showing that the loss cannot be measured in money damages and monetary damages would be inadequate.”

Arguments that JP Homes would be harmed if Trademark builds its designs at a lower price and quality, and that JP Homes’ reputation for uniqueness would be damaged because potential customers would see its designs as “common or run-of-the-mill” also failed. First, there was no evidencce that Trademark’s building was lower-quality.  Also, the alleged use of one design wasn’t enough to interfere with JP Homes’ “ability to market its designs and building services to potential customers for other architectural plans.”  Moreover, its claims that Trademark’s failure to attribute the design would cause JP Homes to lose business contradicted its argument that JP Homes would lose customers if people found out that Trademark was building a lower-quality version of the Martinique.

Finally, JP Homes’ delay in seeking relief weighed against an injunction.  As early as December 2015, an employee of JP Homes learned that the homeowners were not going to move forward with JP Homes building their home and had visited a real estate agent who refers customers to builders that often use architectural plans created by others.  She allegedly warned them (through their new real estate agent) to refrain from using any part of the architectural plan created by JP Homes. The agent allegedly responded by asking what percentage of the plan designed by JP Homes would have to be changed to not be considered the same plan. Nonetheless, JP Homes waited until June 2016 before filing suit and seeking injunctive relief, after construction on the McWhorters’ house was well underway.  Meanwhile, JP Homes submitted its registration materials for the Martinique to the Copyright Office, and threatened to take legal action in April 2016.  JP Homes’ “unexplained and undue delay of approximately six months strongly undercuts its claim of irreparable harm and contention regarding the need for urgent relief.”

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