Wednesday, May 23, 2018

Three stripes, three strikes: 9th Circuit wades into irreparable harm in TM again

The court of appeals affirmed a preliminary injunction against one Skechers shoe for infringing the unregistered trade dress of the Adidas Stan Smith shoe, but reversed the grant of an injunction against another shoe that allegedly infringed and diluted the Adidas three-stripe mark.  [PS: I don’t care that Adidas doesn’t capitalize its name; while I will respect the wishes of natural persons on this, Adidas lacks any comparable dignity interest.  I’m not a full prescriptivist, but I have standards.]

“The Stan Smith has become one of adidas’s most successful shoes in terms of sales and influence since its release in the 1970s.” It was called “ultimate fashion shoe” by i-D magazine and received other extensive media coverage, including appearances on lists of the most important or influential sneakers of all time, which are apparently things that exist, and earned industry accolades such as Footwear News’s 2014 “Shoe of the Year.” The Stan Smith is Adidas’s top-selling shoe of all time, selling more than 40 million pairs worldwide.

Adidas also claimed several hundred million dollars in annual domestic sales of products bearing the Three-Stripe mark, which is heavily advertised and promoted.
Skechers Cross Court shoe
Adidas defined its Stan Smith trade dress as having: (1) “a classic tennis-shoe profile with a sleek white leather upper”; (2) “three rows of perforations in the pattern of” adidas’s Three-Stripe mark; (3) “a defined stitching across the sides of each shoe,” (4) “a raised mustache-shaped colored heel patch, which often is green”; and (5) “a flat tonal white rubber outsole.”  The court found that the district court’s finding of secondary meaning was supported by ample evidence, including Skecher’s own copying and its use of [ugh] “metadata tags on its website that directed consumers who searched for ‘adidas Stan Smith’ to the page for the Onix shoe.… We agree with the district court that ‘the only reason “adidas Stan Smith” is a useful search term is that consumers associate the term with a distinctive and recognizable shoe made by adidas.’ ”  

Likely confusion was also supported by substantial evidence, given the high degree of similarity between the shoes and the other Sleekcraft factors. “Minor differences, including the use of Skechers’s logo, do not negate the overall impression of similarity between these two shoes.” The court also agreed that the copying and the use of metatags supported the inference that Skechers intended to confuse consumers. The court distinguished Multi Time Machine because that case involved a retailer and not the competitor itself, so Amazon’s “use of the metadata was not probative of its intent to exploit the existing secondary meaning of a competitor’s mark or trade dress,” which doesn’t make a lot of sense.  Eric Goldman has more to say about this.

As to the Stan Smith injunction, the court of appeals reiterated that “[e]vidence of loss of control over business reputation and damage to goodwill [can] constitute irreparable harm,” “so long as there is concrete evidence in the record of those things.” Here, Adidas’s Director of Sport Style Brand Marketing “testified to the significant efforts his team invested in promoting the Stan Smith through specific and controlled avenues such as social media campaigns and product placement,” and Adidas presented evidence regarding “its efforts to carefully control the supply of Stan Smith shoes and its concerns about damage to the Stan Smith’s reputation if the marketplace were flooded with similar shoes.” Adidas also presented survey evidence showing that approximately 20% of surveyed consumers believed Skechers’s Onix was made by, approved by, or affiliated with adidas. (The court also reiterated its conclusion about Skecher’s bad intent because of metatags.) 

This extensive marketing and tight control of supply demonstrated that Adidas had built a specific reputation around the Stan Smith with “intangible benefits.” The surveys demonstrated that those intangible benefits would be harmed if the Onix stays on the market because consumers would be confused about the source of the shoes.  [I still don’t understand this reasoning. The testimony discussed goes to brand value, not to damage to brand value through greater availability of knockoffs, which even this court just calls a “concern” and which Adidas doesn’t seem to have provided evidence about. The benefits of the Stan Smith reputation also aren’t intangible, though they may legitimately be hard to measure.  In addition, there is indeed a market for scarcity in itself—Veblen goods—but I have to wonder if something that has sold 40 million pairs can really qualify.]

Anyway, the court of appeals also affirmed the finding of likely success on the merits for confusion and dilution [ugh] of the three-stripe mark by the Cross Court shoe, but not the preliminary injunction. Though there were differences between the designs, “the district court was permitted to discount these differences in conducting its factual determination regarding similarity,” especially given the closely related products. There was no clear error in finding that Skechers’s intent in selecting its mark [NB query whether this is a “mark” at all] weighed in Adidas’s favor. “When one party knowingly adopts a mark similar to another’s, reviewing courts presume that the defendant will accomplish its purpose, and that the public will be deceived.” That also supported the district court’s finding that Skechers intended to deceive the public.  

[So a presumption of copying from knowledge + similarity leads to a presumption of confusion and of intent to deceive.  I understand why this view developed, but it is highly circular and seems to double-count similarity, which is more problematic the less exact the similarity is, as here.  Skechers presumably thought it was far enough away from the three-stripe mark, and while we might fear its own self-interest distorting its judgment of distance, we should probably be focusing on the distance and not Skechers’ hypothetical mental state.]

The court of appeals reasoned similarly about dilution—so similarly that it noted that there was “substantial overlap between [the dilution] factors and the Sleekcraft factors.” Actually, there is mostly overlap between the dilution factors and the factors that help determine whether a mark is famous, but that’s a story for another day. For the same reasons that the district court didn’t clearly err in finding likely confusion, it didn’t clearly err in finding likely dilution.

The majority then parted ways with the dissent on the preliminary injunction, specifically the issue of irreparable harm.  Adidas argued that the Cross Court harmed its ability to control its brand image because consumers who see others wearing Cross Court shoes would associate the allegedly lesser-quality Cross Courts with Adidas and its mark. But the record didn’t support that theory (as opposed to a different theory, mentioned by the dissent, that Adidas could somehow have suffered if the Skechers buyer could benefit from others believing she was wearing Adidas shoes).

The Adidas theory of harm relied on the notion that Skechers was viewed by consumers as a lower-quality, discount brand, and Adidas as a premium brand. Even assuming the latter, the former wasn’t shown by the record. The only evidence was from Adidas employees, who testified that Skechers sold at a lower price point, but not that the price point was because of lower quality.  One employee testified that, within Adidas, Skechers was viewed as inferior, but that didn’t show how the general consumer viewed them, even assuming that employee testimony was reliable evidence of the reputation of a competitor.

Further, Adidas’s theory of harm was in tension with its post-sale confusion theory.  It would be implausible to argue point of sale confusion, given the Cross Court’s numerous Skechers logos and other identifying features. Instead, the only theory was  that someone else looking at a Cross Court shoe “from afar or in passing” might not notice the Skechers logos and thus might mistake it for an Adidas. But how would such confused consumers “be able to surmise, from afar, that those shoes were low quality? If the ‘misled’ consumers could not assess the quality of the shoe from afar, why would they think any differently about adidas’s products? How could adidas’s “premium” brand possibly be hurt by any confusion?”

By contrast, Adidas presented evidence of irreparable harm in the form of its extensive marketing efforts for the Stan Smith and its careful control of the supply of Stan Smiths. “Thus, even post-sale confusion of consumers from afar threatens to harm the value adidas derives from the scarcity and exclusivity of the Stan Smith brand.” [How?  With forty million pairs, minus losses from wear, in circulation, how would a consumer infer anything about exclusivity even if every other person she saw were wearing something like the Stan Smith design?  I remember when everyone in my seventh grade class wore Benetton, but even I knew that was a concentrated environment and not widely representative.  The more you talk this scenario out, the more classist and ugly it gets, although it is sadly not an implausible theory of human behavior.] But there was no comparable argument or evidence for the Cross Court.

Judge Clifton dissented as to the three-stripe mark injunction, agreeing with INTA that infringement is the loss of control over reputation, and the loss of control is irreparable harm.  [On its own terms, this is fallacious.  The scenario perhaps equivalent to negligence—something may happen to the reputation due to the infringer’s behavior, and it would be the infringer’s fault—but it’s just a chance, rather than a realized event, until the lost control actually affects the reputation, just as negligent driving may not cause any harm.]

The dissent also argued that lost prestige from diminished exclusivity due to post-sale confusion was irreparable injury, as was customer diversion in itself.  And here we learn the source of the dissent’s conviction: his firm’s past representation of LV!

About thirty years ago, when I was in private practice, my law firm was retained by Louis Vuitton to combat the sale of cheaper imitations. Some were … knock-offs, such as bags with a similar looking “LW” mark or products that Louis Vuitton probably wouldn’t dream of making, such as baseball caps coveredwith dozens of “LV” marks. Many of the items were sold at locations, like swap meets and flea markets, where few would expect to find real Louis Vuitton products. Prices were often a tiny fraction of what the real thing cost, and it was unlikely that the purchasers thought that they were walking away with genuine Louis Vuitton merchandise. Leaving the legal arguments aside, it wasn’t a surprise to me (and still isn’t) that Louis Vuitton was concerned and was willing to expend considerable effort to protect its trademark. As Professor McCarthy described, if the prestige of carrying a bag with the Louis Vuitton trademark could be obtained at a fraction of the price, and if viewers could not tell the difference, the value of the trademark would be in jeopardy. And, if someone did confuse the cheap imitation for the real thing, the lesser quality of the imitator could further imperil the perceived value of the Louis Vuitton products and trademark.

Though the majority [rightly] considered this reasoning counterintuitive in the post-sale confusion scenario, the dissent found it perfectly logical and “well established in the law as a basis for a claim of dilution.” [See also: one reason dilution isn’t a real thing.]  The dissent would have honored the district court’s finding of blurring: “Skechers’ infringement undermines adidas’s substantial investment in building its brand and the reputation of its trademarks and trade dress” and that “Skechers’ attempts to ‘piggy back’ off of adidas’s efforts by copying or closely imitating adidas’s marks means adidas loses control over its trademarks, reputation, and goodwill.”

The dissent also argued that the district court’s reliance on the testimony of Adidas employees to establish Skecher’s market reputation wasn’t clearly erroneous. “A marketing professional has to be knowledgeable about consumer perceptions of his own brand, in this case adidas, and also of competitors, including Skechers.”

But the dissent’s real disagreement was with the majority’s view that Adidas had to show that there was a difference in reputation.  “Instead, the loss by adidas of control over its mark was by itself irreparably harmful.” The district court should have been given discretion to so find.

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