Jaz hands: Joseph Abboud loses name to company he sold

Background from Counterfeit Chic here.
JA Apparel Corp. v. Abboud, 2008 WL 2329533 (S.D.N.Y.)

In a long and thorough decision, the magistrate judge concluded that noted fashion designer Joseph Abboud had transferred all rights to use his name in a commercial manner to JA Apparel, a menswear label he launched in 1987. He sold the label in 2000 for $65.5 million, along with the associated names, trademarks, etc., including “Joseph Abboud,” “designed by Joseph Abboud, “JOE,” “JA,” and similar or derivative terms. There was also a non-compete agreement lasting until mid-July 2007. Before that time, Abboud engaged in a number of activities preparatory to launching a new menswear line, “jaz,” though the launch itself was not during the restricted period. He presented the new line to manufacturers and negotiated (though did not execute) licensing agreements. Shortly after the restricted period expired, a trade publication identified the new line as coming out in Fall 2008 and showed pictures of the line. Abboud told the publication that he was free to use his name on marketing or advertising materials; his position was that he could use his name “in an informational way” to indicate that he was the designer of jaz, and that the only use prohibited by the transfer agreement was “trademark use.” Proposed ads used the phrase “by the award-winning designer Joseph Abboud.”

The basic problem was that Abboud’s reputation was built in building plaintiff’s goodwill; they grew up together. Having parted, would JA the person or JA the business get the goodwill associated with the name? For purposes of the litigation, Abboud conceded that he wasn’t seeking to use his name on clothes, labels, or hang tags, and plaintiff conceded that Abboud could be in the fashion business and could personally present jaz to prospective purchasers such as Bloomingdale’s. So the issue was whether Abboud could use his name in advertising or marketing materials.

As a matter of contract interpretation, the court agreed with plaintiffs that the agreement transferred more than “trademark use,” and instead granted “the exclusive right to use [Abboud’s] name in connection with goods and services” or “for commercial purposes.” Abboud retains the right to be himself and to make media appearances as himself, or as a fashion expert, but not to use his name and make media appearances to promote competing goods and services.

As a result, the use of phrases like “a new composition by designer Joseph Abboud” and “by the award-winning designer Joseph Abboud” for jaz would breach the parties’ contract, irrespective of trademark use or infringement.

On the trademark infringement claims, Abboud argued that his proposed use of his name was fair use and protected commercial speech under the First Amendment. The court largely declined to resolve the infringement claims, since the contract forecloses what might otherwise be permissible under the Lanham Act. However, the court indicated its opinion that Abboud’s proposed uses would infringe JA’s trademark rights, based largely on the strength of the marks, the proximity of the goods, and evidence of some actual confusion in the industry even before jaz entered the market.

Though fair use under §33(b) allows some level of confusion, it requires that a term be used descriptively and not as a mark, as well as good faith. Abboud’s proposed uses would serve as a mark in that his name would be an indicator of source. Indeed, the PTO regularly grants trademarks in the form “designed by X.” Moreover, Abboud’s name is not descriptive of some aspect of the product itself—the “ingredients, quality or composition”—but rather of the source of the product. Finally, the court couldn’t ignore the contract when assessing whether Abboud was acting in good faith. The contract expressly covered terms like those Abboud proposed to use. As if that weren’t enough, the court also noted the high level of likely confusion as another strike against fair use, as allowed by KP Permanent. “It is patently obvious that consumers seeing JA Apparel’s products, marked or advertised as ‘Joseph Abboud’ or ‘by Joseph Abboud,’ would be utterly confused as to whether the ‘jaz’ products advertised as ‘by designer Joseph Abboud,’ were derived from the same source.”

As for the First Amendment, parties can privately contract to give up what would otherwise be free speech rights. (If not for the contract, this would be an extremely tough claim: this would be an example of truthful speech that is probably not “inherently” misleading under the Supreme Court’s commercial speech jurisprudence, though I can see the case for claiming that confusing use of the name is “inherently” misleading.)

In the end, the court saw this case as an illustration of the inherent risks to the seller of a transaction of this type. “After Abboud began designing and marketing clothes under his personal name, with great and deserved success, the name ‘Joseph Abboud’ became closely associated with a brand of clothing, and the personal nature of his name naturally lost some of its identity.” The goodwill associated with his name and the goodwill associated with the trademark was “blurred” in consumers’ eyes, and in cases of conflict, the trademark prevails. In a modern economy, almost everything is alienable—including identity. The alternative would be to say that there are some things that can’t be sold, no matter how much money is offered—moral rights. This case illustrates the American position.

JA was entitled to a permanent injunction against Abboud, barring him from using his name to market (advertise, promote, etc.) any goods or services to the consuming public. Though personal name injunctions must be carefully assessed, the fact that Abboud sold his name and goodwill to JA makes a sweeping injunction more tolerable. This does not bar personal appearances to the trade or public appearances at events or on TV as, “for example, a philanthropist or fashion commentator, if those appearances are unrelated to the promotion or sale of goods and services.” (Notably, the goodwill—or even tarnishment—generated by those appearances will likely accrue to JA, as the entity making commercial use of the Joseph Abboud name, since it will be unlikely that consumers will learn that Abboud and JA have parted ways.)

The court also found that Abboud’s preparations for jaz had breached the “extraordinarily broad” noncompete agreement. Given the broad terms here, including a ban on working with any entity that “proposes to engage” in competition with JA, it was a breach for Abboud to basically take over, through complex financial maneuvers, a competing shirt manufacturer, and likewise to complete sample products shown to future business partners and the media.

JA sought injunctive relief extending the noncompete obligation for the amount of time that Abboud was in breach, but the court declined to do so. Abboud didn’t actually compete by selling any clothes during the period of the agreement, and JA didn’t show harm resulting from the breach. JA argued that Abboud’s acts allowed him to sell clothes a full season earlier than he could have without the breach, but it didn’t show that a Fall 2008 launch was impossible from a mid-July 2007 start. The harm to third parties who’ve now contracted for jaz clothes outweighs any speculative injury to JA. JA also sought half a million dollars in damages, allegedly representing the profits of one of Abboud’s partners during the noncompete period. The court was likewise dubious, viewing the request for money as inconsistent with the demand for an injunction, which assumes that legal remedies are inadequate; the agreement itself provided for injunctive relief, not monetary damages. Moreover, the evidence at trial was that the partner lost money (its nearness to bankruptcy was why Abboud invested during the noncompete period; he’d been informed that the company would go out of business if he didn’t act before mid-July 2007), so there were no profits to award.

Abboud counterclaimed for false endorsement, false advertising, state-law right of publicity violations, and general unfair competition for using slogans such as “Hey Joseph, What Should I Wear?” “Do You Know Joe?” and “Ask Joseph Abboud,” which allegedly implied a continuing connection. The state-law right of publicity claim was easy: JA had written consent to use Abboud’s name. More generally, almost all the claims were defeated because JA bought the exclusive right to commercially use the Joseph Abboud name in connection with goods and services. The court noted in a footnote that there were misleading ways JA could act—at the extreme, it would violate Abboud’s rights to falsely claim that “Joseph Abboud, the designer, will be at Bloomingdale’s to present JA Apparel's new fall line of menswear.” But that hadn’t happened here. There was no evidence that consumers understood JA’s slogans to indicate an association with Abboud the individual, as opposed to Abboud the brand.

Abboud alleged false advertising under §43(a)(1)(B) based on the idea that JA’s ads created the false impression that Abboud was still associated with JA, and that JA thus benefits from Abboud’s unique reputation as a designer. The court found no explicit falsity—JA just used the Abboud marks and names it owned. Even assuming implicit falsity, there was no showing of confusion. In addition, Abboud’s state-law deceptive practices claims failed because he failed to show harm to consumers at large.