Saturday, January 24, 2009

Judge Patel shrugged: Rearden v. Rearden

Rearden LLC v. Rearden Commerce, Inc., 2009 WL 102075 (N.D. Cal.)

Interesting case because of the fight over “use in commerce” and the total absence of the personal name rule. Rearden LLC (Rearden) sued Rearden Commerce (RC) for trademark and trademark-esque claims, including cybersquatting.

Stephan Perlman (here’s an interview) founded Rearden Steel in 1999 as the first of several affiliated Silicon Valley companies. The Rearden companies are “technology incubators and artistic project production companies.” In 2004, for example, Rearden incubated Ice Blink Studios LLC, an art and design studio that helped make several motion pictures. Rearden also developed the Moxi Media Center, a multifunction set-top box for TVs. Today, there are four Rearden entities: Rearden LLC, which provides resources for new ventures; Rearden Productions LLC and Rearden Studios LLC, which specialize in HD and animated movie production services; and Rearden Properties LLC, which rents space to the other three. Rearden has registered trademarks for REARDEN STUDIOS and the logo and some pending ITUs (the descriptions of services in which are as long as I ever hope to see).

Rearden has about one hundred employees total, and operates various websites. As an incubator, Rearden provides new ventures with funding, management, and infrastructure support, “including office space, personnel, equipment, information technology infrastructure, insurance, administrative and travel services, benefits, marketing, and intellectual property advice.” Sometimes Rearden contracts with third parties to provide this support.

RC is also based in Silicon Valley. It created a web-based technology, the Rearden Personal Assistant, which links subscribers (professionals and businesses) to an online market where they can find business and travel-related services from over 130,000 companies, including American Airlines, Hertz, Hilton, and WebEx. Along with travel and web conferencing, the services offer event tickets, dining reservations, and shipping. For businesses, RC’s Rearden Services Console allows administrators to control travel and procurement for their employees.

Rearden contested RC’s trademark applications before the PTO, but they were nonetheless approved. (As far as I can tell, they’re all ITUs and no registrations have actually issued.)

One key issue was whether Rearden had used REARDEN in commerce sufficiently to give it trademark rights. Use of a service mark requires the mark to be used or displayed in the sale or advertising of services, which services are rendered in commerce. However, the totality of circumstances can also establish a right to a mark, as long as the use is sufficiently public to identify or distinguish the marked services in an appropriate segment of the public.

Rearden has used REARDEN in connection with commercial transactions, including “(1) plaintiffs' securing of $67 million in funding for Rearden Steel Technologies in 2001; (2) plaintiffs' payment for incubation services provided to Ice Blink Studios in 2004; and (3) plaintiffs' receipt of $12.5 million in revenue for the sale of a minority interest in an incubated start-up in 2007.” “Rearden” is also used to identify plaintiffs in many news articles.

Nonetheless, the court found “[n]otably absent” any evidence that Rearden marketed any products or services to consumers using the Rearden name. Instead, the Rearden companies only incubate Perlman’s ideas and no one actually pays Rearden to have their ideas incubated. Rearden’s counsel claimed only that other people could come to Rearden. (I don’t get it. If other people ultimately buy the incubated companies, then isn’t that a service? A completely internal use of a term within a company might not be a use in commerce, and I don’t think the fourth Rearden entity, the one that just rents to the others, is using the mark in commerce, but the others all seem to participate in the larger economy. See, e.g., this listing for Rearden Studios.) “If the Rearden entities merely use the name amongst themselves but do not market any good or service under the name, the fact that they have consistently used the name does not necessarily mean that it has been used in commerce.”

However, the court assumed that Rearden had raised a triable issue of fact on use as a mark and turned to a confusion analysis.

The notable thing about the confusion analysis was that the court considered the Rearden marks “plainly not generic or descriptive,” probably because RC didn’t disagree for reasons of its own. Yet right after saying that, the court noted, “Rearden is an actual family name,” which should have triggered the long-established rule that personal names are considered descriptive and are only protectable upon a showing of secondary meaning, regardless of whether there’s anyone with that name actually involved in the company. Instead, the court considered REARDEN suggestive, because “Rearden” and “Rearden Steel” “invoke an image of entrepreneurial success to the many businesspeople familiar with Ayn Rand’s Atlas Shrugged.” Perhaps this familiarity justifies a departure from the rule, but I'm surprised the rule wasn't even mentioned.

Anyway, after that holding, the rest of the analysis is unsurprising. The services only overlap at a high level of abstraction; their customer bases differ (note here my point about use in commerce: the court said that Rearden targets “corporate buyers interested in capitalizing or purchasing an incubated company,” and it surely uses Rearden in interacting with them); word similarity was high but the logos were different; everybody uses the Internet, so that doesn’t count as overlapping marketing channels; the services are expensive and the consumers are sophisticated; and there was insufficient evidence of bad intent.

As for actual confusion, Rearden cited a number of instances of “(1) confusion by authors of trade publications; (2) confusion by organizers of the Web 2.0 Expo trade show; (3) confusion by plaintiffs' vendors; (4) confusion by plaintiffs’ legal representatives and auditor; and (5) miscellaneous incidents of confusion.” In each case, the court determined, the error was mechanical—there was confusion over the parties’ names or “affiliation,” but not over the source of products or services. Plus, these incidents involved vendors or industry insiders, not prospective customers. In a footnote, the court noted that the Ninth Circuit hasn’t approved of finding actionable confusion among investors, vendors, and suppliers in the absence of consumer confusion, even though other courts have done so. Only two incidents involved confusion among consumers; one of RC’s customers expressed confusion as to which “Rearden” it contracted with after it received a subpoena in this case, and the other involved Rearden receiving misdirected emails for RC. These, the court determined, showed confusion over the parties’ names, not over the source of the parties’ services. Bottom line: At least with expensive or sophisticated products, courts are often willing to dismiss “directory error”-type confusion, where there’s simply a mistake about who the allegedly confused person is trying to reach or talking about, as when the phone directory gives you the number for Delta Dental rather than Delta Airlines. With the misdirected emails in particular, the court thought that senders likely erroneously typed when they should have typed

Thus, RC won summary judgment on the infringement claims, though the cybersquatting claims remained, based on RC’s registration of some domain names that bear a strong resemblance to the names of plaintiffs’ businesses.

No comments: