Monday, August 29, 2011

eBay changed everything, except that it changed nothing

CJ Products LLC v. Snuggly Plushez LLC, 2011 WL 3667750 (E.D.N.Y.)

CJ, which makes the popular Pillow Pet (a plush toy that unfolds into a flat pillow) sued Snuggly for copyright and trademark infringement and related claims. The court granted a preliminary injunction.

CJ has used various trademarks, including MY PILLOW PETS®, MY PILLOW PETS® (with logo), and IT'S A PILLOW, IT'S A PET, IT'S A PET ... IT'S A PILLOW PET®. Its attempted registration for PILLOW PETS is stalled at the opposition stage. Snuggly sells similar merchandise and uses similar marks, including as Google AdWords. CJ sought an injunction against, among other things, use of PILLOW PETS, MY PILLOW PETS, IT'S A PILLOW, IT'S A PET, IT'S A PILLOW PET,, "authentic pillow pets" or any confusingly similar term as a mark or AdWord. (The request included the TM and ® symbols, but I bet that CJ really wants to enjoin the use such terms without the symbols appended, since I doubt many internet searches include them; if Snuggly was really buying AdWords including ®, I suspect it was wasting its money.) It also sought a ban on the use of "authentic," "original," "official," "As Seen On TV" or other similarly confusing terms in connection with the sale of Snuggly’s Plushez and Napies plush toys, and the use of third party reviews of CJ’s products.

After Salinger, irreparable harm can’t categorically be presumed from likely success on the merits of a claim. Though Salinger was a copyright case, there was no reason it wouldn’t also apply to trademark.

After some procedural throat-clearing (some of the works at issue were late-registered and therefore not entitled to a presumption of validity, but the court found the copyrights valid), the court easily found infringement. Defendants’ evidence purported to show that CJ’s works lacked originality, because most of the design was functional and the rest wasn’t original, as myriad other products look similar.

The court disagreed. CJ offered many different sized plush pillow toys that didn’t bear a striking resemblance to its products. CJ wasn’t attempting to protect the functional aspects, such as the straps that allow the toy to transform from pillow to soft sculpture. Visual examination revealed that the parties’ products were virtually identical. “[D]efendants were utterly unable to articulate any substantial differences between the products, apart from a difference in eye design and, in some instances, minor variations in color.” Some of CJ’s products had three small black dots on their noses, while defendants’ didn’t, but the “size, pillow shape, animal shape, overall facial look, and manner in which the pillow folds into a three-dimensional sculpture” were virtually identical, and quite distinguishable from other plush foldable pillow toys available for purchase. Any differences were “simply dwarfed by the commonalities.”

Irreparable harm: “The Salinger standard for irreparable harm to plaintiff's property interest in the copyright context was based largely on the possibility of market confusion and the fact that proving ‘the loss of sales due to infringement is ... notoriously difficult.’” (Confusion is a TM concept; the Second Circuit has its wires crossed, but that’s not the district court’s fault. I also wish courts would sort out when “it’s difficult to prove damages” means “therefore the plaintiff can’t show harm and loses” and when it means “therefore the plaintiff wins without needing to show harm.” Right now, it seems like the difference is whether the court approves of the lawsuit.)

Anyway, while irreparable harm is no longer presumed from these factors, CJ carried its burden because the products at issue are extraordinarily similar; CJ spent a lot of time, money and effort to develop goodwill “and to create an instantly recognizable toy that is highly popular among children” (TM again!); and defendants’ sales have resulted and will likely result in confusion, as well as lost sales and lost goodwill. (I’ve said this before, but I don’t get why pecuniary harms aren’t irreparable but lost sales/goodwill is. Has anyone ever tried to explain why these aren’t the same thing?)

CJ provided evidence of confusion, including reviews. The similarity in design coupled with the use of “Pillow Pets” in defendants’ labels and domain name makes the likelihood of confusion “extraordinarily high.” “Injecting the market with counterfeit products will not only result in lost sales, but will impair plaintiffs' reputation achieved through considerable time and effort. This type of harm cannot be redressed by monetary damages available at law.”

The balance of hardships, including the public interest (with its “strong policy in favor of defending copyrights”), also favored the plaintiff, of course.

CJ had to meet the same standard on its trademark and false advertising claims, which the court kind of mushed together.
Snuggly used “As Seen On TV” to identify its Snuggly line on its website and on product tags. But it’s never marketed the products on TV. “[D]efendants' use of the phrase was apparently to cause confusion among customers regarding the source of the product, and to reap the benefits of plaintiffs' extensive advertising campaign.” Though they removed the reference from their site and tags (I’m not sure this is true; I took a screenshot of as of Aug. 27, so unless Snuggly has marketed other products on TV, it still has a problem), the court enjoined any future use “to eliminate confusion in the market, and to ensure that defendants do not profit from inequitable conduct.”

The court found that the slogan was a material misrepresentation. It related to an “inherent quality or characteristic” of the product because the phrase “signifies a specific product-- the ‘Pillow Pet’--with which the consumer is likely familiar by virtue of plantiffs' extensive television advertising and jingle.” So, it’s a false advertisement because it’s a false designation of origin.

Similarly, Snuggly conceded that it used at least one favorable review of CJ’s product line on its own website. This was a material misrepresentation for similar reasons. So was the use of “authentic” and “original,” as applied to the allegedly generic term “pillow pets” or as applied to Snuggly’s own Plushez mark:
It is clear that the only impetus to use the terms ‘original’ and ‘authentic’ in conjunction with the phrase ‘Pillow Pets’ is to unfairly reap profit from plaintiffs' extensive marketing campaign. At the hearing, defendants were utterly unable to explain why individuals would be interested in the authenticity of ‘Pillow Pets’ in the first place …. It is abundantly clear, however, that the general public has become interested precisely because of the plantiffs' extensive efforts in branding, marketing, and producing its own highly successful line of products. Thus, false statements regarding the provenance of the product and its connection to the plaintiffs' advertising efforts will influence the decision of customers to buy the product, and they are thus material.
And the evidence of confusion showed deception. Comment: I’m not a fan of these tactics, but note that the court was willing to use evidence that consumers were, in general, confused to support a finding of actual confusion as to each one of the challenged misrepresentations. In non-TM false advertising cases, courts are often far more forgiving. Anyway, these were also material misrepresentations that “this toy is the one so heavily marketed to children via television advertisements.”

Likely injury will not be presumed in false advertising cases. Instead, the plaintiff must show competition plus a logical causal connection between the alleged false advertising and its own sales position. Because the parties here compete, the sales of one would impact the sales of the other. (Compare to standing doctrine outside the Second Circuit.) Prospective loss of this goodwill (note seamless transition from sales to goodwill) is sufficient to support a finding of irreparable harm. And also there’s a logical causal connection between the ads and CJ’s sales position: Snuggly was trying to usurp CJ’s brand recognition. Since proving lost sales due to infringement is notoriously difficult, an injunction was warranted. The other factors also supported an injunction, especially given the strong public interest in accurate information for products marketed specifically for children.

As you can guess, the TM specific claims also went well for CJ, even though PILLOW PETS alone is not registered because Snuggly objected that a pillow pet is a generic term for a plush stuffed animal that converts into a bed pillow. CJ argued that the term is suggestive and that the combination of the two words had no inherent meaning. Applying exactly the wrong test, it asked “[w]ithout knowing the product, would you know what that means, Pillow Pets? If you never heard of the product, you would need something to get you to what that product is. You would have to see the product, hear about the product.” To the contrary, the universal governing test is whether, knowing the goods/services, a consumer would consider the term at issue to be descriptive of or generic for them.

The court gave some weight to the fact that the USPTO sent the claimed mark to publication, suggesting that it was at least descriptive with secondary meaning. The court found that it would reach this conclusion—that at a minimum, this was a protectable mark—independently as well. The term “Pillow Pet” has no inherent meaning, and the genus here at issue is plush stuffed toys, so the mark isn’t generic. (This conclusion is inconsistent with the functionality discussion above: plush stuffed toys that convert into pillows are by all accounts a separate market category—I certainly wouldn’t consider them substitutes for regular plush toys--and whether we call that “genus” or “subspecies” our biological terminology should be irrelevant.) CJ spends $1 million a month on ads, and that’s been successful in making it a well-selling toy.

Apparently CJ likes the generic term “foldable plush toy animal.” And Snuggly didn’t explain why consumers would associate “pillow pet” with the product in question. So secondary meaning sufficed to justify trademark protection.

With some sloppiness (deeming registration to make marks “highly protectable” as opposed to “functioning as marks” for purposes of the strength factor), the court easily found likely confusion with respect to Snuggly’s Plushez Pillow Pets mark on its labeling, on its website, and in AdWords. The Amazon customer reviews offered some very bad facts, such as: "I bought this thinking it was a real pillow pet but the brand is something else ... [m]y only complaint is that the description acts like it is an actual Pillow Pet and it is not" and "[t]his 'pillow pet' is NOT the brand name pillow pet that you are expecting!!! I accidentally bought this 'pillow pet' on my smart phone only to realize later that it was a complete fake when I checked my order on my computer."

Similarly likely to cause confusion was the use of Pillow Pets in Snuggly’s domain name

Irreparable harm in TM comes from lost control over the reputation of the mark, because that can’t be calculated or precisely compensated. Because confusion was likely, the harm was irreparable. (So, in other words, the presumption is precisely the same post-Salinger.) Confusion is bad for the public, so the equities weighed in CJ’s favor, especially since defendants can continue to market noninfringing products under the Plushez name.

The court dealt with AdWords separately. Snuggly bought “Pillow Pets” and “My Pillow Pets” to generate sponsored links. Snuggly argued that this was permissible descriptive use or comparative advertising.

We know that AdWords are use in commerce. But the Second Circuit hasn’t addressed how to assess likely confusion in this context, and other courts have done different things. Following the majority approach, the court here applied the multifactor test and found that, as with the other claims, the majority of the factors weighed in favor of CJ, but did not reiterate its reasons.

In terms of similarity of marks, the court considered the degree of similarity between CJ’s mark and the ads on the search results page. Screen shots from March 2011 offered, as the second sponsored link on Google, “Official PillowPets.COSoft Chenille Plush Pillow Pets/Low Prices, New Styles Now in stock/,” and as the first on Yahoo!, “PillowPets.CoTM/Official Site. SuperSoft chenille plush pillow pets Now in Stock!/” The ads were virtually identical to CJ’s mark, and Snuggly’s website to which consumers were referred was virtually identical to CJ’s website, “using the same color, format, fonts, and phrases-- including the mark ‘Pillow Pets.” The totality of the circumstances was misleading.

Initial interest confusion was also relevant, though the court noted the ease of clicking back in the internet context and quoted with apparent approval cases suggesting that intent to confuse is required in this context. Website traffic data showed that the number of visitors to began to rise precipitously when it began to use the “pillow pets” mark, creating a “substantial likelihood that defendants took advantage of plaintiffs' substantial advertising campaign in lieu of mounting their own.” In April 2011, Snuggly shifted its focus from its site to a nearly identical site where it used “Pillow Pets” in place of PLUSHEZ and prominently displayed its knockoffs. Given all these similarities, this factor weighed heavily in favor of CJ.

Thus, the use of AdWords also caused irreparable harm, and an injunction was appropriate. (I’m not sure that CJ should have gotten the entirety of the injunction it asked for, which included a ban on the use of the terms “Pillow Pets” and “My Pillow Pets” to trigger sponsored links. Assuming Snuggly can rid itself of infringing content and still offer competing goods, shouldn’t it be able to place appropriately worded comparative ads via AdWords? That is, the problems are the ad text and the landing website, but if those are fixed, why can’t Snuggly offer “foldable pillow animals” or whatever the generic term is?)

Among other failed defenses, Snuggly argued that it reasonably relied on CJ’s disclaimers in the registration process. But disclaimer isn’t waiver of the mark itself or of a claim that the mark is no more than descriptive. Moreover, disclaimed elements of a mark are still relevant to the overall similarity assessment. Anyway, it was simply unreasonable for defendants to have relied on CJ’s alleged representations, given that CJ was attempting to register “Pillow Pets” on its own.

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