Thursday, January 26, 2012

reverse passing off was harmless

Paper Thermometer Co., Inc. v. Murray, 2012 WL 194369 (D.N.H.) 
Notably only because the judge, treating this as a false advertising case, saw something that most trademark cases miss.  PTC makes paper thermometers, which change color when exposed to certain temperatures.  It sued Murray for copyright infringement and false advertising and also sued a couple of former employees, the Duerigs, for misappropriation of trade secrets,.  (I omit some other claims and also the family dispute aspect of the case.) 
Murray, a bartender at a restaurant where the Duerigs frequently dined, talked to them about sales or marketing jobs at PTC.  Though there were no such jobs available, Murray asked whether he could buy products from PTC and resell them, and the Duerigs said that many people did exactly that and that they saw no reason why Murray couldn’t do the same.  Murray set about establishing a resale business through which he could resell PTC's paper thermometers to third parties. He asked the Duerigs for samples, and they complied, seeing him as a potential customer. 
Eventually, Murray settled on a name, Dishtemp Safety Company, registered a second level domain name, established a toll-free telephone number, and set up a PayPal account.  But, when he launched his site in summer 2010, Murray used some misleading or ambiguous text that suggested that he was manufacturing labels, rather than merely reselling PTC's products. 
PTC complained that Murray included a quote from Food Safety Magazine extolling the virtues of PTC's paper thermometers, but omitted words from that quote that identified PTC as the manufacturer of those products. PTC also complained that the “About Us” section contained a false and misleading claim that “[f]rom our tightly integrated sales and manufacturing facilities in southern New Hampshire, DishTemp Safety manufactures and distributes the most accurate commercial dishwashing temperature testing indicators available. Our engineers have over 30 years of field tested experience.”    Murray didn’t manufacture anything or employ engineers.  But PTC knew that early on, and Murray’s plan all along was to be a reseller.  When the Duerigs left the company, they gave Murray contact information for someone still there so he could continue to get supplies from PTC.  PTC nonetheless maintained that Murray intended to enter the market as a competitor and “proxy” for the Duerigs in a scheme to compete with PTC. “In short, rather than see the language of Murray's website for what it plainly was—hyperbole born of misguided youthful exuberance—PTC … choose to see it as evidence of a dogged conspiracy between Murray and the Duerigs to harm PTC ….”  Murray’s only sales were to PTC’s agent, who placed two orders and received PTC-manufactured labels. 
PTC claimed that Murray copied its website and packaging materials as well as engaged in false advertising.  First, the court found that statutory damages and fees were unavailable under the Copyright Act, since registration took place after the DishTemp website launched.  PTC argued that it was entitled to prospective injunctive relief as well as “actual damages” from the Duerigs, who allegedly induced Murray to infringe, in the form of costs and attorneys’ fees incurred in suing Murray.  They argued that they were not seeking attorneys’ fees as such, but rather seeking recovery for the monetary harm incurred in being forced to sue another.  The court found no supporting precedent for this under the Copyright Act or the Lanham Act.  The Restatement (Second) of Torts says that “One who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover reasonable compensation for loss of time, attorney fees and other expenditures thereby suffered or incurred in the earlier action.”  This makes sense when a party is forced to defend an action as a result of a third party’s wrongful action, but is less clear in scope when a party initiates suit and seeks to recover costs and fees as damages from a different party.  New Hampshire provides for fee recovery when a party has been forced to litigate by another’s bad faith.  But (even assuming state precedent has any relevance, which I’m not sure it would given the federal basis of this claim), nothing in the record suggested that PTC was forced to litigate.  To the contrary, the record suggested that “if plaintiffs had simply contacted Murray, explained their position, and asked him to either modify or shut down his website, he would have immediately complied, as he did when he learned of the lawsuit.”  A C&D would also likely have worked.  These simple, cheap steps would have avoided the “damages” PTC sought to recover. 
As for false advertising, PTC suffered no cognizable harm.  “In these odd circumstances, product quality was entirely consistent with PTC's standards since the product Murray intended to sell was PTC's product. No sales were diverted, but even if some customers had purchased from Murray rather than from PTC, Murray still would have had to first buy the products from PTC, at retail.”  Note that this is inconsistent with the general assumptions of reverse passing off—that a plaintiff is harmed by having people think its products are the defendant’s, since the defendant gets any reputational benefit from the sales. I think the court here has the better of the empirics; harm from reverse passing off is likely to be rare. 
The court declined to award injunctive relief on the federal claims against Murray.  Even assuming that the presumption of irreparable injury still applied after eBay, there was no presumption that past infringements will be repeated, and it was highly unlikely that Murray would ever again attempt to buy and resell PTC's products, much less copy its website content. Enjoining the Duerigs was also unjustified.  There was no plausible evidence that the Duerigs ever encouraged Murray in any infringing activity. 
The court declined to exercise supplemental jurisdiction over the remaining state law claims.

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