Wednesday, June 13, 2012

TM claims brought as consumer protection claims subject to limitations period

East West, LLC v. Rahman, 2012 WL 2046151 (E.D.Va.)

East West, which sells food products including Jamaican and south Asian spices and halal meat and fish in the Washington, D.C. metropolitan area and surrounding communities, contracted to buy the common-law CARIBBEAN CRESCENT mark and trade name.  Defendants agreed not to compete with the business they were selling for 5 years within a 5-mile radius of the area, but could use the Carribean Crescent (spelling differences apparently intentional) name outside that area.  They also agreed that East West would sell defendants’ Jamaican patties in the area for a commission, and Rahman would sell East West products for a commission.  Defendants allegedly violated the non-compete agreement and infringed East West’s rights by competing and using the Caribbean Crescent name in the area.  Defendants also registered the mark with the PTO, despite allegedly having sold it, and hired away an East West employee with confidential information.

Many of these events occurred several years back, and defendants argued that many of the claims were barred by the statute of limitations.  Unlike the Lanham Act, which has no explicit limitations period so generally borrows coordinate state laws' limitations periods for purposes of determining whether a presumption of laches applies, there were actual limitations periods at issue here.  The court held that it wasn’t clear when East West’s breach of contract claim accrued, so that wasn’t dismissed.

However, the unjust enrichment claim was based on the 2008 registration of the CARIBBEAN CRESCENT Mark after having sold all rights to East West.  Since East West didn’t sue until more than 3 years later, past the limitations period, that claim was dismissed with prejudice.  I’m not really sure why this was an unjust enrichment claim in the first place, or whether registration confers the kind of benefit that can unjustly enrich someone.

The court addressed the ontological status of TM more directly in rejecting East West’s conversion claim, based on the same facts: there is no claim for conversion of a trademark.  A court in E.D. Va. had accepted a conversion claim related to paper and electronic copies of documents containing confidential business information, reasoning that:

In this technology-driven world, the value of intangible property cannot be disputed, and a decision to limit conversion to tangible property or intangible property merged into a document would leave domain name users, satellite programmers, owners of telephone networks, and internet servers, and others similarly situated unable to use an action for conversion for substantial interference with their rights.

But the court here refused to accept that logic for trademark.  “In contrast to the domain name users, satellite programmers, and owners of telephone networks and internet servers, whose intangible property has arisen in an environment of technologic [sic] advancements and who may well depend on conversion actions to protect their rights, a specialized field of law has existed to protect trademark owners for over 100 years.”  As McCarthy says, “[O]ne cannot dispense with the carefully constructed requirements for trademark protection by blithely claiming that defendant ‘converted’ some symbol of plaintiff which may or may not be capable of trademark protection. Trademark law was specifically constructed to balance the private and public interests inherent in commercial symbols: the tort of conversion was not. It is the wrong tool for the job.”

The court then turned to the state-law consumer protection claims, which were based on the allegedly false use of the mark on defendants’ products: basically a trademark claim by another name.  Defendants argued that the claims were time-barred (the limitations period was 2 years), because they allegedly started selling products bearing the mark in 2004.  East West argued that the introduction of new products bearing the mark in summer 2011 re-triggered the statute of limitations.  (I am not quite sure what’s going on here.  Assuming that the mark still has secondary meaning—which might not be true if there were two competing providers in the area during this whole period—even under a general consumer protection law, wouldn’t there still be a non-time-barred claim not for past damages but to prevent future infringement, unless laches was shown?)

The court first said that it wasn’t sure laches was even at issue, since laches is a defense to trademark infringement and this was instead a consumer protection claim.  Laches won’t apply in cases of progressive encroachment, but East West didn’t identify any case in which progressive encroachment pushed back a limitations period on consumer protection claims instead of a laches period.  Anyway, consumer protection claims in Virginia accrued when defendants allegedly used the mark without authorization, not when East West discovered the resulting damage, and progressive encroachment is grounded in the notion that delay should be measured from when the plaintiff knows or should know of its viable claim.  But in any event East West failed to plead facts warranting the application of the progressive encroachment doctrine.  New products weren’t key; the issue was whether defendants alleged closer to East West in product similarity, and East West didn’t allege that, so its claims were dismissed with prejudice. (Also not sure why the court was confident this couldn’t be repled properly, but perhaps other facts alleged in the complaint make this clear.)

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