falsely claiming continued TM ownership leads to liability

C=HOLDINGS B.V. v. Asiarim Corp., 2013 WL 6987165, No. 12 Civ. 928 (S.D.N.Y. Dec. 16, 2013)

C= sued Asiarim for infringement of Commodore trademarks (“a brand long associated with the 8–bit gaming computer popular in the early 1980s”) and related claims, and mostly prevailed after a bench trial.  The litigation was contentious; C= was formerly a subsidiary of Asiarim, but the court found that it departed with the Commodore marks rather than without them, and that Asiarim nonetheless continued to sell Commodore products and attempt to license the Commodore marks.  The opinion is shy on detail about what this continued sale meant—if the claim is that products manufactured under valid rights became infringing after the split, I’m disturbed, but it’s not really clear from the recited facts.

The court found that Asiarim infringed “when it promoted the sale of Commodore-branded products on its website and entered into licensing agreements for the trademarks with third parties.”  Even without purchases from the website, this was infringing use in commerce.  The court also found that no multifactor confusion test was necessary because these were counterfeit marks and confusion was presumed (but if a multifactor analysis was necessary, the use was confusing).  Just as when an ex-licensee continues to use a mark after its license expired, because there’d be sponsorship or approval confusion, so here.  (Those are service cases, though; a licensed Ford dealer shouldn’t be barred from selling Fords it lawfully owns even if its dealership is terminated.)  The court also emphasized Asiarim’s ownership claims—it filed SEC reports claiming control of the marks, advertised Commodore products on its website, and licensed the marks.  That was confusing.

The court also found false advertising based on the website: “though not expressed in as many words, the unambiguous message sent by this promotion was that Asiarim offered for sale authentic Commodore products.”  Thus, the website was literally false, and material (going to the very nature of the products).

And here’s where I get nervous:

It is immaterial that the products may, at one point, have been authentic Commodore products, as the right to distribute products branded with a registered mark properly follows ownership of the mark. In El Greco Leather Products Co., Inc. v. Shoe World, Inc., the plaintiff ordered a factory to manufacture shoes bearing the plaintiff’s trademark. The plaintiff subsequently canceled the order, and the factory sold the shoes to the defendant retailer, which then resold them. The Second Circuit held that, in reselling the shoes, the defendant violated section 32(1) of the Lanham Act even though the goods were originally manufactured with permission of the trademark holder. El Greco’s reasoning—that a product is not “genuine” merely because it was originally manufactured with permission from the trademark holder—applies readily here: the mere fact that the Commodore products Asiarim advertised were once authentic does not mean that they continued to be when the trademark owner, C=Holdings, withdrew its permission.

First sale is an important limitation on this principle—the right to distribute branded products does not follow ownership of the mark once there’s a first sale (or other transfer of ownership).  Where that principle should start is an important question, and I would like to know more about whether the then-owner took delivery of the products offered for sale on the website—it’s not obvious that this was a “cancelled order” situation where the trademark owner never accepted the goods.

Anyway, the court then found that Asiarim’s infringing licensing activities and SEC filings weren’t false advertising.  The license was a private contract, not advertising or promotion.  Even looking at Asiarim’s claim to own the marks to one licensor and one potential licensor, that wasn’t disseminated to the public.  Though the SEC filings were disseminated to the public, the statements weren’t made in connection with the sale of goods.

The court also rejected libel claims based on Asiarim’s fraudulent SEC filings and false ownership assertion via email.  “The two Form 8–K filings, while false and likely submitted in bad faith, state only that Asiarim’s subsidiary owned the trademarks and, by implication, that C=Holdings did not. Furthermore, one of the filings explicitly characterizes the trademark issue as an ongoing legal dispute about which Asiarim has sought the advice of counsel.” Though Asiarim lacked a good faith basis to assert ownership, the SEC statements weren’t defamatory, but simply “announced the existence of a legal dispute and declared the position Asiarim was taking in regard to that dispute. As such, they do not rise to the level of exposing C=Holdings to ‘public hatred, shame, obloquy, contumely, odium, contempt, ridicule, aversion, ostracism, degradation, or disgrace.’ Nor do they impute to C=Holdings ‘fraud or misconduct or a general unfitness, incapacity, or inability to perform [its] duties.’”

The email presented a closer question, since it told the recipients that C= lacked “any legal way to claim royalty payments from [a licensee] .... You can just ignore their requests, claims[,] and statements, but please consult your lawyer to contact Asiarim’s lawyers for further confirmation of the illegal status of their claims ... by providing the proof of ownership of [Asiarim] .... For your further information, Asiarim has filed claims against C=Holdings and its director(s).”  These were less careful than the lawyerly statements in the SEC filing, “but at bottom they too state only that Asiarim is engaged in a legal dispute with C=Holdings and that Asiarim believes it will prevail.”

C=’s tortious interference with contract claim failed because it couldn’t show a valid contract between it and a third party or a breach.  Asiarim’s conduct may well have interfered with establishing new contracts, but it didn’t cause any breaches.  However, Asiarim did tortiously interfere with a prospective business relationship with a licensee. Asiarim, aware of the preexisting relationship, inserted itself between C= and the prospective licensee by insisting it was the owner of the marks.  As a result, the licensee refused to pay C= despite its intent to continue using the marks.

The court also rejected C=’s New York GBL §349 claim for lack of sufficient public harm. There was no evidence of consumer injury or danger to the public health or safety; filing false statements with the SEC doesn’t involve the relevant injury to consumers.  And the unjust enrichment claim failed because there was no evidence that Asiarim actually gained from the infringement by making any sales or collecting any royalties.

The court awarded $1 million in statutory damages based on the use of counterfeit marks. The statutory damages range goes from a minimum of $1,000 “per counterfeit mark per type of goods or services sold” for non-willful infringement, to a maximum of $2,000,000 per instance of willful infringement.  Asiarim admitted advertising eight different Commodore-branded products (not clear how this relates to how many “types” of goods there were), and entering into a licensing agreement with one entity and trying to license to another, making ten separate acts of infringement. The court also found willfulness given Asiarim’s knowingly false attempts to claim ownership of the marks.

The court noted that Asiarim “flouted the finding of a Dutch bankruptcy trustee regarding the validity of the C=Holdings transfer, made false statements in SEC filings, and run roughshod over the authority of this Court throughout this action.” A sizeable award was needed, but C= only proved lost revenues of $22,000—the $1,000 monthly royalties lost from the licensee multiplied by twenty-two months of litigation.  Still, “Asiarim’s two-year campaign of intentional infringement and deceit” “certainly” caused more harm than that, given the proven value of the marks in the past and the lost ability to exploit the marks’ licensing potential. A million-dollar award more than compensated C= and would deter future infringements.

The court also entered a declaratory judgment to clarify that C= owned the marks and that Asiarim infringed, to give relief from Asiarim’s “galling tactics” and to end the uncertainty surrounding the marks. Asiarim was enjoined from using or claiming ownership of the Commodore brand without C=Holdings’s explicit authorization.  Plus, the court ordered corrective advertising explaining the court’s findings on Asiarim’s website, also to be sent to the two licensees/potential licensees named in the case “and any other customers who purchased Commodore-branded computers from or discussed entering into licensing agreements with Asiarim.”  Also, the court ordered Asiarim to file a corrective statement with the SEC, and stated that it would refer the matter to the SEC.

Finally, the court awarded attorney’s fees.