Friday, June 10, 2016

TM Scholars' roundtable, part 5

Session 3: Remedies
In recent years, trademark scholarship has focused largely on questions of subject matter and scope, including much critical assessment of standards for infringement and dilution.  In this brief discussion, we will turn our attention to remedies, and will consider whether creative approaches to remedies might offer alternative means for reining in trademark law’s perceived excesses, and/or for balancing competing interests in trademark disputes.  To this end, we will consider some of the following questions:  What impact has the Supreme Court’s eBay opinion had (and what impact should it have) on the availability of injunctive relief in trademark suits?  Is it true, as many courts have held, that the risk of permanent harm from infringement makes trademarks different from other forms of intellectual property?  Does it make sense to allow courts to grant limited injunctive relief when they perceive a strong risk of confusion from a defendant’s use of a symbol that indicates source, but has no trademark protection because of functionality, genericism, or some other exclusionary rule (cf. Blinded Veterans, Thermos, Singer)?  How do/should courts measure damages in trademark cases, and how does it compare to the approach in different areas of IP litigation (cf. the approach for design patents)?

Introduction:  Mark Lemley: All the circuits that have ruled on the issue have said eBay applies to TM, so that we are to apply the four part test for injunctions preliminary and permanent.  I don’t disagree w/idea that eBay should apply but have substantial concerns w/applications, particularly in 9th Cir. Doctrinal error: they’re more guidelines to be balanced than elements to be satisfied.  In the course of dismantling presumption of irreparable injury, they then bar injunctions w/o such proof.  That’s not what eBay thought it was doing. Also problematic in TM sense; it’s hard to prove irreparable injury in a large array of TM cases once you take away likely consumer confusion as evidence of irreparable injury.  Evidence of actual sales diversion = is it reparable? 

Factor 2 is indistinguishable from 1: adequacy of remedy at law. But unlike patent/©, where if you win you will get damages, in TM it’s not just possible but relatively common not to get damages. Sales diversion is usually required. Profits still, in most circuits, require willful infringement. May be changing for a kind of dumb reason, which is the enactment of §43(c), which has now been read as intending retroactively to change the rule in regular infringement, since willfulness is specifically required for dilution profits.  But in many circuits you still have to show willfulness. Combination means that you can win your TM case and be entitled neither to an injunction nor to damages or profits b/c defendant wasn’t willful infringer.  We could have a conversation about whether that’s ok, but it strikes him as problematic.  TM ought to have a different spin on public interest: consumer confusion is bad. We should count that.

Injunctions ought not be automatic, but more common than in the wake of eBay; ought to be tightened up in favor of the TM owner.

Can you use eBay as policy lever to push back against TM overreaching—Sandy Rierson & Peter Karol have argued for doing that.  Prove TM infringement that actually injures you—back door into materiality; way of distinguishing between classic claims for confusion about source/product and confusion as to affiliation or sponsorship.

Rebecca Tushnet

The harm stories accepted by courts to expand TM are at long last being challenged at the remedy stage, because showing irreparable harm requires plaintiffs to explain why their harm is special and not sufficiently measurable to be compensable in money damages.  This isn’t ideal, in part because of its patchy nationwide implementation, but it’s still a positive development and may encourage courts to have greater skepticism about expansive harm stories in the first place.  Unlike Lemley, I think eBay makes sense applied to TM.  Where he sees a wrong in the failure to balance harm to the public against the irreparability of the harm, I see a threshold that challenges the court to ask whether the public is really being harmed in the first place.  The cases where eBay poses a serious barrier to injunctive relief are almost never classic direct substitution cases.

Irreparable/not compensable: easy case of distinction, where D lacks money to pay otherwise reparable harm. Note too that if the D continues in a case declining to grant an injunction, it likely becomes a willful infringer. I wouldn’t counsel someone to continue under those circumstances.

Let’s assume a court does find likely consumer confusion, in a case where a symbol is unprotectable under TM law as such—unregistrable under §32.  Should the court grant limited injunctive relief?  I have to admit, I’m a skeptic.  Such cases are usually at the core of classic unfair competition—that is, they involve the same goods or services, even though in the case of territoriality issues there may not be direct competition or a real possibility of substitution in the ordinary sense.

Why am I a skeptic?  A consumer rationale and a producer rationale.  Consumers: we know that disclaimers rarely work unless they are very carefully done.  Consumer has to be motivated to perceive the difference.  Maybe this is an area where disclaimers could work, but I would want empirical evidence that this is so.  There’s one study that’s not very promising, involving Bayer versus Bayer AG, the German entity that is separately owned; the disclaimer there just didn’t work, and in fact was indistinguishable from a so-called “claimer,” a statement that the two entities were in fact related.  Essentially, as many critics of disclaimers say, we’d be imposing the disclaimer requirement to make ourselves feel better about the fact that consumers are going to be confused; we can then put the blame on them for not being perceptive enough.  Only if you view unfair competition law as also being about commercial morality, which independently justifies certain constraints, does the disclaimer requirement have an obvious warrant.

Which leads me to problem #2, the producer side, and that’s of course the strike suit.  I am skeptical that the game is worth the candle if the only acceptable output is a disclaimer requirement.  I am skeptical that threat letters will admit that the only thing a plaintiff in such cases can legitimately seek is a disclaimer. Of course, in many cases whether there is no TM protection will itself be hotly contested, so the additional encouragement to overreach provided by an unfair competition rule is not as big of a problem as it might otherwise be.  Further: how often do producers make generic products, or functional products, with no other branding but their shape or name?  The makers of competing thermoses used their own branding, for example. 

Territoriality is probably the situation where the risks of abuse by potential defendants are highest—Belmora does not have attractive facts in terms of Belmora’s initial conduct—but I think false advertising rather than more amorphous unfair competition might well be able to address that.  I do think that space probably should be opened up between TM and unfair competition, but I am unconvinced that this space should be created by having unfair competition get bigger rather than by having TM get smaller.  I know I’m kind of a one-trick pony here, but the better-defined requirements of false advertising, especially materiality, should at least be taken into account in considering the possible scope of an unfair competition remedy.  This would also allow us to think about how reasonable consumers should behave, since the reasonable consumer standard tends to be more demanding in the false advertising space.  Can’t always have your cake and eat it too.

Lemley: Willfulness when you continue conduct after determined to be illegal—patent courts have said you’re not a willful infringer even though you know you’re infringing a valid patent; the rationale is that we’ve baked the question of whether we should punish you into the standard for granting relief. Maybe that’s different b/t patent and TM because patent involves treble damages if willfulness is shown, or maybe 2nd Circuit “you don’t need willfulness” standard becomes dominant.

RT: I do think that there would be a patent/TM difference, but that’s fair.

Discussant: Bill McGeveran: reenergizing the understanding of TM adjudication as an equitable job is a benefit of applying eBay. Judges have been ordered to be more flexible about their job in TM.  Maybe some intermediate remedies are inadequate, but it’s worth learning more about them.

Willfulness/damages is happening independently from different sources—courts are not consciously reasoning that injunctions are harder to get so damages should be easier to get, but maybe that’s opened ground for them to reconsider what the proper balance should be.

Lemley: From TM owner’s perspective, can trade things off, but as we move from injunctions to damages we lose benefit to public. Not a fair tradeoff to say you can confuse consumers by paying the P.

McGeveran: there are both dials—some injunction, and some damages.

Kur: We have only one ECJ decision about fines for disrespect of injunctions. Even if infringer is clear that it will never happen again—infringer was victim of fraud—you have to impose fines; no leeway for national course.  Would also apply to injunction as such.  We see an element of compulsory licensing here.  There is a difference b/t patents, designs, and TM—no compulsory licenses in TM are allowed.  There is the public interest. 

Disclaimers: we need research on how well that works.  There must be cases where companies have the same name but are separate.  Budweiser: they don’t want to coexist but we could think about making that easier.  It shouldn’t just be continue infringing, but it should be some requirement or there’s a risk of conflict w/international law.

Dogan: how does this relate to yesterday’s conversation: is there something unique about product design that might make it more suited to alternative remedies.

RT: compulsory licensing: but that gets back to whether an interest has truly been invaded.  TM harm stories (very different in Europe) just aren’t that convincing.

European approach if there is no mark, as w/genericity: can there be prohibitory injunction?

Kur: w/unfair competition, there’s no common answer across EU. In Germany, it would be case by case remedy; hopes it wouldn’t be pure prohibition on use of generic/functional feature.  Wouldn’t run up against bar on compulsory licenses b/c it is outside of TM.

Dinwoodie: normal remedy for slavish copying is pure prohibition.

Kur: but might not be the case if the feature were truly functional.

Lemley: similar issue in patent/©: what if injunction reaches noninfringing conduct?  Fits into balance of hardships factor. If injunction shuts down use of whole product including noninfringing pieces, that’s a reason not to grant.

Dinwoodie: In Denmark, Lego lacks a TM in the brick. Can they get relief against slavish imitation?

Kur: speculative; doesn’t think it has come up.

Dinwoodie: Slavish imitation is about commercial ethics, not consumer understanding. The case law under 43(a) in the US is the smidgen of consumer understanding—not enough to bar us from saying it’s generic or functional.  The relief under 43(a) is a lite version of consumer protection, but Continental cases may be much more driven  by commercial ethics. When we say unfair competition, these are two different variants.

Grynberg: Intermediate remedies may just not work.  Not just a problem for generic/functional.  Also true for non-source confusion, affiliation claims. Consider possible dynamic effect: if we just stopped protecting trade dress, consumers might change; we should consider the possibility of standardizing a disclaimer remedy, which might not work in the near term.

Peter Karol: Though every circuit has applied eBay, there’s a huge variance in what that means to them, amounting to a rejection: sometimes they cite eBay but allow courts to presume irreparable harm (11th Cir.), and say that the ordinary remedy is injunction (district courts).  Normatively: a lot of whether eBay should apply relates to what you think it was doing. Most courts do think they have flexibility, but rubber hits the road if you think that presumptions are suspect.  Good reasons to distinguish patent and TM for presumption.  Presumption of injunction for infringement could be overcome by laches, delay, balance of harms—that was consistent w/equity, which didn’t require chucking presumptions.

W/r/t difficulty of getting damages, that developed b/c of Champion Spark Plug & similar cases which said “injunction is ordinary, so damages should be rare.”  We’re now so distrustful of what TM is doing (or uncertain) that you might not get anything—that’s a bad situation.

Bone: The equitable factors are no mystery. The first two factors are threshold, and the balance of harms is a balance.  I for one am glad to see it introduced in more traditional way into IP.  Maybe should make eBay context-specific. For product design, I’m with Tushnet.  No presumptions, requires proof of irreparable injury. False negative error costs are lower—denying an injunction isn’t that bad b/c there are other marks to distinguish the item.  Willfulness: depends on reasons why you’re denying injunction. If denied b/c no irreparable injury/no adequate remedy at law, then continuing to do it could be characterized as willful. 

The problem w/consumer harm is that you can’t pay them directly. But indirectly, you might be able to affect that by requiring D to pay P in a way that might induce change.

Dogan: especially for affiliation confusion, if we believe that consumer harms are illusory or minimal.  Materiality through the back door.

Dinwoodie: In Europe we don’t have a common view on unfair competition.  It is optional to apply the enforcement directive to unfair competition. British debate at the moment: patent case on injunctions indicated it was willing to go more eBay-like in private law cases, and patent judges have indicated their attraction to that.  In continental Europe, injunction comes automatically from violating property-law right; there may not be harmonization, but proportionality and other rules in the enforcement directive have enough give to create a range of remedial options.  Hollister case, TM context, has been an effort to use proportionality to temper relief in TM cases, particularly parallel import cases—repackaging where infringement was only due to technical failure to give notice to a party.

Bently: Unused registered mark—clear sense that it would be inappropriate to give injunction where it was now being used by a large business. We will probably be flexible unless ECJ tells us we can’t.  Enforcement directive makes it a bit messy b/c says injunction shall be granted except in special circumstances.

McKenna: There’s an enormous amount of additional work to figure out the role of empiricism. I’m sympathetic to the need to focus on whether harms are real. Law has decided not to do that at wholesale level: whether sponsorship confusion is harmful, for example. Retail level is second-best. In some ways, I’m with Tushnet to say that if we’re raising the Q at the remedial stage, b/c we have doubts about fact of empirical harm, it’s weird to impose remedies w/o empirical basis. Why go halfway on empiricism?  OTOH, they’re operating at different levels. We’re accepting a generic harm story.  Disclaimers might not work, but consumers do adapt, so there may be other things courts can do.  But we have to identify the problem we are trying to solve when we pick a remedy. A disclaimer doesn’t work if I’m trying to disabuse consumers of certain notions; changes in packaging might work for other purposes [e.g., Belmora maybe?].  We’re doing this w/presumptions built in a world of TM law we don’t live in any more, from when confusion really meant passing off, now applied to enormous range. But b/c we didn’t have a real conversation about harms of other kinds of confusion, we have to do it in nonideal circumstances.  [“[Lawyers] make their own [law], but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past.”]

McGeveran: dynamism is an important point.  Certain types of disclaimers—consumers could learn.  [But what is your reason for believing that?]

Presumptions are not all created equal: rebuttable, bursting bubble, etc.  We have choices.

Remedial modesty has different implications for different kinds of cases.  [This is maybe one more reason to identify classes of cases, the way Pam Samuelson has for copyright, which affects both the confusion tests/defenses but also the remedies.]  Public values exist on other side—first sale, comparative advertising, consumer information interests, etc.  Peripheral confusion (endorsement etc.) + clear values on the other side = good case for no injunction, as a matter of standard civ pro thinking.

Lemley: why isn’t the right response then “you’re not liable”?

McGeveran: that’s the first best solution.  Second best would be limiting doctrines. Third is remedies, but that’s something.  Tabari: lower court enjoined use of “Lexus” in any circumstances, though Kozinski accepts some residual likelihood of confusion on affiliation, and makes rules about how to tailor nominative fair use injunctions.  Can get it out of domain name in some circumstances, but not full ban.

McKenna: if you flunk nominative fair use, the injunction can only order you back within its bounds. 

RT: Bone’s suggestion for eBay being stringently applied to product design: seems plausible, but what about descriptive terms, where there are also error costs issues—are we working back around to technical TMs? Might be good w/that.  Grynberg: dynamic consumer response is great, but the problem is that response to disclaimers decays over time, so the suggested remedy has a mismatch with the ideal result.  If the market responds, it probably won’t be b/c of the disclaimer but b/c of independent consumer learning.  Package redesign is not ordinary disclaimers so there is a lot to be learned about how that might work.  Graphic design elements might turn out to be really important.

Tabari is a really interesting example of empiricism: nominative fair use is very explicitly about deciding that things are nonconfusing as a matter of law, which is to say that it’s not empirical.

Kur: It would be useful to have access to covenants that firms sign to prevent too much collision in the market.  Our knowledge about how one could do that as a remedy would be improved by such learning.

Heymann: consumer research about how consumers are trained to look for particular features/interact more with the product.  That could help w/specificity and tailoring.  Though standardization also produces gains on the consumer side (e.g., nutrition labels).  Relatedly: what the goal is for these kinds of remedies.  We have a sense of what damages are supposed to do.  But what do we want injunctions to do? Where is the consumer in all this?

Bently: yesterday we were expressing doubt that product design is relied on, but now we’re suggesting it as a remedy?

RT: I understood myself to suggest that color on packaging might be helpful, but I wasn’t talking about the design of the product itself [though others think that might also be worth investigating].

McKenna: second-best; we might think product design is rarely relied on, but at the remedy stage the court has rejected that.  Also, even if there’s some source designation, it’s also doing other things, and we might want those other things available while trying to do something about the source designation that might not be a full fix but mitigates the harm.

TM as info transmission system; yet admitting that there are lots of things that have nothing to do w/info and more to do w/equitable position of parties.

Bone: Effectiveness of disclaimer has a lot to do about whether consumers care; if disclaimer doesn’t work, it might be b/c consumers don’t care, and aren’t harmed.  Empirical work on disclaimers: our results would have very high variance. Some rely and some don’t. Depends on context.  Sometimes they reduce confusion somewhat; leaves normative question of how much reduction is worth the candle/we will require to accept disclaimer.

Heymann: Product liability, product warnings—the law doesn’t care much about whether they actually work.

McGeveran: this isn’t the only area where there’s existential angst over subjects’ reaction. Privacy policies that no one reads.  He’s happy with rules that make clear that the most you can require a Lexus dealer to say is “we’re not affiliated w/Lexus.”

Yen: Costs imposed on consumers should be considered. Injunctive remedies on D impose search costs on consumers; the ones who learned to distinguish the brands and are happy—if you take one brand away and make it be different from existing mark, consumers incur search costs to find it (or to avoid it!).  If we’re interested in disclaimers, the analogy to tort has to be careful.  Warnings in tort are used in the context of fault.  Even though products liability is strict, the Q is whether it’s reasonable to sell product w/ or w/o warning. If you sell product w/reasonable warning and consumer gets hurt anyway that’s not your problem. But TM is supposedly  not fault based—if consumers are confused, you’re liable.

Burrell: enthusiasm for highly fact specific injunctions was a little surprising. If you can’t predict what injunction will look like, you’re less likely to reach settlement, which is to be welcomed.  Similar issues exist w/nuisance, where injunctions are delicately shaped.

Dogan: Think holistically about ways of avoiding confusion, presale and point of sale; even highly fact specific cases can start establishing norms allowing commercial practices to evolve, shrinking the scope of product design trade dress. Wouldn’t require that level of precision in every case.

McKenna: historically unfair competition had to show intent; for technical TM we presumed it b/c same mark/same goods. What happened? We lost sight of that. Presumption of intent in technical TM made sense in same mark/same goods, but doesn’t as applied to other things.  Also, when test asks for reasonably prudent consumers, you’re asking a normative question. So we’re willing to live with unreasonable confusion. So analogy to tort is actually good.

Thinks that old unfair competition cases aren’t about: this thing is functional but we’ll give you some remedy. Rather, the cases are about: this thing is functional, but D is making the problem of confusion worse when it doesn’t have to. It’s fault based.  Not necessarily going to fix the problem. But your entitlement to do X doesn’t mean you have to do Y, Z. Fault based.

Bone: he sees an affirmative obligation to take measures to limit confusion.

Dogan: sees both.  The language of the courts is affirmative obligation, but the facts show D doing something else besides using the functional feature.

Yen: doesn’t think that modern TM law today admits of fault as a doctrinal requirement.  We can read it in, but courts don’t say it. If we talk about fault, we need to talk about intentional tort and negligence.  Unreasonably incurring risk of bad result is something courts haven’t worked out in TM.

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