Claims to "introduce" product to US not untrue just because of prior minimal sales

LuxSoma LLC v. Leg Resource, Inc., 2018 WL 583119, No. 15 Civ. 4838 (S.D.N.Y. Jan. 25, 2018)

LuxSoma sued defendant ORI for breach of an implied contract that allegedly granted it exclusive rights to distribute ORI legwear in the US, induced by defendants Leg Resource and its President.  The court granted summary judgment to Leg Resource on LuxSoma’s false advertising claim.

LuxSoma argued that the Leg Resource made material misstatements when it announced in 2012, that (1) it would introduce ORI products to the U.S. market and (2) it was ORI’s exclusive distributor.  An ad in Women’s Wear Daily also stated that ORI was “gearing up for a journey to North America” and that Leg was ORI’s exclusive distributor. LuxSoma alleged falsity because LuxSoma was ORI’s exclusive distributor and had previously sold ORI merchandise at kiosks in Dallas, Texas.

The court disagreed.  The “introducing” statement couldn’t have deceived a substantial portion of the intended audience.  “When the statement was made, LuxSoma’s sales were minimal and geographically confined to Dallas, Texas. As ORI stated, ‘the U.S. market was still open’ ‘because [LuxSoma’s] sales were so small,’ and ‘[t]he sales in the U.S. were so small there was no[t] really a presence of the product.’”  LuxSoma admitted that it had sold a “paltry” 500 to 1,000 pairs of ORI legwear in Dallas, sales that were “far too small and much too geographically concentrated to raise a triable dispute” on deceptiveness.  And the exclusive distributorship statement was true when made.

Allegedly false statements on package/instructions didn't plausibly harm competitors, court rules

Telebrands Corp. v. Everstar Merchandise Co., No. 17-2878, 2018 WL 585765 (D.N.J. Jan. 29, 2018) (magistrate judge)

Telebrands sells novelty stuff; Everstar, a competitor, allegedly copied its stuff in unlawful ways.  Relevant to this blog, Telebrands alleged that Everstar engaged in false advertising under §43(a) by printing false information on the packaging of its GALAXY LASER and NORTHERN LIGHTS LASER products, as well as within the operating instructions for those products.  The statements allegedly understated the maximum power output of the lasers (whose output was actually in excess of that allowed by the FDA), misleading consumers into thinking the lasers would be safe to use.  Rather than dealing with this as a matter of “commercial advertising or promotion,” as I would have guessed, the court used Lexmark and proximate cause.

First, the court reasoned, Telebrands didn’t allege that Everstar characterized the statements on the packaging in any way that indicated safety.  [Necessary implication much?]   Nor were there any alleged comparisons or references to Telebrands products, nor were there any allegations about how consumers “might have acted differently had the packaging information been accurate, or, alternatively, if the packaging did not include any representations regarding power output.” Thus, there were no allegations about how the misstatements persuaded consumers to purchase Everstar’s products.  Likewise, Telebrands didn’t allege that the safety instructions were available to consumers before purchase, so they couldn’t affect purchasing decisions.  Telebrands suggested in its argument that “[t]he dangerous nature of Defendants’ products will harm Telebrands’ sales and may ultimately destroy the market for decorative holiday laser lighting products,” but this wasn’t in the complaint, which referenced sales diversion.  “If Plaintiffs intend to plead injuries suffered as a result of harm to the industry in general, they must add allegations making that clear.”

New York GBL Section 349 covers ordinary trademark claims, court rules

Mayes v. Summit Entertainment Corp., No. 16-CV-06533, 2018 WL 566314 (E.D.N.Y. Jan. 18, 2017) (magistrate judge)

Plaintiffs, eight professional models and actresses, alleged that the owners and operators of a strip club on Long Island (Summit) unlawfully used Plaintiffs’ images in social media advertisements in violation of the Lanham Act and New York General Business Law § 349.  The magistrate recommended rejecting Summit’s motion to dismiss.

As to the Lanham Act claim, Summit argued that plaintiffs failed to allege that they are sufficiently well known such that the misappropriation of their images would likely cause confusion. Beyond alleging that they were “well known professional models,” plaintiffs listed appearances in national magazines and television programs, as well as associations with other celebrities. “It is borderline facetious to suggest that Plaintiffs who purportedly have appeared on the Jay Leno Show, Chapelle’s Show, and Shark Tank, or who have appeared in magazines such as Vogue and Esquire, or who have publicly appeared with Kim Kardashian have failed to make plausible allegations of public recognition. And the purported extent of Plaintiffs’ social media following—as many as two million Facebook followers, seven-hundred thousand Instagram followers, and one-hundred thousand Twitter followers—further corroborates those allegations with factual specifics.” [Consider how revelations about fake followers might affect plausibility.]

Summit argued that plaintiffs’ claims were really right of publicity claims, but they could bring false endorsement claims too. “[T]here is no bright line level of ‘celebrity’ necessary to sustain a claim for false endorsement; rather, all that is necessary is that the plaintiff’s ‘identity carries some “level of consumer recognition.” ’ ” Even without the use of names or other identifying info in the ad, the plaintiffs plausibly alleged that the ads would be perceived as endorsements. [Interesting issue—usually an appearance in an ad, without substantial celebrity among the target audience or identifying information, is just perceived as an actor’s appearance, as the FTC Endorsement Guide indicates.  Is it different with strip club ads?]

In addition, the magistrate engaged in extensive analysis to conclude that the Section 349 claims shouldn’t be dismissed on the ground that consumer confusion was a sufficiently consumer-directed harm under the law, rejecting the majority view that “consumer-oriented conduct” under Section 349 requires something more than mere confusion.  The New York Court of Appeals has not ruled on the matter, and the court found that the lower New York courts and federal courts that had required something more than confusion were misguided.

Historically, the Little FTC Acts were designed to allow more enforcement of FTCA-type regulations than the FTC was actually engaging in.  Adding a private right of action stripped away various safeguards against overenforcement “such as political accountability, finite resources, and a statutory public interest requirement.”  Many courts didn’t like that and thus “invented limiting principles to restrict the scope of litigation,” but this response was lacking in principle.  Specifically, in New York, the 1970 version of Section 349 allowed only the AG to sue, while in 1980, the Legislature extended a cause of action to “any person who has been injured by reason of any violation of this section.”

This broad language clearly allowed both consumers and non-consumers to sue, but then “some businesses tacked Section 349 claims onto ordinary commercial disputes,” which went too far.  Thus,  courts limited standing to conduct that is “consumer-oriented,” a rule that “strikes an appropriate balance by preventing businesses from tacking deceptive practices claims onto their purely commercial disputes while also allowing affected businesses to act as vicarious defenders of consumers.”  But a practice commentary published in 1988 by Richard A. Givens, a former regional director of the FTC “invented the principle that trademark infringement actions fall outside of the scope of Section 349.”  Courts followed that commentary, making it the majority view.

The majority view was unpersuasive.  “The text of the statute outlaws all deceptive conduct, which would appear to include trademark infringement claims. The text may not be dispositive, but there must at least be a reason to depart from such clear language.” There was not.  First, there was reason to think that the legislature intended to include trademark infringement in the consumer protection statute, and certainly didn’t intend to exclude it. “The motivating concern behind Section 349 was the perceived inadequacy of the existing set of consumer protection laws targeted at specific conduct,” and so Section 349 was designed to be “an umbrella covering all forms of deceptive conduct.” The drafters even “intentionally chose not to reject other proposed legislation that included enumerated prohibitions,” to avoid any judicial limitation to acts of a similar nature. But included on that list—the list that drafters thought was too narrow!—were practices likely to cause “confusion or of misunderstanding as to affiliation, connection, or association with, or certification by, another.”  The drafters even included trademark in their survey of existing laws they “hoped to encompass and expand upon.”  “Given this background, the logical conclusion is that the legislature intended to include trademark infringement in the ambit of Section 349. After all, … trademark protections are a form of consumer protection.”

Second, the policy concerns were unpersuasive. Though Section 349 provides for one-way attorney fee shifting, such awards are discretionary.  And the minority view wouldn’t open the floodgates for trademark claims unrelated to consumer protection because the requirement of materiality would limit claims: “a plaintiff by definition cannot prevail without proving that deception is likely to misdirect consumers’ purchases, which is precisely the harm that the statute seeks to prevent.”

Third, courts in the majority have argued that consumer-oriented harm has to be enough to justify FTC intervention, but the Supreme Court has explicitly found that mere confusion is sufficiently within the public interest to warrant FTC intervention:

If consumers or dealers prefer to purchase a given article because it was made by a particular manufacturer or class of manufacturers, they have a right to do so, and this right cannot be satisfied by imposing upon them an exactly similar article, or one equally as good, but having a different origin. ... The result of respondents’ acts is that such purchasers are deceived into purchasing an article which they do not wish or intend to buy, and which they might or might not buy if correctly informed as to its origin. We are of opinion that the purchasing public is entitled to be protected against that species of deception, and that its interest in such protection is specific and substantial.

FTC v. Royal Milling Co., 288 U.S. 212, 216-217 (1933). Additionally, the FTC itself has been very interested in the deceptive use of endorsements, the precise conduct at issue here, regardless of the subject matter.

Although punitive damages aren’t allowed under the Lanham Act, they are under state law, so punitive damages claims based on Section 349 survived.

Confusion with firm sued for sexual harassment causes irreparable harm

Newmark Realty Capital, Inc., v. BGC Partners, Inc., No. 16-cv-01702 (N.D. Cal. Nov. 16, 2017)

Newmark Realty Capital (founded 1991) and defendants BGC Partners and Newmark & Co. Real Estate “traditionally operated in distinct sectors of the real estate market and in distinct geographical areas.” Newmark Realty provides mortgage services in the field of commercial real estate, at first in California and now with offices in seven states, with 65 people working for it and “originating and servicing loans for properties” located all over the country.  Newmark Realty arranges debt and equity financing through various sources on behalf of commercial real estate developers and investors, and services loans for lenders in 39 states and DC.  Newmark Realty has registrations for NEWMARK REALTY CAPITAL and a similar word and design mark, registered for “financial services, namely, mortgage banking, mortgage brokerage, loan servicing, investment brokerage and investment consulting in the field of commercial real estate.” 

Defendant BGC acquired Newmark & Co. Real Estate in 2011 and I’ll refer to them interchangeably.  Newmark & Co. began as Harris, Newmark & Co., co-founded by Saul Newmark in Manhattan around 1929. The company changed its name to Newmark & Co. Real Estate in the late 1950s. By 1979, “the company owned and managed properties in New York and around the country.” Newmark & Co.’s business in the late 1970s to mid-1980s focused on the purchase, sale, and management of its holdings in New York and other states, and grew thereafter.  Newmark & Co. began to use “Newmark Capital Group” and “Newmark Capital Markets” in 1993 as a division focusing on capital markets work. Around 1999, Defendant publicly announced “Newmark Realty Capital, LLC,” later folded into Newmark Capital Markets. Newmark & Co. opened offices in Connecticut and New Jersey in 1992 and 1993, respectively. In 2000, Defendant established offices in Los Angeles, Long Beach, and Washington D.C. Many of these new offices launched under the Newmark name such as “Newmark Partners,” “Newmark of Southern California,” “KTR Newmark,” and “Newmark Pacific.”  Newmark & Co. is by far the bigger company, with thousands of employees to Newmark Realty’s 65.

Both companies expanded geographically over the years and defendants expanded substantially into the mortgage services sector occupied by Newmark Realty, which owns an incontestable registration for NEWMARK in its service area. The court partially granted Newmark Realty’s motion for a preliminary injunction against defendants’ use of “Newmark,” either alone or as part of other company names, as applied to services in which Newmark & Co. lacked prior nationwide rights as the senior user in that category.

There’s lots of interesting detail about expansion over time and about the relationship between various financial services.  The court found that confusion was likely and indeed ongoing based on Newmark & Co.’s use of NEWMARK, NEWMARK KNIGHT FRANK, NEWMARK GRUBB KNIGHT FRANK, and other combinations.  There was significant evidence of actual confusion, including initial interest confusion, by sophisticated financial services customers, including situations where Newmark Realty’s executives had to spend 15 minutes explaining their lack of connection with Newmark & Co.; consumers thought they’d merged with defendants; they were invited to a ribbon-cutting ceremony where Newmark & Co. had been the entity to arrange financing; etc. Defendants’ own infringement counterclaims, while not exactly a confession that confusion was likely, supported that conclusion. 

NEWMARK REALTY CAPITAL was registered in 2002 and is now incontestable; to avoid liability, Newmark & Co. needed to show common law senior rights in a mark used before that date.  Given that defendant could trace a Newmark lineage to 1929, they argued that they had done so. The court only partially agreed.  “Two distinct markets are relevant in this case: (1) real estate sales and leasing services and (2) mortgage services for commercial real estate.”  Defendant showed prior nationwide rights in the former, but not the latter.  That is, defendant’s nationwide services went to brokering sales and leases between landlords and commercial tenants, not to offering mortgage/financing services.

The NEWMARK REALTY CAPITAL covers “financial services, namely, mortgage banking, mortgage brokerage, loan servicing, investment brokerage and investment consulting in the field of commercial real estate,” and, though the court found this to be a close call, defendant didn’t satisfy its burden to show that it had acquired a nationwide right to use NEWMARK for those services before 2002, even though the record showed involvement in some transactions related to mortgage services before 2002.  These sporadic transactions were concentrated in the New York area, or at best also extending to the Washington, D.C. area.  Defendant’s nationwide ads, and its nationwide reputation as shown in industry publications, weren’t for “mortgage brokerage” and “investment sales and financing services” but for sales and leasing.

Defendant’s representations to the PTO also provided “strong evidence” that it did not provide mortgage services; these representations didn’t rise to the level of judicial estoppel, but they were persuasive evidence nonetheless.  In order to register its own trademarks, defendant repeatedly told the PTO that its business differed from mortgage banking, mortgage brokerage, loan servicing, investment brokerage and investment consulting in the field of commercial real estate, labeling them “distinct financial services with different target markets,” and claiming that defendant was “primarily a commercial landlord and tenant representative and did “not provide [mortgage] services,” meaning that the parties operated in “two different lines of business.” 

Nor did defendant get priority under the natural zone of expansion doctrine.  This doctrine holds that “[w]hen a senior user of a mark on product line A expands later into product line B and finds an intervening user, priority in product line B is determined by whether the expansion is ‘natural’ in that customers would have been confused as to source or affiliation at the time of the intervening user’s appearance.” The senior user must thus show that consumers would have been confused “at the time of the junior user’s first use of its mark.”  Defendant didn’t provide any evidence on likely confusion in 1991 through 2002.

Newmark Realty argued that Newmark & Co. couldn’t show continuous use of NEWMARK, as required to use the senior common law user defense.  Defendant’s arguments of use for mortgage services had already been rejected; the next question was whether its adoption of NEWMARK KNIGHT FRANK in 2006 and then NEWMARK GRUBB KNIGHT FRANK in 2012 changed that.  “Hence, the question is: did Defendant stop using NEWMARK by adopting a new mark?” [Now NEWMARK is starting to look to me like a placeholder for some other TRADEMARK.]  The court concluded that it did not. “As long as [a] party can show bona fide use and that consumers recognize the old mark as the source, there is no reason why it cannot use multiple marks at the same time.” In the aggregate, there was sufficient evidence that Newmark & Co. continued to use NEWMARK as a shorthand identifier to the industry, media, and clients, and third parties had done the same.  NEWMARK was used in a “ ‘deliberate and continuous, not sporadic, casual or transitory’ manner in a trademark sense rather than a mere abbreviation.”

The court did, however, reject defendant’s argument that its use of NEWMARK-formative brands such as “Newmark Knight Frank,” “KTR Newmark,” Newmark Cornish & Carey,” “ARA, A Newmark Company,” and “Newmark Grubb Pearson Commercial” constituted continuing use for purposes of the prior use defense.  [This is an interesting question: the senior unregistered user is frozen into place, both geographically and in terms of goods/services; I see the argument that it should likewise be frozen into place in its mark, though this is the first case I am aware of to address the issue head-on.]  Likewise, the standard for tacking is stringent: it requires that “two marks are so similar that consumers generally would regard them as essentially the same.” The standard is exceedingly strict: “The marks must create the same, continuing commercial impression, and the later mark should not materially differ from or alter the character of the mark attempted to be tacked.” However, the court found that it didn’t need to assess tacking for real estate sales and leasing services because Newmark & Co. was likely to prevail on showing prior and continuous use of NEWMARK. For mortgage services, however, defendant hadn’t sufficiently shown that the marks “create the same, continuing commercial impression” with some kind of consumer perception evidence.

Irreparable harm got interesting! Though Newmark Realty didn’t show any quality difference between the parties’ mortgage services, the court accepted two other alleged irreparable injury: (1) the effect of a sexual harassment lawsuit against Newmark & Co. on Newmark Realty’s reputation and goodwill, and (2) loss of business opportunities.

In early 2017, defendant and several of its Los Angeles executives were sued for sexual harassment, a lawsuit that’s been covered by the media.  Herb Reed says that “[e]vidence of loss of control over business reputation and damage to goodwill could constitute irreparable harm,” and “[t]here are abundant instances showing clients being confused that Plaintiff was involved in the sexual harassment suit due to the name ‘Newmark.’”  [Query whether the relief granted can fix that. The court later simply asserts that “an injunction barring Defendant from branding itself using confusingly similar marks would deter the threatened loss of potential customers, and reduce confusion among the customers and thus the reputational harm imposed on Plaintiff.”]

Notably, the court said that “not all litigation against a competitor who uses a similar name would be seen as causing reputational harm sufficient to support a preliminary injunction,” but, “at this particular time, a lawsuit alleging sexual harassment and assault against Defendant takes on a different dimension” given the ongoing public attention to claims of sexual harassment and assault that have “rocked” many industries. “It is no exaggeration to say that such claims are toxic to business.”

Similarly, loss of business opportunities constituted irreparable harm. Newmark Realty clearly showed a “threatened loss of prospective customers” from solicitations by Newmark & Co.’s employees. For example, one person submitted a declaration indicating that his assistant screens out cold calls including those from Newmark & Co. because he does not have a relationship with them, but callers from Newmark & Co. have nonetheless been able to bypass the assistant by referring to themselves as being from “Newmark.” The threatened loss was greater because Newmark & Co. acquired Berkeley Point Capital, a major competitor of Newmark Realty in mortgage services, and Newmark & Co. has stated that Berkeley Point “will become part of Newmark [Knight Frank].” “Plaintiff, with a staff of only about 65 people, also faces a heightened risk of losing its identity to the much larger Defendant who has over 4,000 employees and independent contractors.” 

Ultimately, the court denied Newmark Realty’s request to enjoin Newmark & Co. from “using the single word ‘Newmark’ as a trademark to denote the source of any professional services of any nature whatsoever, in any form whatsoever, whether oral or written.” However, it was appropriate to enjoin “using the word ‘Newmark,’ alone or in combination with any other words, as a trademark to denote the source of any commercial real estate financial services, i.e., mortgage banking, mortgage brokerage, loan servicing, investment brokerage and investment consulting, in the field of commercial real estate, in any form whatsoever, whether oral or written.”  Even if Newmark & Co. had invested millions in building its own NEWMARK brand, the injunction didn’t bar it from using NEWMARK for its real estate sales and leasing services or other types of services not covered by Newmark Realty’s trademark registration.  Anyway, even as to mortgage services, the harm inflicted on Newmark & Co. was its own fault; based on its representations to the PTO, Newmark & Co. was likely aware of Newmark Realty’s trademark rights for the relevant services.

Pure disparagement by competitor is commercial speech even without invitation to buy

Monat Global Corp. v. Kavanaugh , 2018 WL 501616, No. 17-cv-1666 (M.D. Fla. Jan. 22, 2018)

The parties sell competing hair products. Kavanaugh allegedly orchestrated an “[I]nternet smear campaign” by posting false comments on Facebook about Monat’s products and marketing tactics, e.g., that Monat’s products duplicate the formula of non-party Wen’s products, which the FDA reportedly investigated after receiving 1,300 complaints about balding and scalp irritation. At least 5,000 people, including many “salon owners, stylists, or [others] in the hair[-]care industry,” allegedly view Kavanaugh’s Facebook posts. [Wonder how many that drops to given Facebook’s algorithms.]

Defendants argued that none of Kavanaugh’s statements constitutes “commercial” advertising subject to the Lanham Act because they didn’t tout the defendants’ products or encourage a prospective customer to patronize the defendants. Instead, the statements attempted to discourage a transaction with someone else. “Even a statement that expressly proposes no transaction might constitute commercial speech if included in an advertisement that mentions a particular product and if profit motivates the statement.” Given that the statements specifically mentioned Monat’s products and that Monat alleged a profit motive for the statements, plaintiff adequately alleged that the statements were commercial speech.

CFP: Yale/Stanford/Harvard Junior Faculty Forum

Request for Submissions
Yale/Stanford/Harvard Junior Faculty Forum

June 13-14, 2018, Harvard Law School

Yale, Stanford, and Harvard Law Schools are soliciting submissions for the 19th session of the Yale/Stanford/Harvard Junior Faculty Forum, to be held at Harvard Law School on June 13-14, 2018. Twelve to twenty junior scholars (with one to seven years in teaching) will be chosen, through a blind selection process, to present their work at the Forum. One or more senior scholars will comment on each paper. The audience will include the participating junior faculty, faculty from the host institutions, and invited guests. The goal of the Forum is to promote in-depth discussion about particular papers and more general reflections on broader methodological issues, as well as to foster a stronger sense of community among American legal scholars, particularly by strengthening ties between new and veteran professors.

TOPICS: Each year the Forum invites submissions on selected topics in public and private law, legal theory, and law and humanities topics, alternating loosely between public law and humanities subjects in one year, and private law and dispute resolution in the next. For the upcoming 2018 meeting, the topics will cover these areas of the law:

- Administrative Law

- Constitutional Law—theoretical foundations

- Constitutional Law—historical foundations

- Criminal Law

- Critical Legal Studies

- Environmental Law

- Family Law

- Jurisprudence and Philosophy

- Law and Humanities

- Legislation and Statutory Interpretation

- Public International Law

- Race/Gender Studies/Antidiscrimination

- Workplace Law and Social Welfare Policy

A jury of accomplished scholars, not necessarily from Yale, Stanford, or Harvard, will choose the papers to be presented. There is no publication commitment. Yale, Stanford, or Harvard will pay presenters' and commentators' travel expenses, though international flights may be only partially reimbursed.

QUALIFICATIONS: Authors who teach at a U.S. law school in a tenured or tenure-track position and have not have been teaching at either of those ranks for a total of more than seven years are eligible to submit their work. American citizens or permanent residents teaching abroad are also eligible provided that they have held a faculty position or the equivalent, including positions comparable to junior faculty positions in research institutions, for fewer than seven years and that they earned their last degree after 2008. International scholars are not eligible for this forum, but are invited to submit to the Stanford International Junior Faculty Forum. We accept co-authored submissions, but each of the coauthors must be individually eligible to participate in the JFF. Papers that will be published prior to the Forum are not eligible. There is no limit on the number of submissions by any individual author. Junior faculty from Yale, Stanford, and Harvard are not eligible. 

PAPER SUBMISSION PROCEDURE:

Electronic submissions should be sent to Rebecca Tushnet at rtushnet@law.harvard.edu, with the subject line “Junior Faculty Forum.” The deadline for submissions is March 1, 2018. Remove all references to the author(s) in the paper. Please include in the text of the email and also as a separate attachment a cover letter listing your name, the title of your paper, your contact email and address through June 2018, and which topic your paper falls under. Each paper may only be considered under one topic. Any questions about the submission procedure should be directed both to Rebecca Tushnet and her assistant, Andrew Matthiesen (amatthiessen@law.harvard.edu).

FURTHER INFORMATION: Inquiries concerning the Forum should be sent to Matthew Stephenson (mstephen@law.harvard.edu) or Rebecca Tushnet (rtushnet@law.harvard.edu) at Harvard Law School, Richard Ford (rford@stanford.edu) at Stanford Law School, or Christine Jolls (christine.jolls@yale.edu) or Yair Listokin (yair.listokin@yale.edu) at Yale Law School.

Richard Ford

Christine Jolls

Yair Listokin

Matthew Stephenson

Rebecca Tushnet

That's swell: court rules that NY doesn't impose "use in commerce" limit on unfair competition

Can’t Live Without It, LLC v. ETS Express, Inc., --- F.Supp.3d ----, 2018 WL 401778, No. 17-cv-3506 (S.D.N.Y. Jan. 15, 2018)

Plaintiff S’well sued ETS for trademark infringement and related claims based on its sales of the Force and Swig Bottles, which have the exact same shape as plaintiff’s S’well and S’ip Bottles, respectively. The court denied ETS’s motion for summary judgment, among other things holding that §349 and §350 don’t incorporate whatever is left of the Lanham Act’s “use in commerce” requirement, which meant that ETS’s partial motion for summary judgment as to its use of the S’well name was only partly granted.

S’well has a registration for the shape of its S’well bottle, on the Principal Register as of 2017. “The S’well Bottle has been very successful, obtaining substantial amounts of free, unsolicited media coverage, selling millions of bottles and an increasing number each year, and generating millions of dollars in income.”  (Turns out I own a bottle with this shape, whose maker I don’t know; I didn’t buy it on the basis of the shape, either as source indicator or as an especially aesthetic shape, though it is pleasantly curved.)  S’well sells to consumers, retailers, and a custom program in which an imprint of a company’s name or logo is added to the bottle and the company then resells or gives away the bottles.

The S'ip and the S'well

ETS is a drinkware company that sells various water bottles, including ones that are “patterned after” retail brands. The Force Bottle is one of ETS’s most popular products and is shaped identically to the S’well Bottle. ETS operates in the “promotion products market” rather than the retail market, meaning it fulfills orders placed by intermediaries for custom-printed products and the intermediaries then sell those products to businesses that give them away as promotions, though ETS does sell Force Bottles directly to some retailers — including, at least, college bookstores and a coffee shop chain with locations throughout California. Some distributors also sell to retailers who sell Force Bottles to end-users either online or in retail stores.

The Force

The Swig

ETS’s argument against the distinctiveness of the S’well bottle was that consumers couldn’t possibly associate the bottle shape here at issue with any single source because so many different businesses manufacture similarly shaped bottles. Declarations from various ETS employees stated that they purchased S’well-like bottles from various stores and websites, providing pictures, descriptions, and receipts, and ETS identified 130 different sources of water bottles that had the same shape. There’s no numeric rule about how many other sources prevent distinctiveness.  “If, for example, one source has such a large market share and strong brand awareness that the public strongly associates its mark with that brand, consumers will likely assume that products bearing that mark are associated with that brand, regardless of the number of ‘knockoff’ manufacturers. The number of manufacturers is therefore a relevant, but not determinative factor.”  [NB: This reasoning, which I accept, puts the lie to trademark owners’ claims that they have to enforce their trademarks to the hilt to avoid losing them. As long as the trademark retains trademark significance, it’s not going to be a problem.]

S’well submitted “substantial evidence suggesting that the public in fact does associate this particular shape with S’well, including undisputed, significant levels of advertising expenditures, sales success, and unsolicited media coverage.” ETS salespeople in emails with distributors themselves referred to the Force Bottle as a “S’well knockoff,” a “swell like option,” “S’well-like,” and “the ones that look like Swell,” and online retailers advertised Force Bottles similarly.  “These comparisons would be meaningless if the audience did not associate the shape with the brand.”

Nor did ETS show functionality.  S’well submitted material to the PTO indicating that the S’well and S’ip contain “mouths” that are big enough for ice cubes but small enough for “drip-free sipping” and are located in the center of the bottle, so users never need to rotate the bottle to begin drinking. ETS also argued that the circular shape is the “strongest and the easiest to make,” and that the bottles’ “smooth tapering at a relatively shallow angle from the base to the mouth permits the bottles to be emptied completely with relatively minor tilts.” The alternative, straight sides with a sharp angle just before the mouth, creates “a ‘catch basin,’ so that the liquid in the bottle, rather than smoothly flowing out, is trapped in the depression where the angle changes until the bottle is tilted further, at which point it comes rushing out all at once, leading to spills and other dangers.” [As a certified spiller of things, I can testify to the truth of this.]  However, ETS didn’t submit evidence on its claims, and it wasn’t self-evident that they were true—for example, a rectangular shape might likely be easier to stack and ship. S’well’s founder also declared that she made several aesthetic choices when she designed the bottles that she knew would be more expensive.

ETS also offered no evidence suggesting that no other designs could have these same functional benefits; S’well hadn’t registered “all water bottles with gently sloping sides.” In fact, ETS’s argument that “both the S’ip and S’Well Bottles have ideal shapes, despite the two being shaped differently, suggests that these benefits may be available in other shapes as well.” Nor did ETS make arguments about the distinctive bottle cap, which is part of S’well’s trade dress.

Likely confusion: again, summary judgment was unavailable, given the evidence of distinctiveness/strength and the similarity of the parties’ products.  Though ETS argued that the products

were sold in separate markets to sophisticated consumers who would not confuse them, ETS submitted

no empirical research or data analysis. S’well submitted evidence of distributors specifically requesting “S’well Bottles” from ETS, which appeared to fill the orders with Force Bottles without correction. And 10-15% of S’well’s business was in the promotional market, while ETS sold directly to at least some retailers and some distributors, who then sell Force Bottles to retailers or directly to end-users online, so there was some market overlap.  In addition, post-sale confusion among end consumers was still possible.

And listen to this take on status goods: “Nor does it matter, as ETS argues, that the two bottles are of the same physical quality, particularly where, as here, there is evidence that they are not of the same expressive quality” (citing magazine article describing S’well Bottles as “suddenly a feverish must-be-associated-with-thing among a certain stylish, in-the-know set”). “The purchase of one product under the mistaken belief that it is another product is a prototypical harm against which the Lanham Act protects.”

There was also evidence of actual downstream confusion. “At least one retailer mislabeled Force Bottles as ‘Swell Bottles’ on its shelves, and several consumers have contacted S’well customer service in the mistaken belief that they had S’well Bottles, when in fact they had Force Bottles or, perhaps, similar bottles from other brands.” An internet survey indicated that 59% of S’well’s target demographic — female potential purchasers of stainless steel water bottles — associated the shape at issue with S’well, and calculated an overall net confusion rate of 26.6% between the S’well and Force Bottles.

ETS argued that it didn’t know about S’well before it decided to make the Force bottle, and learned about it only after researching the bottle shape requested by customers.  Given S’well’s success, that was a disputed issue, and anyway ETS learned of S’well before the Force bottle was actually produced.  Evidence also suggested that ETS “made changes to the Force Bottle for the express purpose of making it more similar to the S’well Bottle.”  ETS’s “Retail Brands Guide” compared its products to retail products, which was distributed to at least some customers.  A jury could find bad faith.

Under §§ 349 and 350 of the NY GBL, a plaintiff must show “that a defendant has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice.”  Consumer-oriented conduct must threaten an injury “to the public interest over and above ordinary trademark infringement or dilution.”  However, the court rejected federal district court precedent that something like “potential danger to the public health or safety” is required, reasoning that the New York courts interpret these laws broadly. “New York courts distinguish not between minor economic harms and threats to public safety, but between disputes that are essentially between two parties, such as contract disputes, and “acts or practices [that] have a broader impact on consumers at large.”  However, the court still granted ETS’s motion for summary judgment on those claims, because S’well didn’t show a genuine dispute about whether Force bottles were inferior to S’well bottles. Though there had allegedly been complaints “from time to time” about customer misuse leading to leaks and the “imprint” on Force Bottles coming off, but even setting aside hearsay problems with this evidence, S’well might have shown that Force bottles weren’t perfect but did not show that its bottles were any better.

S’well also argued that ETS’s plastic Impact bottle was not made of stainless steel and argued that this would harm consumers, but S’well didn’t address the Impact bottle in its complaint, and anyway no reasonable consumer boying plastic Impact Bottles would think she was buying a stainless steel S’well Bottle, nor would she infer that S’well’s steel bottles were somehow worse simply because a plastic version existed.  She might think there was a link to S’well somehow, “but that consumer confusion is insufficiently consumer-oriented to state a claim under New York’s deceptive practices and false advertising statutes.”

False designation/unfair competition under federal and state law: S’well moved for summary judgment in its favor based on claims that ETS (1) misleadingly suggested to its customers that Force Bottles were a type of S’well Bottle, and (2) sold Force Bottles to customers who requested S’well Bottles without informing them of the difference. ETS argued that there was no relevant “use in commerce.”  The court disagreed with 1-800 Contacts, but Rescuecom didn’t overrule it, so there is still some “use in commerce” requirement for infringement.  The use of a mark in the sale of products, as opposed to services, where the mark isn’t attached to the product/associated with it physically, doesn’t fall within the §1127 definition of “use in commerce.”  The only “printed” version of the S’well mark was in ETS’s Retail Brands Guide, but that use was more like use “in the sale or advertising” of the product than it was to a sales display. Anyway, no reasonable juror could find that this guide could confuse a distributor into thinking that the Force Bottle was a version of the S’well Bottle, as it clearly stated that the two were simply similar, and the Guide had dozens of other retail brands along with their ETS analogues.

Because of 1-800 Contacts, “even if ETS employees actually provided Force Bottles to distributors seeking S’well Bottles without informing them, and even if ETS representatives really did suggest in emails to distributors that Force Bottles were a type of S’well Bottle, ETS nonetheless did not violate Section 43(a) of the Lanham Act because of an absence of applicable ‘use in commerce.’” This ended the Lanham Act claims, but the court didn’t belive that New York courts would impose a similar limit on common law unfair competition claims, which are “adaptable and capacious.”  “Palming off — that is, the sale of the goods of one manufacturer as those of another — was the first theory of unfair competition endorsed by New York courts, and has been extended to situations where the parties are not even in competition.”

Because ETS was allegedly using S’well’s exact mark, Polaroid analysis was not required; “[u]se of the exact same mark is inherently confusing.”  So the key question was how ETS employees had actually used the S’well name.  S’well identified multiple emails in which various distributors asked for “S’well” or “Swell” bottles and ETS employees didn’t clarify in those email threads that they only sold Force Bottles. In one email, a distributor requested S’well Bottles, and asked that ETS “try to get these exact brands and items!” Another email involved a new customer who asked for a quote and sample of S’well Bottles.

ETS rejoined that these requests were in fact for Force bottles, and “a lot of people call it just ‘the S’well shape.”’ ETSs CEO testified that “they “try” to train their sales staff to correct customers who ask for S’well Bottles, but repeat customers consistently respond that they know they are getting the Force Bottle and are just referring to the shape, sometimes growing frustrated by being corrected.”

Another employee similarly testified that repeat customers “get upset sometimes if you keep asking them to confirm what item they’re looking for,” saying things like, “’Dang it, Jen. You know what I’m looking for. Stop asking me. You know it’s the Force.”’  A reasonable juror could find either way.

S’well also argued that ETS told customers that its Force bottle was a version of the S’well bottle specific to the promotional products market. In one email chain, a distributor asked, “What is the retail brand that looks like this?” and the manager responds, “The S’well bottle is the retail version of this bottle.” The distributor’s question suggested that he understood the lack of affiliation, and that the Force just “looked like” the S’well; a reasonable juror could find that the employee meant only to convey the similarity.  Other email chains were similarly ambiguous.  Interestingly, the court indicated that the success of S’well’s claim would turn on “the credibility of the ETS witnesses regarding what they meant to communicate in these emails,” rather than the messages their interlocutors received; I would have gone the other way.

Beyond Belmora: foreign TM owner proceeds under Lanham Act and Inter-American Convention

S.A.S. v. Latinfood U.S. Corp., Civ. No. 16-6576, --- F.Supp.3d ----, 2017 WL 6940696 (D.N.J. Dec. 29, 2017)

Industria, a Colombian food corporation and Colombian owner of the Zenú and Ranchera marks, sued Latinfood, for reasons you can guess when you learn that they are doing business in the US as Zenú Products Co.  Applying Belmora, the court allows the various Lanham Act claims to proceed, and cites Christine Haight Farley’s work in also allowing claims under the Inter-American Convention for Trademark and Commercial Protection (IAC).  Copyright claims weren’t discussed in the motion to dismiss.

The Zenú mark “has been used for more than sixty years to identify meat, sausage, beans and other packaged food products in Colombia and elsewhere,” while the Ranchera mark “has been used extensively in Colombia and elsewhere for more than 25 years, and is among the most well-known trademarks for sausages and meat products.” Industria claimed fame across Latin America and alleged that people “residing in Colombia, individuals who have travelled to Colombia and individuals who have moved from Colombia to the United States are familiar with the [Zenú] and Ranchera trademarks and [Industria’s] food products sold under the [Zenú] and Ranchera marks.” (Id.)

Industria Ranchera

Part of Industria website

Industria’s Zenú products include “the [Zenú] mark in a red stylized font underlined by a brush-stroke type line against a white background.” Words indicating the type of food contained in the packaging are “often written diagonally underneath the [Zenú] mark.” Canned products an additional “thick colorful band at the bottom of the label where additional information such as the weight or quantity of the product is conveyed in white type.” Industria maintains a website “that is accessible by the public, including consumers in the United States, at www.zenu.com.co.”

Industria’s Ranchera mark is “always displayed in a red ‘western’ or ‘rancher-inspired’ font which is then outlined first in white and then in black.” It “curves slightly upward in the middle of the word.” A “rancher theme” is used across the Ranchera packaging.  

Industria has numerous relevant trademark registrations in Colombia, and an International Registration from 2014 from WIPO; it filed an application to extend the IR at the PTO in 2014.  Prior US registrations have lapsed.  In 2014, Industria also filed a 44(e) application for “ZENÚ (Stylized)” for various food products which was barred by Latinfood’s US-registered Zenú mark.  Industria also applied in the US for “RANCHERA (stylized)” for various meats, based on Sections 1(b) and 44(e), in 2016.

Latinfood allegedly began copying Industria’s marks around 2011.  Latinfood allegedly touted its possession of “ ‘an exclusive distribution and importing rights agreement for the tri-state area’ with a major product manufacturer in Colombia.” Latinfood allegedly uses the identical stylized logo and trade dress for Zenú, as well as its trade dress, and its website, www.zenu.us.com, “closely mimics both the domain name and trade dress presented on [Industria]’s website, www.zenu.com.co.” The labels were also allegedly substantially similar to Industria’s copyrighted labels.  Indeed, Latinfood allegedly attempted to buy 400,000 Zenú labels from Industria’s own Zenú label provider in Medellin.

Latinfood website: note Ranchera listing 3d row left

Latinfood applied to register the Zenú mark for various meats in the US in 2013, claiming 2011 as its year of first use. Industria alleged that this was fraudulent and in bad faith, and that Latinfood’s claimed specimens were in fact Industria products. Latinfood’s Zenú registration has been cited by examiners under 2(d) in Office Actions blocking Industria’s applications, allegedly preventing it from offering its goods for sale in the US under the Zenú mark.  (It’s legal to sell stuff without registering the marks, but I see why there’s a problem.) In 2014, Industria began a cancellation proceeding before the TTAB, which is still pending.  (One suspects that Belmora played a role in encouraging Industria to move to litigation.) 

A similar story can be told for the Ranchera mark, though Latinfood’s application for registration was ultimately denied by the PTO because of a third-party registration. However, Latinfood is allegedly still selling products bearing the mark.

Industria further alleged that the Latinfood product labels falsely suggested affiliation with Industria’s business in Colombia, for example by identifying the company as “Zenu Products US Inc.” instead of Latinfood, suggesting that it’s a US-based Industria affiliate. The labels also include a “linea de exportation” designation, meaning “export line” in English, further implying “that Latinfood products are produced outside of the United States, much like [Industria]’s products from Colombia would be.” Latinfood products are allegedly often “featured in the import/foreign sections of the groceries in which they are sold and are sold alongside products from other Latin American companies.”  Latinfood sales representatives allegedly advised store owners that Latinfood has full rights to the distribution of ZENÚ- and RANCHERA-marked products, misleading them into believing that they’re dealing with Industria.  The suggestion that the products are imported was allegedly also false because a majority of the goods were manufactured and labeled in the US. 

In addition, www.zenu.us.com was allegedly “confusingly similar” to Industria’s www.zenu.com.co, and described Latinfood’s products as being part of “una deliciosa tradición,” suggesting an affiliation with Industria’s sixty year old brand.

Under Belmora, the Lanham Act claims were ok even though Industria didn’t allege its own use in commerce in the US of the Zenú and Ranchera marks.  Belmora wasn’t binding on this court, but the judge found its reasoning persuasive; there was no “use in commerce” requirement in §43(a), only the Lexmark requirement of standing to bring false advertising, trade dress infringement, and false association claims, which was sufficiently pled, even if it might ultimately be difficult to prove.  So too with the claims for cancellation of Latinfood’s registered mark for fraud.  Industria sufficiently alleged that Latinfood’s sale of allegedly “sub-par and noninspected products” harmed Industria by altering consumers’ estimation of products using the mark and damaging its reputation.  Proximate cause was sufficiently alleged by allegations that Latinfood targeted Colombians and other consumers familiar with Industria’s mark, damaged Industria’s goodwill by selling subpar/different products, and foreclosed Industria’s registration and use of the Zenú mark in the United States.

Separately, the court specifically rejected any attempt to impose any more rigorous pleading standard on a Lanham Act false advertising claim than Iqbal/Twombly requires.  A 1985 case in the Third Circuit was probably no longer good law.  But regardless of the standard, Industria satisfied it. Industria’s allegations about Latinfood’s use of “Zenu Products US Inc.,” its use of www.zenu.us.com, its labeling of its products as imported and representations to have an exclusive distribution and importing rights agreement with a major product manufacturer from Colombia, and its allegedly false importation labels for food from manufacturers in the United States sufficed to state a claim.

The court also held that the IAC creates private rights of action.  Though there is a presumption that treaties, even those labeled as “self-executing,” do not create private rights, the Supreme Court has already held that the IAC is self-executing, and the court proceeded to examine the terms of the treaty itself, which “was the culmination of the efforts of many years to secure the cooperation of the American States in uniform trade mark protection.”  Beneficiaries under the Convention are defined as (1) nationals of contracting states, and (2) domiciled foreigners who own a manufacturing or commercial establishment or an agricultural development in any of the contracting states. The language of the IAC strongly supported the conclusion that it was intended to create private rights to those benefited parties.  Even if knowledge of the other mark were a required element under the IAC, which was not supported by any authority, Industria sufficiently alleged such knowledge.

Latinfood also made a number of arguments about the interplay between the IAC and Section 44 of the Lanham Act.  In particular, the last clause in Article 7 of the IAC says “the opposer may claim for himself the preferential right to use such mark in the country where the opposition is made or priority to register or deposit it in such country, upon compliance with the requirements established by the domestic legislation in such country and by this Convention” (emphasis added).  Latinfood argued that Industria couldn’t bring an Article 7 claim because it didn’t comply with §44(b) and (d).  However, international treaties “may grant rights broader than those granted by domestic law, including the Lanham Act. Contrariwise, Section 44(d) is not the only potentially applicable section of the Lanham Act.”  In addition, Section 44(h) of the Lanham Act limited remedies to those “appropriate in repressing acts of unfair competition,” and Latinfood argued that Industria’s claims didn’t fall within Chapter IV of the IAC, which is the Chapter devoted to “Repression of Unfair Competition.” “The resolution of these Section 44 issues will depend on the development of the facts and the precise contours of the overlapping (or not overlapping) claims under U.S. law and the treaty. This case is going forward in any event. These may turn out to be redundant claims, alternative claims, or supplementary claims; it simply is not clear at present.” 

Another IP plaintiff fails to show irreparable harm (false advertising/trade secret)

Impax Media Inc. v. Northeast Advertising Corp., No. 17 Civ. 8272, 2018 WL 358284 (S.D.N.Y. Jan. 10, 2018)

Impax, which provides digital video screens that show ads (mostly in supermarkets), sought to enjoin defendants (AdCorp) from competing with Impax by installing or contracting to install new digital signage platforms at supermarket checkout counters during the term of the parties’ Commission Sales Agreement in the northeastern United States and Washington D.C. AdCorp pays supermarkets and other venues to permit the installation of digital and print advertising platforms.  

Impax initially talked to AdCorp about providing services in the northeast, especially for introductions to supermarkets with which AdCorp had relationships, including Wakefern, a large grocery store cooperative.  AdCorp told Impax that AdCorp would pitch Wakefern on Impax, but then Wakefern terminated its discussions with Impax, and Impax learned that Wakefern had entered into an agreement to have AdCorp install AdCorp’s own digital signage. AdCorp then told Impax that it would limit digital media screen sales going forward, focus on print advertising, and would continue to serve as Impax’s exclusive agent for the sale of local advertising.   The parties then executed a Commission Sales Agreement granting AdCorp an exclusive right to sell ads on Impax’s behalf in the relevant territory for 3 years.  AdCorp promised to use its best efforts to sell ads, in return for a commission.  The agreement also covered Impax’s trade secrets.  Before the agreement was signed, the phrase that Adcorp “may not sell Advertising under his own or any other name” was removed, and a statement that AdCorp was “mandated” to sell 15-second ads was changed to “allowed.” An addendum allowed Impax to sell local ads in the territory.  In 2017, Impax began to develop a relationship with Foodtown, a large supermarket cooperative, then found that Foodtown had decided to install AdCorp digital screens at its checkout counters.

Impax sued for false advertising and related claims.  The court addressed only the issue of irreparable harm, finding it wanting. Impax argued that it “faces the very real possibility of losing the benefit of two years of hard work developing its product and its market opportunity and being driven out of this market altogether.”  Impax argued that it had identified “strategic gaps and opportunities in the U.S. market for digital signage and advertising at supermarkets,” and AdCorp’s alleged misappropriation of its information would keep it from effectively marketing its own platform, losing out on incalculable future profits.

However, Impax didn’t show evidence of potential clients with whom Impax was currently contracted, in talks with, or even planning to negotiate, and the sum of whose potential business revenue was incalculable. Impax’s claim was “even more speculative because of [its] own admission that its digital platform program is in its ‘infancy.’” It was speculative to claim, without more evidence, that Impax would have to drop out of the market.  The misappropriation also didn’t threaten irreparable harm because AdCorp wasn’t threatening to disseminate Impax’s trade secrets, only to use them; no presumption of irreparable harm was warranted because “damages will often provide a complete remedy for such an injury.”

Industria de Alimentos Zenú 

There's only one master of The Commodores: the group itself

Commodores Entertainment Corp. v. McClary, 2018 WL 327302, No. 16-15794 (11^th Cir. Jan. 9, 2018)

McClary was an original member of the award-winning Commodores, but, by his own admission, he “split from the band” in 1984 to strike out on his own in the world of music. He later formed a musical group that performed as “The 2014 Commodores” and “The Commodores Featuring Thomas McClary.” CEC, a corporation run by two original Commodores who remain active with the group, found out about McClary’s group, sued for trademark infringement, trademark dilution, passing off, false advertising, and unfair competition. The court of appeals affirmed a permanent injunction against McClary, who left behind his common-law rights to the marks when he left the band.

The original members of the Commodores “are generally regarded as William King, Ronald LaPread, Thomas McClary, Walter Orange, Lionel Richie, and Milan Williams,” who formed a general partnership with their manager in 1978. The agreement said: “Upon the death or withdrawal of less than a majority of the Partners, the remaining majority of the Partners shall continue to have the right to use the name THE COMMODORES for any purpose.”  Its agreement with Motown Records also restricted use of the name: band members could perform as “sidemen” for other artists and groups, but “in no event” could they use the name “Commodores” in connection with that engagement.  Richie left the group and the manager passed away.  A revised 1984 agreement stated: “Upon the death or withdrawal of less than a majority of the Partners, the remaining majority of the Partners shall continue to have the right to use the Group Name for any purpose.”  Later that year, McClary “split from the band” to pursue his own solo career. J.D. Nicholas joined the group, while LaPread and Williams departed from the group, leaving King and Orange as the only remaining original members. At some point, King and Orange transferred their common-law trademark rights in The Commodores’ name and logo to plaintiff CEC, which registered four COMMODORES trademarks in 2001.

In 2009, McClary performed with Richie and LaPread at the Superdome in New Orleans. McClary’s wife sent an email advertising the show as a Commodores reunion, and CEC objected. In 2010, McClary was asked to fill in as a guitar player when The Commodores’ regular guitar player became ill. McClary appeared with The Commodores two or three times and signed autographs with The Commodores’ members. In 2013, McClary formed the group “Commodores Featuring Thomas McClary.” His group began performing under the names “Commodores Featuring Thomas McClary” and “The 2014 Commodores,” and he scheduled a performance at a New York venue on July 6, 2014. On June 5, 2014, a friend called King to ask about the performance, thinking that it was an official Commodores show. King and Orange’s manager contacted the executive director of the venue, who said he thought he had booked the Grammy Award–winning Commodores—not a tribute or cover band featuring a former member.  (McClary had no involvement in the single that won the Grammy.)  A few days later, McClary’s wife sent a C&D claiming that McClary’s band name constituted fair use and asserted that CEC was interfering with McClary’s ongoing business relationships.

The district court enjoined McClary from “using any of the Marks at issue in a manner other than fair use, including performing under the name ‘The Commodores featuring Thomas McClary’ or ‘The 2014 Commodores’ ” based on the trademark infringement claim. The district court clarified that the injunction covered upcoming extraterritorial performances in the United Kingdom and Switzerland because use of the marks overseas would have a substantial and negative impact on CEC.

The court of appeals agreed with the district court that McClary walked away from his common law rights to the marks when he left the band in 1984.  Those rights remained with the group, then were validly assigned to CEC.

McClary offered the testimony of an attorney, Wolfe, on the validity and value of the marks, the goodwill associated with the marks, the validity of the assignment to CEC, the difference between statutory and common-law trademarks, and whether CEC breached duties owed to its shareholders.  After reviewing Wolfe’s report and hearing his testimony outside the presence of the jury, the district court excluded the testimony entirely, and the court of appeals found no abuse of discretion.  Wolfe’s expert was “replete with legal opinion,” offering the legal view that the original members “owned the underlying marks jointly as tenants in common, owning an undivided interest in the totality of the partnership assets” and similar legal conclusions, invading the court’s exclusive prerogative to determine the law.  His proposed trial testimony was no better: he said, inter alia, that a hiatus from a band is not enough to relinquish ownership in the band; and that “[t]here are multiple ways in which an owner of a mark can continue to participate and exploit that mark even though they may not be standing up on stage and performing.”  Opinions on music industry customs and norms weren’t offered in his expert report and he was also properly excluded from discussing those topics.  Although an attorney was allowed to testify for CEC, he was offered as a fact witness who testified about McClary’s interactions with the group, the letter he received from McClary, and whether any group member had formally voided his shares in the corporation.

There were no contested facts that would lead a reasonable juror to say that McClary should properly be termed the legal owner of the trademarks and allowed to use them to identify the source of his separate services.  The court of appeals found two distinct but reinforcing reasons for this: “First, the common-law trademark rights were initially jointly owned, could not be divided for simultaneous use by multiple independent parties, and remained in the group continually known as ‘The Commodores.’” Second, the parties’ various contractual agreements “confirm the group members contemplated that the marks were to be jointly but not severally owned and, in addition, that a member leaving the group would cease using the group’s name as an identifier.”

The court of appeals reasoned that, once trademark meaning was established, the original group, including McClary, had common-law rights to the marks.  But ownership was joint—leaving was like dying in a joint tenancy; McClary carried no rights with him when he left. “[O]wnership of the marks began in, remained in, and could not be divided from the group, as opposed to its individual members.” King and Orange were the only original members of “The Commodores” who maintained continuity with the performing group since McClary’s departure, and that group continued to perform as “The Commodores” in the years after he left.  McClary lacked control over that group.  Though he performed with The Commodores in 2010, there was no evidence that at he was being invited to rejoin the group as a permanent or otherwise ongoing member; instead he performed “with The Commodores.” “Even if the evidence could support a finding that McClary rejoined the group—and in no way does it afford that inference—it could not support the conclusion that McClary should be able to use the group’s name while performing separately from the group.”  Collecting royalties didn’t indicate that McClary retained rights to the marks, because he only collected royalties for the songs he wrote with the band before his departure; if anything, that temporal distinction supported the contention that he no longer had rights in the marks.

Even if McClary never formally left the partnership, none of the relevant agreements allowed him the right to use the marks in connection with his own musical performances.  That isn’t meant to diminish his contribution or that of other founding members.  Lionel Richie said that he would “always be a Commodore,” but when asked if he “identif[ied] with being in the group now,” he said he didn’t. “While an individual might identify with a name, he still might not have the right to use that name to identify himself in commerce.”

McClary argued that the injunction was overbroad because it prevented him from “hold[ing] himself and his music out to the public in an historically accurate way.” But CEC didn’t object to McClary billing himself as “Thomas McClary, founder of The Commodores” and other fair uses.  They objected to names like “The 2014 Commodores” or “The Commodores featuring Thomas McClary.” Thus, McClary “could either perform under a different band name without causing any confusion, or, to uphold his notoriety as a Commodore, he could make fair use of the Marks.”  The court of appeals declined to further enumerate which fair uses would be appropriate; that would be an advisory opinion.

Nor was the injunction overbroad because of its extraterritorial reach. The parties were citizens of the US; McClary’s booking agent operated from the US; and “use of the marks extraterritorially w[ould] have an effect on CEC, a United States corporation.” And “given the actual confusion that was experienced in the United States in connection with the New York performance, it is likely that McClary’s use of the marks abroad would create confusion both abroad and in the United States.” Though this was a closer question, there was no interference with the sovereignty of other countries because McClary didn’t have final approval for registrations in other countries, even though McClary’s corporation filed for a CTM in the EU, and OHIM denied CEC’s opposition. CEC appealed the denial of its opposition, so the opposition hadn’t yet been “rejected by a definitive decision,” and no CTM had yet issued.

McClary also argued the federal registrations of the marks were fraudulent and defective. But this had no relevance to the common-law rights to the marks. And it was wrong anyway: McClary’s claims of fraud failed for want of any evidence that CEC knowingly made false representations of fact; his burden was to show fraud by clear and convincing evidence.  Nor did challenges to the stated dates of first use and first use in commerce matter. “A misstatement of the date of first use in the application is not fatal to the securing of a valid registration as long as there has been valid use of the mark prior to the filing date.”

Finally, McClary’s laches defense failed. He claimed to have used the marks with CEC’s knowledge since 1984, but offered no facts or details about any use between 1984 and 2010.  In May 2009, when McClary’s wife sent a blast email advertising a Commodores reunion, CEC promptly sent a C&D to which McClary never responded. When CEC learned about of McClary’s “The 2014 Commodores” or “The Commodores Featuring Thomas McClary,” CEC promptly filed suit two months later. Moreover, McClary didn’t show prejudice from any delay. 

"I'm your lawyer" might be false advertising when lawyer's firm won't do the work

Rosenbaum & Assoc., P.C. v. Morgan & Morgan, 2018 WL 327167, No. 17-4250 (E.D. Pa. Jan. 8, 2018)

A Philadelphia personal injury law firm that advertises extensively on TV and billboards alleged that a national personal injury law firm’s expansion into Philadelphia caused it to lose potential personal injury clients through TV and billboard ads when the national law firm didn’t, and never intends to, represent Pennsylvania personal injury clients. Instead, it allegedly referred all or a vast majority of potential local clients to other law firms in exchange for a referral fee if the client eventually recovers.  The court allowed plaintiffs to proceed against the national firm, its managing global partner and (for one statement) the national firm’s senior partner for four possibly false, deceptive or misleading statements in TV commercials.   In one TV ad, John Morgan, a founding Morgan & Morgan attorney, states “I’m not just any lawyer, I’m your lawyer,” though he’s not licensed in Pennsylvania.  Another ad says “we’re all here for you,” and, “our family is here for your family.” In addition, an ad says “you don’t pay us unless we’re successful.” Although this is true, Rosenbaum argued that it could be deceptive because it suggests Morgan & Morgan needs to be successful when, in fact, Morgan & Morgan has no role in the success.  Ads used to include a written disclaimer claiming not to be “a referral service.” After the lawsuit was filed, Morgan & Morgan revised this disclaimer to remove that statement and add “Cases may be referred to and handled by another law firm as co-counsel.”

The complaint stated a plausible claim that “I’m your lawyer” was misleading or literally false because it could deceive Pennsylvania consumers into believing John Morgan would personally represent then when in reality he wouldn’t represent, and arguably couldn’t represent, them in a Pennsylvania personal injury matter. Unidentified members of the Morgan family also appeared in a television ad and a voice states “We’re all here for you” and “Our family is here for your family.” This also plausibly stated a claim for misleading or literally false advertisingbecause Morgan & Morgan didn’t employ attorneys licensed to practice in Pennsylvania and the members of the Morgan family appearing in the advertisement allegedly weren’t licensed to practice in Pennsylvania and didn’t intend to ever represent clients in the Philadelphia area.

“You don’t pay us unless we’re successful”: Similarly, this could be misleading or literally false insofar as Morgan & Morgan would never represent the clients in the Philadelphia area, meaning a client could never owe fees to Morgan & Morgan because Morgan & Morgan could never be successful. [This seems to be necessary implication: the necessary implication of "unless" is that "we might be successful" and further "it will be 'we' representing you."] “Not a referral service” and the revised disclaimer “may be referred to and handled by another firm as co-counsel”: Morgan & Morgan argued Rosenbaum couldn’t claim to be a “referral service” without implicating Pennsylvania Rule of Professional Conduct 7.2(k), but there’s an absence of authority defining referral service. The comments to Rule 7.2 (k) say that it’s “misleading to the public for a lawyer or law firm, with knowledge that the lawyer or law firm will not be handling a majority of the cases attracted by advertising, to nonetheless advertise for those cases only to refer the cases to another lawyer whom the client did not initially contact.”  Because this question “involves both a fact investigation of the extent of these referrals as opposed to retained matters and eventually a determination of whether telling potential clients of your interest in being their lawyer when, in fact, you do not intend to be their lawyer is unfair competition,” it couldn’t be resolved at the motion to dismiss stage.

Rosenbaum also pled a claim against individual attorneys who allegedly “authorized and approved the acts of unfair competition,” and as to which he alleged “some specific role in the statements which equate to unfair competition,” whereas merely being a senior officer of the advertiser wasn’t enough.  Being a spokesperson in the ad, unsurprisingly, was enough.  So was the allegation that the global managing partner “approved” and “authorized” the advertisements to be shown in the Philadelphia area.  Other named defendants, however, weren’t sufficiently alleged to be personally involved, even if they were Morgan family members who appeared in an ad; the “family” statements were made by voiceover and it wasn’t clear who said it.  Appearing in a commercial where an alleged misrepresentation is also stated “without more detail is not sufficient to show they ‘actively participated in or personally directed or actively supervised or approved of or sanctioned’” the allegedly false ads.

Finding of willful infringement still doesn't merit injunction under Herb Reed

A.C.T. Prods., Inc. v. W.S. Indus., Inc., No. 16-0476, 2017 WL 4708152 (C.D. Cal. Jul. 14, 2017)

Herb Reed strikes again.  The jury found that defendant had engaged in willful trademark infringement and false advertising, but also that the four-year statute of limitations had run. The court found that there was sufficient evidence before the jury to so hold, because of evidence that the defendant was infringing before the limitations period by being willfully blind to infringement: it was aware that it was buying the products at issue from a manufacturer that did not own the mark.

The plaintiff argued that the jury’s findings were irreconcilably inconsistent, but that wasn’t the case. It was possible to reconcile the jury’s conclusion as to liability with the factual finding establishing the affirmative defense because there was evidence that willful infringement and advertising occurred only from 2010 to 2011.  Once the jury found that the plaintiff knew before the relevant timeframe, the court could conform the determination of liability to the factual finding.

In addition, a permanent injunction was unwarranted, because the plaintiff didn’t show irreparable injury.   The plaintiff argued that the infringement (1) damaged its reputation and goodwill because its witness testified during trial that its customers called to complain about the defendant’s inferior goods that they thought were manufactured by the plaintiff; and (2) caused the loss of business opportunities because the parties competed.  Economic injury won’t suffice to show irreparable harm, but intangible injury like loss of customers or damage to a party’s goodwill can do so, as can lost control over a business.  Here, the allegations of harm to business, goodwill, and reputation were in the past tense, and there was no evidence of continued infringement or an inclination to restart, nor any evidence of continuing customer complaints, making continuing reputational harm speculative. The jury’s finding of the affirmative defense of statute of limitations also weighed against an injunction.