Tuesday, January 30, 2018

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.

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