Thursday, February 22, 2018

The other Redbox case: the color may fade, but not the mark

Redbox Automated Retail, LLC v. Xpress Retail LLC, 2018 WL 950098, No. 17 C 5596 (N.D. Ill. Feb. 20, 2018)

Redbox sued defendant DVDXpress alleging trademark infringement and false advertising; DVDXpress moved to dismiss and asserted counterclaims/affirmative defenses, some of which the court here rejects. The parties compete in the market for DVD rental services through automated vending machines called kiosks. Redbox has registered trademarks for its word mark and for the kiosks’ red color scheme.

Redbox alleged that DVDXpress recently began using kiosks that are entirely red in color, making them confusingly similar to Redbox’s kiosks. Redbox also alleged infringement from DVDXPress’s use the term “redbox” in the metadata for its website in order to capture searches for Redbox.  [Practice note: this use of metadata is probably useless and though it’s unlikely to be confusing in practice, the case law here is terrible. It is thus risky to use another’s trademark in metadata, though the court here does better than most (while conflating descriptive and nominative fair use).]  Finally, Redbox alleged that DVDXpress falsely advertises that customers can rent movies through DVDXpress twenty-eight days before the same movies become available through Redbox.
DVDXpress counterclaimed for tortious interference with its contractual relationship with Weis Markets, which signed a DVD Rental Kiosk Agreement with DVDXpress in July 2017 and accordingly asked Redbox to remove its kiosks, but four days after Redbox filed this suit, Redbox indicated that it wouldn’t remove its kiosks “on Weis’s requested schedule.” Redbox removed the last of its kiosks from Weis’s stores in late October 2017, after DVDXpress filed its counterclaim.

The counterclaim plausibly alleged that the continued presence of Redbox’s kiosks at Weis’s stores through late October caused Weis to breach the contract for exclusive kiosk provision or made it impossible for DVDXpress to perform by taking up the places for kiosks in the stores.  Delay, rather than total noncompliance, can be just as malicious as outright refusal to act.  Given that Redbox informed Weis that Redbox was seeking an injunction against DVDXpress and “would be concerned if more red DVDXpress kiosks began to appear in the marketplace,” it was plausible that the delay stemmed not from some independent logistical difficulty, but rather from Redbox’s illegitimate “desire to stop (or at least slow) the expansion of DVDXpress’s business.”

Acquiescence as an affirmative defense: According to DVDXpress, Redbox has been aware since 2002 of DVDXpress’s use of the color red on its kiosks, and in 2007, DVDXpress and Redbox were temporarily merged under then-parent company Coinstar, Inc. “One can reasonably infer that, while the two companies were merged, Redbox affirmatively approved DVDXpress’s use of the red color scheme on its kiosks. That plausible scenario is sufficient for the acquiescence defense to survive at the pleading stage.”

Fair use as an affirmative defense: “It is plausible that, when DVDXpress included the term ‘redbox’ in the metadata for its website, it did so ‘fairly and in good faith … to describe’ its own kiosks.”

Unclean hands: DVDXpress that Redbox deceptively advertised “no late fees” and Blu-Ray quality discs, and falsely advertised that certain DVDs would be available at Redbox kiosks on their release dates.  Unclean hands has to relate to the matter in which the claimant seeks relief: if the claimant’s right wasn’t the result of the alleged wrongdoing, then it’s unrelated to the litigation’s subject matter. Also, unclean hands “is disfavored where a plaintiff seeks to enforce laws, such as a false advertising prohibition, that protect the public,” especially where the defendant could challenge the plaintiff’s conduct through a counterclaim or separate suit. Here, the alleged misstatements had nothing to do with Redbox’s allegations; even Redbox’s own allegedly false ads about availability didn’t “help Redbox acquire the right (to enjoin DVDXpress’s assertions that its kiosks have certain movies twenty-eight days before Redbox) that it seeks to enforce here.”  A few courts have allowed the defense in similar circumstances, but the court here found that the “obvious hypocrisy in one company suing a competitor for doing the very same thing it did in the past (and got away with) … does not warrant denying an otherwise merited injunction or other relief, especially when the relief would end a deceptive practice that is harmful to the public.”

DVDXpress also asserted an abandonment defense, alleging only that “Redbox has discontinued its use of the color red on its kiosks in the ordinary course of business, at least, with regard to certain locations, namely at Walmart retail stores,” and that “Redbox has allowed a number of their kiosks to fade to a color that could better be described as pink.” That’s not enough to suggest discontinuance of red, and the court struck the defense.

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