Thursday, August 19, 2021

43(a)(1)(A) claims are hard to win against a TM registrant

Zamfir v. CasperLabs, LLC, 2021 WL 1164985, No. 21cv474-GPC(AHG) (S.D. Cal. Mar. 26, 2021)

Zamfir is a researcher in the field of cryptoeconomics and distributed systems; he and Vitalik Buterin are allegedly the two lead researchers of the proof-of-stake blockchain protocols known as Casper (name adopted around 2015). Zamfir’s branch of this research, carried out in the US, became known as “CBC Casper,” aka “Casper.”

CasperLabs was founded in October 2018 under that name. The parties soon discussed collaborating on the research and development of a new blockchain adopting a version of Plaintiff’s CBC Casper PoS protocol. Though they entered into a limited agreement, Zamfir alleged that that soon after he began working with CasperLabs, he became concerned that it was misappropriating his name and leveraging his reputation to mislead investors. Their agreements terminated in late 2019.

By August 2020, CasperLabs had begun referring to its blockchain protocol and forthcoming token as “Casper.” According to CasperLabs, Zamfir was well-aware of its intent to use the Casper name as early as June 2019. It filed an application to register CASPER as a trademark in connection with blockchain technology; the registration issued in November 2020. Zamfir alleged that CasperLabs had agreed to register the marks on his behalf and to transfer the marks to him, but didn’t do so; CasperLabs denied any such agreement. Zamfir alleged that the resulting confusion harmed his reputation, made it more difficult to market the genuine products of his research, and gave the false impression that his research is being financed by a relationship with CasperLabs, which made it harder for him to secure sponsorship. CasperLabs, meanwhile, alleged that “Casper” and “CasperLabs” had become widely recognized on social media to refer to its network.

Without assessing whether Zamfir owned any valid interest, reasoning that ownership of a valid mark is not a requirement under §43(a), the court jumped straight to the Sleekcraft factors. [This is the worst of both worlds from an unfair competition perspective: plaintiffs neither have to show that they have a mark nor are they bound by the extra proof requirements that used to apply for unfair competition claims, like intent and real harm.]

(1) The marks were identical. (2) Though they didn’t compete, the marks were both used in connection with blockchain tech and “the fact that Defendant’s product purportedly built on the CBC Casper protocol confirms that consumers may see the ‘products’—Plaintiff’s research and Defendant’s token and network—as related.” (3) Actual confusion: Zamfir submitted evidence from an online forum and a newspaper article “suggesting that some in the blockchain community mistakenly believe he is associated with Defendant’s network and token launch.” But some of that confusion might stem from the fact that he was associated with it in the past.

(4) Strength: Casper is conceptually strong, but Zamfir didn’t clearly show “either that he has used the mark in a commercial manner, or that the mark is strongly associated with him among potential cryptocurrency consumers, which may be broader than those who are familiar with the underlying technology.”

(5) Intent: could go either way. Though it apparently chose Casper to suggest association with the CBC Casper protocol, it used that name throughout its working relationship with Zamfir without objection and “it is difficult for the Court to conclude, based on the sparse record regarding the purported agreement, that Defendant agreed to transfer the trademark to Plaintiff without any expectation that it would retain any right to use the Casper name at all.”

So Zamfir didn’t show likely success on the merits.

Then and only then, somewhat puzzlingly, the court proceeded to analyze whether Zamfir had a protectable interest; he didn’t need to use a mark in US commerce to bring a §43(a) claim, following Belmora, but he might not be able to prevail if CasperLabs had a valid registration. The registration was prima facie evidence of the registrant’s right to use the mark, and “a party using a mark that they are lawfully permitted to use cannot make a false designation by using that mark in a permitted manner.” Thus, to prevail, Zamfir would need to rebut the presumptions created by the registration, and he didn’t.

At the very least, the existence of the registration “would factor into the likelihood of confusion” by “weaken[ing] the commercial strength of the mark in connection to Plaintiff” [what] and complicating the question of intent.

“Ultimately, given the Lanham Act’s intent to provide some modest protections to holders of registered trademarks, the Court finds that Plaintiff would only be likely to succeed on his false designation of origin claim were he to overcome Defendant’s prima facie evidence that it has the right to use the mark, whether by showing that the mark was fraudulently registered, that Plaintiff is the owner of the mark, or otherwise demonstrating the trademark registration is invalid or that Defendant lacks the right to use the trademark.”

Without likely success on the merits, Zamfir wasn’t entitled to a presumption of irreparable harm, and he couldn’t show such harm using the sliding scale approach that applies when there are “serious questions” on the merits (to which Herb Reed still applies even after the TMA). “A plaintiff must present case-specific evidence of irreparable harm, rather than relying on generic factors that are present whenever a trademark is infringed.” Comments indicating confusion did little to “demonstrate any actual or threatened damage to his business reputation, difficulty marketing the products of his research, or difficulty securing sponsoring for his research.” Given the duration of the use, he should have been able to come up with some extrinsic evidence if it existed. “Although the question is close [why?], the Court is doubtful that Plaintiff’s declaration alone, generally alluding to potential reputational effects, suffices to establish that he will experience irreparable harm absent an injunction.” Plus, he delayed seeking an injunction until less than a week before the network launch and its token sale were set to begin, even though he knew about it for at least seven months.

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