Thursday, September 16, 2021

AAA's expansion to home security derailed by trademark

AAA Alarm & Security Inc. v. A3 Smart Home LP, 2021 WL 3857417, No. CV-21-00321-PHX-GMS (D. Ariz. Aug. 30, 2021)

Another expansion case, like the ones Uber has had. AAA Alarm began in 1985, serving over 8000 customers across Arizona and spending nearly $200,000 since 2014. In late 2019, AAA Alarm began receiving “communications from people who believed they were AAA Alarm & Security customers, but who were actually customers of Defendant.” AAA Alarm documented over 200 instances, as well as mailed documents and emails directed to A3, including “three unemployment insurance notices from the Arizona Department of Economic Security, a request from a fiduciary to modify the terms of her ward’s service, checks and cancellation notices addressed to Defendant from its customers, and alarm permits from the City of Phoenix,” as well as false alarm notices from government entities. 

The American Automobile Association of Northern California, Nevada, and Utah (that is, the best known AAA) acquired an Arizona security business, SAFE Security, in late 2018 and changed its name to A3 Smart Home LP. It began operating under the brands “AAA Smart Home” and “AAA Smart Business.” A3 Smart Home has approximately 20,000 customers in Arizona.

Who owned AAA for security services? The court found that AAA Alarm had priority, mostly skipping over secondary meaning. A3’s claim that security services were within AAA’s natural zone of expansion was too broad:

Defendant’s assertion that it holds seniority over any service related to security, safety, and the home, stretches this confusion analysis to breaking point. Indeed, if the American Automobile Association were permitted to claim seniority in the AAA mark over any product or service in such broad categories of business, it could protect the AAA mark in potentially unlimited markets. Defendant entered the Arizona alarm and security market over 30 years after Plaintiff by purchasing a customer base in an industry it had not previously occupied.

AAA Alarm made sufficient use over this period, with over 3000 current customers. “This use is sufficiently public so as to identify the mark in an appropriate segment of the public mind.”

With that out of the way, the multifactor confusion test clearly favored AAA Alarm, despite the expense of the services. Surprisingly to me, the court found “AAA” arbitrary “because there is no fundamental connection between the letters and security services, and the letters offer no description of the products they are associated with.” I would have thought that the standard meaning “first” (or at least “first in the phone book”) made AAA descriptive. But once conceptual strength was set, the court pointed to the history of AAA Alarm’s advertising and present expenses of over $5000 a year on search engine optimization. “These advertising expenditures and the arbitrary nature of the mark support a finding that the mark is strong enough to be protectable.” In a reverse confusion case, “[t]he relative obscurity of Plaintiff as a small business does not undermine this conclusion.”

Along with the actual confusion evidence noted above, AAA Alarm showed “at least one critical customer evaluation posted on the web concerning Plaintiff that was actually intended for Defendants.” Although a few misdirected letters may not be relevant confusion that affects consumers’ purchasing decisions, “confusion is not limited to evidence of diverted customers.” “And Plaintiff demonstrated at the hearing that the first result for a search for ‘AAA Alarm & Security,’ Plaintiff’s name, is an advertisement for Defendant’s services.”

Irreparable harm was also shown. “Defendant’s use of the AAA mark could continue to confuse consumers and diminish the distinctiveness of Plaintiff’s brand, thereby preventing Plaintiff from controlling its reputation. Plaintiff presented evidence that personal referrals are a significant portion of its business.” The likelihood of confusion was itself irreparable harm, even without considering the TMA’s statutory presumption. (Comment: In the 9th Circuit, that’s clearly wrong about pre-TMA law, but it hardly matters except to suggest that many courts were already desirous of collapsing confusion and harm as inquiries.)

Given that “Defendant entered a market with an existing smaller business using their desired mark, and either declined to investigate or chose to ignore Plaintiff’s presence,” the court set a $20,000 bond for the preliminary injunction.

No comments: