Monday, October 31, 2022

Zamfir, master of the Casper blockchain protocol?

Zamfir v. CasperLabs, LLC, No. 21-CV-474 TWR (AHG), 2022 WL 14915618 (S.D. Cal. Oct. 25, 2022)

Previous discussion. Note that plaintiff loses on all claims where he has to allege damage, but for TM claims one doesn't, so his proceed.

Zamfir is a researcher in blockchain technology and adopted the name “Casper” for his blockchain consensus protocol. He alleged trademark and related claims based on CasperLabs’ use of the name.

Zamfir’s branch of research was called “CBC Casper,” currently known throughout the industry as “Casper.” He alleged that he used the CBC Casper and Casper names exclusively to promote his work to the public, and that, by 2017, he used the Casper mark in commerce in connection with distributing downloadable Casper CBC software and specifications under open-source licensing agreements in the United States. He alleged that his work on Casper has brought him attention and material rewards.

In 2018, CasperLabs asked Zamfir to collaborate on developing a new blockchain. “Zamfir entered into a Licensing Agreement with CasperLabs, granting CasperLabs limited rights in the use of his name and image to promote the collaboration in exchange for CasperLabs helping to fund Zamfir’s work on CBC Casper.” But the relationship broke down. Nonetheless, CasperLabs allegedly continued to associate CasperLabs’ Casper products and services with Zamfir and his Casper products and services.

CasperLabs registered the CASPERLABS mark in its own name. The same year, CasperLabs allegedly represented that it would register the CASPER mark on Zamfir’s behalf, but instead filed to register it in its own name for services related to cryptocurrency; one application issued in 2020 and another is still pending. Zamfir alleged that, though continued to inquire about the status of the CASPER trademark application CasperLabs represented it would file on his behalf, he didn’t learn that CasperLabs had registered the CASPER mark until early 2021.

Zamfir alleged that CasperLabs’ products would be confused with his own work, and that CasperLabs’ protocol never met Zamfir’s advertised design requirements for CBC Casper, risking his reputation and forcing him to “resolv[e] ambiguity and phras[e] communications to avoid unintentionally promoting CasperLabs, making it harder for Zamfir to market the genuine products of his research.” He alleged that he was regularly contacted by people who were confused about his affiliation with CasperLabs and that the confusion lead to difficulty securing funding for his further research/investment in CBC Casper.

Lanham Act false association/common-law unfair competition: Previously, Zamfir didn’t sufficiently allege harm, and that continued, even though he pled likely confusion. Confusion was plausible based on CasperLabs statements like “The consensus protocol is built on Vlad Zamfir’s correct-by-construction (CBC) Casper work.” “The statements in the Second Amended Complaint can be read to mean CasperLabs’ protocol not only parallels Zamfir’s CBC Casper protocol, but also meets Zamfir’s standards for the CBC Casper Protocol…. Any assertion that Zamfir’s CBC Casper is the process behind CasperLabs’ protocol would be false, as Zamfir does not believe the process implemented by CasperLabs follows CBC Casper specifications.”

To me, this highlights the serious First Amendment problems with current open-ended confusion doctrines. By the allegations, there is a historical relationship. At most, Zamfir should be able to get an additional disclaimer, not suppression of the historical story of the firm. But the court was unpersuaded “that the confusion arises from the prior relationship with Zamfir and not the use of the mark is also unpersuasive,” given the continued use of the Casper name. The court cited tweets stating that CasperLabs should try to “distinguish themselves and perhaps change their name[ ], it just confuses people” and that a consumer had seen emails from CoinList and wrote, “I am an example of how CasperLabs’ marketing material easily confused investors.” This wasn’t just from the prior relationship.

Damages: Zamfir identified: (1) having trouble seeking funding from the Ethereum Foundation and other potential investors; (2) lessening of “the marketable value of his reputation and goodwill in the industry;” and (3) being forced to let go of contractors, and thereby delay the production of promised protocols under the Casper name.” Specifically, he allege that he encountered trouble seeking funding from the Ethereum Foundation because of “industry confusion.” But this was still too conclusory and generalized.

Trademark infringement under state and federal law: Still sufficiently pled. Zamfir has the burden of rebutting the presumption of ownership conferred by CasperLabs’ registered mark, but that burden can be met by showing that the registrant had not established valid ownership rights in the mark at the time of registration. Even if he wasn’t using Casper as the name of his consulting service, he might have made trademark use or analogous use sufficient to generate public association, given that he allegedly named his formal specification CBC Casper and provided consulting services in relation to it. “This is not a case where the trademark bears ‘no reference to, or association with’ the consulting service at issue; rather, Zamfir’s use of CASPER is in direct connection to the service he is providing.”

Zamfir also sought to cancel CasperLabs’ trademark registrations and sufficiently pled that under 2(d). He didn’t sufficiently plead fraud based on alleged misrepresentations that CasperLabs would register Casper for him. He pled falsity, but didn’t sufficiently plead harm. On falsity, a promise to apply for a registration on Zamfir’s behalf is not puffery because it’s capable of objective verification. He also adequately alleged reliance on the statement that CasperLabs was “trying to get [the] Casper trademark [registration] set up and done for CoorTech.” Adding further support to Zamfir’s reliance, CasperLabs allegedly assured Zamfir “that [it] would not use the CASPER mark to refer to [its] blockchain and/or blockchain token.” That was sufficient to be the basis of reliance.

But his claimed damage—that he didn’t seek his own registration—wasn’t enough to be sufficent harm. The court was, however, unimpressed by CasperLabs’ argument that the promise was futile because any transfer to Zamfir would have failed as an assignment in gross, because there could have been an assignment of the registration + underlying business to fulfill the promise, and anyway the harm was also that Zamfir didn’t seek his own registration. Moreover, “CasperLabs’ argument is especially questionable because its General Counsel … a member of the California bar, asserted that the trademark would be registered and transferred, and that … another attorney, was ‘handling’ this registration. Even if obtaining a trademark on Zamfir’s or CoorTech’s behalf would be invalid, it would be reasonable for Zamfir to expect that [the lawyers] would be privy to that information and would not promise a legal impossibility.”

California UCL based on the 43(a) claim: Failed for want of sufficient connection to California and want of injury. Zamfir is a Canadian resident, though CasperLabs’ principal place of business is in California. Still, that wasn’t enough to presume that the falsity originated from California; Zamfir didn’t allege conduct occurring in California. He also didn’t allege lost money or property, as required under the UCL. While numerous courts have held that the “[d]evaluation of ... intellectual property or intangible business assets is sufficient to meet the injury requirements under § 17200,” Zamfir offered no non-conclusory allegation that the value of the his Casper service had decreased.

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