IPO PTO Day: the new gTLDs and you

Intellectual Property Owners Education Foundation PTO Day

The New gTLD Launch

Moderator: Wendy Larson, Pirkey Barber PLLC

Mark Partridge, Partridge IP Law P.C.: ICANN approved only a few new gTLDs like .biz and .xxx, but longstanding plan to open up domain name space, detailed in 2008.  ICANN is a nonprofit corporation; operates as a multi-stakeholder model as a point of pride.  New application process is very detailed and expensive—1930 applications, $185,000 filing fee; 1409 unique strings; 1179 applications contested, 751 contested across 230 strings (751 people seeking 230 names). About 34% were .brand: .google, .prudential.  Also generics, .app, .book, etc.  Top applicants: Donuts Inc., a domain name seller; Google and Amazon.  Possible uses—security (.chase) or sold like traditional domain names.

What we expect is final evaluation by June 2013; contract negotiations in second quarter, maybe some sunrise launches.  Third quarter: likely to come online with landrush.

Lisa Ulrich, IBM: IBM applied for .ibm.  Early warnings of problems (.bible) already issued; clarifying questions are likely for everyone, and have issued for geographic names review panel.  Will have a prioritization draw next week: a lottery ticket.  Late Dec.: string similarity review results will be posted.  2013: remaining clarifying questions; background screening; initial evaluation results published in order of priority draw; objection period ends March 13, 2013.

Early warnings: 242 issued for reasons including religion, consumer protection, strings related to regulated markets (e.g., financial), geographic questions.  When the proposed string is controversial or raises national sensitivities.  Public may be able to object, including a TM owner, until March 13.

Other rights protection measures: TM clearinghouse to police TMs—provides notice to potential registrants and TM owners than an applied-for second level domain is identical to a TM in the clearinghouse.  Would allow sunrise registrations—Microsoft could register microsoft.software early, or get notified if someone else did apply for that.

New Uniform Rapid Suspension procedure: clear and convincing evidence that domain name is idnetical or confusingly ismilar to a TM in use, with no legitimate right or interest in the domain name, and used in bad faith; if complainant is successful, registry operator suspend domain name and name servers are redirected to informational page about URS.

Post delegation dispute resolution policy, PDDRP: TM owners can file a dispute against registry operation in connection with first or second level names; must prove by clear and convincing evidence that registry operator takes unfair advantage, impairs character or reputation of the mark.

Thick Whois as another protection.

Recommendations: monitor the published new applications; submit at least your most important marks to the TM clearinghouse for second-level domains—apply for second level domain.

Partridge: even if you didn’t apply, now is the time to consider your strategy. Will you want defensive registrations?  Applications for .sucks: how will your company feel about mycompany.sucks?  If that’s concerning, time to think about defensive registration in that space, meaning you need the TM clearinghouse.  Also figure out your dispute strategy: UDRP, URS, ACPA.

Susan Anthony, USPTO: Do we know how many applications were filed by brand owners who don’t intend to run a real registry?

Partridge: No; they all say they have some real intent, but some companies thought they needed to file now even if they didn’t know what they were going to do, since we don’t know when a second round would open up.  Two applications by the same company for the same domain—why?  One is closed (they’re the only one who gets it) and the other community-based (which gets priority in processing).

Larson: how many applications are closed?

David Roache-Turner, WIPO: about 500 are expected to be open, 900 closed. 84 noncommercial community; 60 different countries represented, some in non-latinate script.

Along with objections discussed above, a couple of others.  Good old UDRP, of course, will apply to all gTLDs.  UDRP continues to burble along; most complainants win (90%), but three-member panel decisions are substantially more likely to result in a denial (only 55% agree with complaint).

Legal Rights Objections: give brand owners opportunity to object to gTLD applications that conflicted with its rights—requires either registered or unregistered TMs.  Independent panel would determine whether potential use would be likely to infringe by (1) taking unfair advantage of the distinctive character or reputation of the mark; (2) unjustifiably impairs distinctive character or reputation; or (3) otherwise causes likely confusion.  Factors for consideration include similarity, public recognition, applicant’s knowledge, applicant’s rights in the string (such as preexisting TM rights), etc.  Costs $10,000 to file one, and $10,000 to file a response; the successful party can get a partial refund.

Partridge: UDRP is effective/efficient, so why something else? The concern was that there are a high level of defaults.  Multiple opportunities with new gTLDs for large numbers of cybersquatters—led to proposal for quicker, cheaper basis than UDRP, which is designed for an inter-party dispute with both sides participating.  (This explanation seems to contradict itself.)  The procedure did morph and get more complicated as it developed; its effectiveness remains to be seen.

Roache-Turner: 70% UDRP defaults. By the time URS came out of ICANN, made no provision from differentiating in procedure or substance from a default and a non-default, and that’s a problem.  We’ve been urging ICANN to look at ways to simplify the process; more complicated than UDRP and delivers a less effective remedy.

Larson: UDRP default doesn’t mean complainant inherently wins; URS rules seem to be different.

Roache-Turner: Under URS, it’s the UDRP rule.  Under LRO, default = complainant wins.

Partridge: LRO involves a respondent who has the means to defend rights if it wanted to; paid $185,000 filing fee, after all.

Anthony: The internet is not broken.  Governance has been misused; we are talking about administration and management. 

Roache-Turner: ICANN is the worst possible place to manage the internet except for the alternatives.

Anthony: also counsels against us v. them attitude: we are all ICANN.  ICANN is often in the untenable position of having to offer advice after a policy or activity has truly matured, and then we look like naysayers.

Australia has filed the most early warnings; there is no requirement that a government do so, but it’s still a good idea so that the applicant can talk to the government.

Consider the reason we did this in the first place: people wanted new gTLDs because they thought there were insufficient spaces.  We need to educate people so that they can take best advantage of the new spaces.

Governmental Advisory Committee advice.  The early warning system exists; governments can also file objections; then there’s GAC.  We’re concerned about improving the timeline in which the GAC is brought into the policy issues.  Doesn’t know what will ultimately happen, but Board will have to explain itself if it rejects GAC advice.

What protection should we grant to certain organizations at first and second levels?  Long and checkered history with Olympics, Red Cross, then IGOs.  GAC said the first two should get special protection, then recently came up with a solution to the IGO issue; .int would be a good way forward to explore what IGOs should be entitled to first and second level protection.  ICANN initiated a policy development process; TM holders hate that because it’s lengthy and we may lose at the end of the day, but it’s designed to ensure all voices are heard.  A working group has been initiated.  GAC is asking why they think there needs to be a PDP.  Should there be a reserved list of protected entities?

Hon. David Kappos, Director, USPTO

Many patent statistics; TM filing rates are up over the past few years.  Praises the performance on quality metrics.  “Exceptional Office Action”—measuring fraction of cases that don’t just meet all legal requirements but are actually perfect/comprehensive in quality of first Office action serach, evidence, writing, and decision making: FY 2012 target of 20%, results of 26.1%.  Trying to process all TM applications electronically—over 75% paperless (not just applications but the whole process).

Kappos also touted the US’s role in putting together a norm (treaty) for exceptions/limitations for the visually impaired—though the US is also leading in opposing non-text exceptions/limitations, which he didn’t mention—and in promoting a performers’ rights treaty and protection for broadcast signals (the justification for which no one has ever been able to explain to me).

4 decades of laches = permanent injunction

Via David Coale and his firm’s blog on commercial litigation in the Fifth Circuit Court of Appeals, Abraham v. Alpha Chi Omega, No. 12-10525 (5^th Cir. Dec. 6, 2012).

Abraham, who does business as Paddle Tramps Manufacturing Company, appealed the district court’s entry of a partial preliminary injunction against his use of trademarks belonging to 32 fraternity and sorority organizations; the Greek organizations cross-appealed the limitation on the injunction. (Abraham should have set up shop in the 9^th Circuit, where Job’s Daughters provides the rule.) The court affirmed.

Paddle Tramps was founded in 1961 making wooden paddles and decorations for fraternity and sorority members; it has always sold products bearing Greek organizations’ names and used their names to advertise its products. Abraham began selling by showing samples and taking orders at house visits. By the late 1960s, he was wholesaling component parts, such as wooden Greek and Roman letters and wood-carved crests, to college bookstores and craft stores for customers to asemble. He was also distributing catalogues with Greek organizations’ names and crests. He invested heavily, including rebuilding the business three times after two fires and a tornado. In 1997, he started a website, which began taking direct orders in 2001. At all times, it continued to sell almost exactly the same products it had been selling in the 1960s.

In 1990, the Greek organizations contacted him for the first time about licensing. Abraham ignored the first letter, from an entity called Greek Properties. He ignored a second letter in 1991 (which had contained an application for admission into Greek Properties, requiring him to sign a statement promising not to use any member organization’s marks or terminology without written consent). In 1992, Greek Properties sent him a brochure, but never again tried to get him to join. In 1995, Sigma Chi sent a letter threatening suit. Paddle Tramps responded that it wasn’t interested in a license since it had continuously used Sigma Chi’s name and crest on its products for 34 years without complaint. For the next 13 years, the same person who’d written on behalf of Sigma Chi periodically sent additional letters on behalf of an entity called Affinity Marketing Consultants, which represented about 70 fraternities and sororities. The letters sometimes invited Paddle Tramps to join a licensing program, sometimes ordered it to cease and desist, and sometimes threatened to sue. Paddle Tramps either ignored the letters or responded by refusing to enter into a licensing program.

In 2007, the Greek organizations in the present litigation sued Abraham for patent infringement and unfair competition in the Southern District of Florida. The Florida court dismissed the suit for improper venue. Abraham then sued in 2008 for a declaratory judgment of noninfringement; the Greek organizations counterclaimed for trademark infringement and state dilution. The district court found that Abraham infringed and diluted the marks, a finding Abraham didn’t challenge on appeal, and ordered a trial on Abraham’s affirmative defenses of laches and acquiescence. The jury’s special verdict found that Abraham proved his laches defense; that he proved acquiescence with respect to one of the Greek organizations, Pi Kappa Alpha; and that the Greek organizations didn’t prove unclean hands.

The court found that laches precluded monetary relief, but didn’t bar entry of a permanent injunction against future use of the marks. Paddle Tramps was enjoined from selling or using in advertising (1) the Greek letter combinations associated with the parties to this lawsuit; (2) the full names or nicknames associated with the parties to this lawsuit; and (3) any crest, coat of arms, seal, flag, badge, emblem, or slogan identifiable with any of the parties to this lawsuit, including copies of their crests Abraham carved out of wood. Abraham was allowed to sell and advertise decals of the crests purchased from licensed vendors, as well as “double raised crest backing,” which is carved in the shape of a given organization’s crest and to which Paddle Tramps affixes a licensed decal. (Ironically, it’s hard to imagine this being ok in the 9^th Circuit, under Au-tomotive Gold.)

The organizations’ cross-appeal claimed that the jury instructions were fatally flawed and that the laches and unclean hands findings were unsupported by sufficient evidence, because intentional infringement with bad faith intent to capitalize on the trademark owner’s goodwill lacks the clean hands necessary to assert an equitable defense. (I am having a hard time on these facts imagining any jury, however instructed, failing to find laches. Take your prospective injunction and be grateful you got away with that, guys.) Jury instructions are reviewed for abuse of discretion and even erroneous instructions only matter if they affect an outcome; the non-moving party’s evidence is credited whenever the jury wouldn’t have been required to believe evidence favorable to the moving party. The challenged instruction was:

To prevail on their claim that Mr. Abraham may not assert the laches or acquiescence defenses because he has unclean hands, the Greek Organizations must prove by a preponderance of the evidence that Mr. Abraham knowingly intended to use the Greek Organizations’ marks for the purpose of deriving benefit from the Greek Organizations’ goodwill. Unclean hands may be found only where the unlicensed user “subjectively and knowingly” intended to cause mistake or to confuse or deceive buyers. Mere awareness of a trademark owner’s claim to the same mark does not amount to having unclean hands nor establishes bad intent necessary to preclude laches and acquiescence defenses. The owner of the mark must demonstrate that at the time the unlicensed user began using the marks or sometime thereafter, said unlicensed user knowingly and intentionally did so with the bad faith intent to benefit from or capitalize on the mark owner’s goodwill.

This instruction used language from a Fifth Circuit case, which also said that “the plaintiff must offer something more than mere objective evidence to demonstrate that the defendant employed the allegedly infringing mark with the wrongful intent of capitalizing on its goodwill.”  

The Greek organizations argued that this ignored the teaching of Boston Professional Hockey that the confusion requirement is met because Paddle Tramps duplicated the marks and sold them knowing that the public would identify them as the organizations’ marks.  But Boston Professional Hockey isn’t an unclean hands case.  “If the confusion or deception required to make out a case of trademark infringement were the same as the confusion or deception required to make out an unclean hands counter-defense, then every trademark infringer would necessarily have unclean hands.”

The Greek organizations then argued that it was error to say that “mere awareness” of a trademark owner’s claim is insufficient; the court should have said that the pertinent confusion should be inferred or presumed if Abraham “intended to derive benefit from or capitalize” on the marks. This again confused the elements of infringement with unclean hands.  Evidence that gives rise to a presumption of intent to cause confusion for the purposes of infringement analysis does not give rise to a presumption that the defendant intended to appropriate the plaintiff’s goodwill.  (Of course, this distinction is entirely silly, but that’s because the Fifth Circuit’s definition of what counts as intent for purposes of infringement analysis is ridiculously overbroad.)  The district court’s instructions didn’t abuse its discretion.

Next, the organizations argued that the jury’s rejection of unclean hands was unsupported by the evidence because Abraham stated at trial that his infringing products “drive the sales” of Paddle Tramps’s other products, which they interpreted to mean that he intentionally capitalized on their goodwill.  Snack Apparel affirmed a finding of unclean hands where an apparel manufacturer “admitted that it intentionally incorporated the [trademark owner] Universities’ color schemes and other indicia in order to specifically call the Universities to the public’s mind, thus deriving a benefit from the Universities’ reputation.” But the situation was different here because Abraham’s business began before the definition of “confusion” expanded to its current ridiculous size.  Well, the court of appeals said it was different because of Abraham’s evidence “tending to show a lack of bad faith,” but look what it is:

Paddle Tramps helped to create the market for fraternity and sorority paddles decades before the Greek Organizations had a licencing program, Abraham’s intent was to service fraternities and sororities, not to capitalize on their goodwill in bad faith, the products are virtually the same today as they were in the 1960s, and Paddle Tramps never passed itself off as being sponsored or endorsed by the Greek Organizations.

Given the deferential standard of review, this evidence was legally sufficient to allow a jury to find for Abraham on the unclean hands issue. (Frankly I don’t see why it’s not more than sufficient to have granted Abraham summary judgment, but I don’t live under Boston Professional Hockey.)

Then, the Greek organizations challenged the laches finding.  Laches requires “(1) delay in asserting one’s trademark rights, (2) lack of excuse for the delay, and (3) undue prejudice to the alleged infringer caused by the delay.” The organizations argued that the jury was improperly instructed on “lack of excuse” and “undue prejudice,” and also had insufficient evidence to find each element satisfied.  The Greek organizations argued that the lack of excuse instruction should have explained that a trademark owner is excused from delay in taking action against de minimis infringements.  Governing Fifth Circuit precedent says, “Since incidental and isolated infringement may be difficult to detect and cost ineffective to halt, a plaintiff may make a conscious business decision to prosecute only those defendants who pose a threat to its mark.”  But that’s about whether laches bars a permanent injunction, not about whether laches applies.  “[I]t might not make economic sense for a trademark owner to go after de minimis infringers, but if a de minimis infringer begins to diminish the value of the mark more in the future, the trademark holder should be entitled to a permanent injunction notwithstanding the applicability of laches.”  The jury was instructed on the doctrine of progressive encroachment, which excuses delay when the unlicensed user later modifies or intensifies its use of a mark so that it starts to significantly impact the trademark owner.  Given this instruction, the district court didn’t abuse its discretion.

The organizations then argued that they had an excuse for their delay because Abraham’s infringement was always de minimis.  “Just under 2.5% of Paddle Tramps’s revenue derives from the sale of infringing products, and the average royalty owed by Paddle Tramps to each of the Greek Organizations for the past few years of infringing conduct was only $140.78 annually.”  But the evidence could support the jury’s finding, because of the creation of the website in 1997 and the sale of products directly from that site in 2001 could be considered an increase in scope, and a further delay of 6 years could support a finding of progressive encroachment.  On undue prejudice, the district court instructed:

An unlicensed user is unduly prejudiced when, in reliance on the trademark owner’s unexcused delay in filing suit, he or she makes major business investments or expansions that depend on the use of the marks; these investments and expansions would suffer appreciable loss if the marks were enforced; and this loss would not have been incurred had the trademark owner enforced his rights earlier. The amount of prejudice suffered by the unlicensed user in a given case may vary with the length of the delay; that is, the longer the period of delay, the more likely it is that undue prejudice has occurred.… [Y]ou must consider what business investments and expansions Mr. Abraham made between the time the Greek Organizations knew or should have known of his use of their marks and the time they filed suit against him.

The Greek organizations argued that the instructions should have asked whether an injunction would “destroy[] the investment in the capital,” quoting Elvis Presley Enter., Inc. v. Capece, 141 F.3d 188 (5th Cir. 1998), which held that there was no undue prejudice where changing the name of a nightclub wouldn’t destroy the investment of capital in that nightclub.  But that’s not the definitive test.  The question is whether the infringer would suffer losses that would have been avoided if the trademark owner hadn’t delayed, as McCarthy suggests.  The instruction wasn’t an abuse of discretion.

Then, the organizations argued that the finding of undue prejudice wasn’t supported by the evidence; the court of appeals found this a “close” question.  Here, the Greek organizations argued, the infringing items made up a small percentage of Paddle Tramp’s overall sales, and the equipment could be, and indeed mostly was, used to make noninfringing products.  However, Paddle Tramps put in enough evidence at trial to support the jury’s finding.  “Abraham testified he rebuilt the business three times—twice after fires and once after a tornado—and he would not have done so had he known the Greek Organizations would later sue him to enforce their trademarks.… In addition, Abraham testified the infringing products, while perhaps a small percentage of his total sales, drive the sale of his non-infringing products because without them customers might choose to purchase the component parts to their paddles somewhere else.”

Abraham, for his part, challenged the injunction given the length of the laches period and the harm to his noninfringing business.  Laches ordinarily doesn’t bar injunctive relief, just works as implied consent creating a revocable license (and apparently doesn’t invalidate the mark for lack of quality control).  However, laches may defeat claims for injunctive relief, with sufficient reliance, at least as to current activities.  An injunction barring defendant’s expansion is a different matter and should generally be granted, since the defendant will be hard pressed to show reliance before the expansion takes place.  An injunction must depend on the degree to which delay prejudiced the defendant.

Abraham argued that the district court wrongly put the burden on him to show why an injunction shouldn’t issue.  But that was consistent with McCarthy, who stated, “All that must be proven to establish liability and the need for an injunction against infringement is the likelihood of confusion—injury is presumed.”  (A couple of notes here—does that really apply in the presence of laches?  Does that really apply after eBay?  A yes answer to the latter question requires at least some serious thought.)  So, the district court didn’t err in looking at the degree of prejudice.

In terms of Abraham’s advertising, Abraham could easily continue to advertise all his products without using the Greek organizations’ names and insignia.  He could use names and insignia of other fraternities and sororities without licensing programs, or he could use fictional names.  The court rejected his request to use only disclaimers.

The district court also enjoined Abraham’s sale of objects containing the Greek Organizations’s full names, objects copied from the Greek Organizations’s crest or insignia, and wood reproductions of their crests. However, the prejudice to Paddle Tramps from banning the sale of the double raised crest backings was too much given Abraham’s investment in his business due to the trademark owners’ delay. This wasn’t an abuse of discretion.  “The injunction prevents Abraham from selling products that make up less than 2.44% of his total sales. This will not put Abraham out of business. The infringing item Abraham can continue to sell, the double raised crest backing, is the product Abraham contended drove his sales of other non-infringing products—the only item that if enjoined from selling, would cause Abraham substantial prejudice.”

Nor was the court required to use disclaimers if possible.  The court made no legal error; in Westchester Media v. PRL USA Holdings, Inc., 214 F.3d 658 (5th Cir. 2000), the court held that the lower court misinterpreted applicable law in discounting the First Amendment interests of Polo magazine in retaining its name, and that disclaimers should have been considered.  But here Abraham didn’t argue that his use of the Greek organizations’ marks was “expressive to an appreciable degree.”  (He should have, though I understand why he didn't.  Apparently a trademark’s only expressive when the owner uses it?  Oh hey, there’s a Fifth Circuit case from last month with completely opposite First Amendment reasoning about the free speech value of identifiers in a non-trademark context.)  Abraham argued that laches and acquiescence could also counsel in favor of disclaimers, but that was within the district court’s discretion in balancing the equities.

Copyright small claims court?

Art Neill’s Techdirt article, Proposed Copyright Small Claims Court May Have A Bigger Impact Than The DMCA, reminds me of concerns I had when I attended a similar meeting.

Beck, sheet music, and the nature of the musical work

This review of Beck's new "album"--available only in sheet music, unless you go to the website he's set up for users to post their own recordings of his songs--highlights a number of changes in music culture that challenge the concept of a musical work as distinct from a sound recording, pointing out that Beck's retro stance can't take us back in time but can only work as commentary on our present musical situation, including concepts of authorship:

"Learning to play a song is its own category of experience; recorded music made much of that participation unnecessary," Beck argues.

It's an odd sentiment for a former sampling maven whose hit albums like Odelay were created with the Dust Brothers—whose production credits include the Beastie Boys' collage masterpiece Paul's Boutique. If anything, recorded music enabled new forms of participation to happen—sampling, DJing, and remixing, for starters. With sampling, you could "play" a recording like an instrument. Recorded music made hip-hop possible—hip-hop got its start, after all, with two turntables and a microphone.

Which is another way of saying that sampling helped make Beck's career. Want to play "Jack-Ass," one of Beck's best-known songs? It's tough to notate in sheet music because it relies heavily on a looped sample of a song from 1966—Them's cover of Bob Dylan's "It's All Over Now, Baby Blue." Beck's song is more than the melody; it's the grain of the sample itself, the watery timbres, the hazy soft-focus memories implied by the '60s riff.

The advent of recorded sound upended our notions of what music could be. Rock, jazz, hip-hop, dub, reggae, disco, and most other popular genres born in the past century are tied to recordings; their life is not in sheet music. Recorded music gave us an array of new possibilities, new sounds, and new confusion about authorship.

Song Reader takes us back to an era when sheet music was king. In this simpler, seemingly halcyon time, friends would gather around a piano in the parlor and play popular songs together. Sheet music served another purpose, too; it was a commodity that could be bought, sold, attributed to a single author, and copyrighted. (The copy machine was decades from being invented.)

Song Reader was partly inspired by the story of a song called "Sweet Leilani," released by Bing Crosby in 1937. "Apparently, it was so popular that, by some estimates, the sheet music sold 54 million copies," Beck marvels. "Home-played music had been so widespread that nearly half the country had bought the sheet music for a single song, and had presumably gone through the trouble of learning to play it. It was one of those statistics that offers a clue to something fundamental about our past."

The funny thing is, Bing Crosby couldn't read sheet music. ...

Consumer surveys don't matter when the court is unconvinced

Scotts Co., LLC v. Pennington Seed, Inc., 2012 WL 6004140 (E.D. Va.)

The parties, who compete in the market for grass seed and plant food, each sought preliminary injunctive relief against the other’s ads, which were both denied.  Nationwide retailers typically sell both parties’ products side by side in garden departments.  The peak sales season for grass seed is brief, about 12 weeks in the spring.

Scotts began by alleging that Pennington’s ads that Pennington’s Smart Seed contained “twice the seed” of Scotts’ Turf Builder.  The court granted Pennington’s motion to dismiss because the claim at issue was covered under the terms of a confidential settlement agreement and the parties were subject to mandatory ADR before they could sue.  Pennington then sought a preliminary injunction against Scotts ads describing Pennington's 1 Step Complete combination grass seed products as “a bunch of ground-up paper” and making superiority claims for Scotts’ EZ Seed over Pennington's 1 Step Complete products.  After the required ADR, Scotts came back to court on the “twice the seed” claims, expanding that to cover Scotts’ EZ Seed and Pennington’s 1 Step Complete combination grass seed products.

On Scotts’ motion, the court gave the following facts: Pennington launched a “twice the seed” campaign on its bags, ads, and display trays, and said on its website that “more seed means more plants ... And more plants means a thicker, more beautiful lawn.”  Pennington’s Smart Seeds compete with Scotts’ coated Turf builder products; uncoated Turf Builder varieties are targeted towards different purchasers.  Scotts’ coating accounts for half the seed’s weight, so Pennington claimed “NO FILLER! TWICE THE SEED! COMPARED TO COATED SEED PRODUCTS” on the packaging and made other comparative claims directly naming Scotts, including a TV ad: “… we're proud to tell you the truth about our Pennington 1 Step. We put in twice as much seed compared to their EZ SEED, we use a better mulch, and, well, look at the difference. I guess we believe in getting to the root of the problem. Don't you? Pennington 1 Step. Honest Green.” 

The court found literal falsity “debatable.”  Pennington’s products don’t have twice the number of seeds as Scotts’ products.  But “twice the seed” was literally true on a weight basis, which Pennington argued was the industry standard.  Scotts, however, introduced a consumer survey showing that consumers thought the claim referred to number, not weight.  Without detailing the parties’ arguments about the survey, the court concluded that Scotts showed that it was slightly likely to prevail on the merits of this part of its claim.

But laches also factored in.  Scotts waited until Pennington’s promotional materials had been public for over a year, triggering a laches defense.  (I’m not sure how the court is counting.  Scotts was aware of the campaign since October 2011, but it sued (albeit too soon, given the ADR requirement) in early 2012.  Perhaps 2011 is a typo?  Also, usually courts use a presumption against laches when a claim is within the coordinate state limitations period, which this seems to be no matter what you think the coordinate state claim is. However, delay—not laches—can be a reason to deny preliminary relief even though it’s not a reason to deny permanent relief, so that may be really what the court is thinking of, though then it’s analyzing the issue at the wrong part of the inquiry/double-counting, as shown by what it says next.)  At a full trial, either party could easily prevail, so the likely success factor didn’t tip in Scotts’ favor.

Scotts also failed to show irreparable harm.  Scotts waited for more than 18 months before taking action, which showed a self-diagnosed lack of irreparable harm.  Plus, given the growing season, the need for urgency is gone; a full trial can be had before the claims could again become crucial.

Balancing the equities, the court also noted that the parties engaged in “tit-for-tat” litigation in which each one’s hands were “slightly soiled.” Though the public interest is against consumer confusion, Scotts’ showing wasn’t strong enough to tilt in its favor.

Pennington fared no better.  It complained about a TV ad (and similar radio spot) comparing Scotts’ EZ Seed to Pennington’s 1 Step Complete.  The ad called 1 Step Complete “a bunch of ground-up paper,” and said that “Scotts' EZ Seed uses the finest seed, fertilizer, and natural mulch that absorbs and holds water better than paper can.” An actor ‘changes his mind’ and uses EZ Seed instead.  A website ad, “You Be the Judge,” also made superiority claims, such as that EZ Seed retained more than four times as much water as 1 Step Complete and outperformed 1 Step Complete in a “torture test” comparing growth after certain periods.  Scotts allegedly used an outdated version of the Pennington product for its comparisons.  Scotts also ran in-store ads, “REVOLUTIONARY GROWING MATERIAL OUTPERFORMS PAPER MULCH,” repeating other claims from the internet ads.

The court found that Pennington failed to show likely success on the merits.  Though 1 Step Complete undisputedly consisted of a combination of mulch, grass seed, and fertilizer, it also was undisputed that the mulch included paper.  Scotts provided evidence of visible newsprint in both old and new formulations.  Pennington argued that Scotts’ ads unambiguously conveyed the message that 1 Step Complete was entirely paper, but no reasonable consumer seeking to purchase a grass seed product would understand it that way.  Pennington’s survey was no help in showing that consumers received the message that it was all paper.

As for the superiority claims, Scotts relied on testing by its research specialist, which Pennington attempted to discredit.  The court found that the testing reasonably supported its establishment claims and that Pennington hadn’t shown that the tests weren’t sufficiently reliable.  Though Pennington claimed to have abandoned the old formula, the court wasn’t persuaded that the old formula was no longer readily available to consumers or that the tests were unreliable with respect to the new formula.

With no likely success on the merits, the other factors didn’t favor Pennington either.

Lanham Act claims don't require pleading with particularity

Priority Intern. Animal Concepts, Inc. v. Bryk, 2012 WL 6020044 (E.D. Wis.)

Here’s a well-reasoned opinion explaining why Rule 9(b) doesn’t apply to Lanham Act false advertising claims. I have to admit I’m surprised when I see courts going the other way, though they do (though not for trademark claims brought pursuant to virtually identical statutory language with virtually identical, nonrequired allegations of intent, go figure).

Priority, which makes dietary products for livestock, sued Gleisner, a former employee, and Bryk and Lowe, two former consultants, alleging they conspired to form a competing business.  Defendants moved to dismiss Priority’s claims of false advertising (and breach of agency duty).  The court denied the motion because Lanham Act claims aren’t subject to Rule 9(b)’s fraud pleading standards.  Priority alleged that defendants claimed that their products could be used with Priority’s P-One Program for feeding, instead of Priority’s own products.

Here, though there were general allegations that defendants made false/misleading representations with intent to deceive the public, these allegations weren’t essential to the false advertising claims, which would survive without them.  Defendants argued that Rule 9(b) was designed to protect defendants from unfair prejudice, since fraud accusations can do serious damage to goodwill; the particularity requirement makes plaintiffs investigate before making such allegations.  “But there are worse allegations than fraud that one can level against another person or business, and the heightened pleading standard does not apply to them. There are also ways of protecting parties from unfair allegations made without factual support or simply to harass. The need to protect litigants from embarrassing allegations made without a solid basis is not a sound reason for expanding the heightened pleading standard of Rule 9 to claims that do not sound in fraud, an expansion that would only lead to more unproductive motion practice.”

Defendants cited district court decisions applying Rule 9(b) to false advertising claims. “The court finds little by way of analysis in any of these cases, however, and declines to follow them.”  Making a false statement, not fraud, is the essential element of a Lanham Act false advertising claim.  A Lanham Act claim doesn’t require knowledge or a specific intent to harm the victim and defraud him/her, whereas 9(b) requires specifics giving rise to a strong inference of fraudulent intent. 

Practical reasons also counseled against applying Rule 9(b):

Advertising is often conducted by large corporations through other corporate advertisers. The specific personnel involved in producing and authorizing the allegedly false advertising within the corporate structure will typically be unknown, absent discovery. A business injured by false advertising should not be deprived of a remedy to address such harm simply because it has yet to discover all of the details as to who is responsible and whether they acted with intent or not, especially since these facts are not even material to the claim.

The fact that intent isn’t an element also makes the damage from allegations of false advertising less harmful to a defendant’s reputation.  Plus, false advertising claims serve a public interest: protecting consumers from harm.

Finally, even if Rule 9(b) applied, the complaint satisfied it; Priority shouldn’t have to identify the exact person who made the allegedly false statements at this stage since that information was peculiarly within defendants’ knowledge.  Nor did Priority need to identify specific customers to whom the allegedly false ads were sent, since ads by their nature are directed to an “anonymous public audience.”  (Well, not quite, but ok.)  Allegations that the ads were disseminated to customers and potential customers in New York, Virginia, and Ohio were sufficient.

Money damages require harm, but not consumer perception evidence

Thermal Design, Inc. v. Guardian Bldg. Products, Inc., 2012 WL 5835797 (E.D. Wis.)

Previous decision discussed here, now abrogated in part as follows.  Thermal Design moved for reconsideration of the court’s ruling that it couldn’t recover monetary damages.  In a literal falsity case, a presumption of consumer deception applies, but only for injunctive relief.  To recover monetary damages, a plaintiff must show more than a mere presumption.  Evidence of actual consumer confusion is not required, but evidence of consumer reliance is required.  These are related—confusion can be used to show reliance.  But various forms of evidence can suffice: evidence of actual sales diversion; survey evidence; testimony from a dealer, distributor, or customer; evidence of eroding revenues and/or a corresponding increase in competitors’ revenues; or even common sense (with respect to false statements that would generally be expected to create a substantial competitive advantage).

With all that, Thermal Design’s motion was well-taken because it did submit an expert opinion on damages.  Guardian argued that the opinion didn’t show consumer confusion, but confusion could be presumed in a literal falsity case.  Thus, Thermal Design created a factual issue for trial.

"All natural" class action partially certified

Ries v. Arizona Beverages USA LLC, --- F.R.D. ----, 2012 WL 5975247 (N.D. Cal.)

Defendants moved for summary judgment in this putative class action based on AriZona Iced Tea’s claims to be “All Natural,” which is allegedly false because it contains high fructose corn syrup and citric acid, which is allegedly not natural because it’s produced by humans from certain strains of aspergillus niger mold.  The plaintiffs brought the usual California claims.

Plaintiffs didn’t have receipts for the products they bought or remember the exact prices they paid for them.  Ries testified that she bought the product because she was thirsty and wanted something healthier than a soft drink, that her drink cost about $2, and that after she took a sip, she looked at the label, saw it contained HFCS, felt deceived by the “All Natural” or “Natural” label, and threw it away.

Defendants argued that there was no injury in fact or reliance.  The court accepted the argument that plaintiffs lost money because they bought on the mistaken premise that the beverages were natural.  Though they didn’t have receipts and couldn’t recall the precise prices they paid, or even whether the label said “Natural” or “All Natural,” those objections went to the relative weight of the evidence and should be resolved by a jury—there was still economic harm of a dollar or two per purchase, and no authority required a more precise accounting to proceed.  To the extent defendants argued that plaintiffs were just offering a “sham,” that was a classic credibility issue.

Reliance was also sufficiently supported to go forward, because plaintiffs specifically recalled the “Natural” claim.  Under Tobacco II, it also didn’t matter that plaintiffs admitted multiple reasons for their purchases (e.g., they were thirsty)—as long as the “natural” claim was an immediate cause of the purchase, reliance was satisfied.  This was ultimately a fact question, but the court noted that an “All Natural” or “100% Natural” claim was likely to be material.  Inconsistencies in plaintiffs’ testimony could be used to impeach them.

Defendants argued that plaintiffs weren’t entitled to restitution or disgorgement under the UCL or FAL.  Though courts have discretion under those statutes to grant equitable relief, that discretion had to be bounded by the parties’ evidentiary showing.  The absence of receipts wasn’t an insurmountable obstacle, since plaintiffs estimated their losses at a dollar or two per purchase in sworn testimony, which was sufficiently measurable.  But the court was more persuaded that plaintiffs weren’t entitles to a full refund.  The proper measure of restitution was the difference between what was paid and the value of what was received.  The court allowed some more time for discovery on this point, though it thought that plaintiffs had offered “woefully few specifics” about what material facts remained to be discovered.

Defendants challenged plaintiffs’ Article III standing for injunctive relief, because now that they knew the truth, there was no redressability.  But past wrongs are evidence bearing on whether there was a real threat of repeated injury.  And neither plaintiff disclaimed uninterest in buying the product in the future.  “[T]he fact that they discovered the supposed deception some years ago does not render the advertising any more truthful. Should plaintiffs encounter the denomination ‘All Natural’ on an AriZona beverage at the grocery store today, they could not rely on that representation with any confidence. This is the harm California's consumer protection statutes are designed to redress.”  If the court accepted the claim that knowing the truth defeats standing for an injunction, “then injunctive relief would never be available in false advertising cases, a wholly unrealistic result.”

However, one plaintiff did get kicked out on statute of limitations grounds—she knew that the product contained HFCS and threw it out in 2006, but only filed suit in 2010, beyond the three-year period. She learned of her injury in 2006, and the statute of limitations began to run even if she didn’t know she had a legal claim.

Turning to class certification, defendants objected that class members wouldn’t be able to prove that they were in the class because they wouldn’t have receipts, but that’s not the standard for administrability or ascertainability.  They then argued that some absent class members lacked Article III standing, an issue that is “muddled.”  Here, there were no individuals in the proposed class who by definition lacked Article III standing.  Defendants’ examples—people who believed HFCS was natural, people who continued to buy the product for years, people who’ve stopped buying the product, or people who bought for reasons unrelated to the label—wouldn’t necessarily lack Article III standing.  Article III’s injury requirement was satisfied when class members suffer an economic loss caused by the defendant, which could be buying the product containing misrepresentations.  The UCL and FAL focus on defendants’ actions, not on class members’ subjective state of mind.

Numerosity and commonality were also satisfied. Variation in class members’ motivations for buying or in the price they paid wasn’t enough to defeat the relatively minimal showing required for commonality.  Injunctive and restitutionary relief under the UCL and FAL is available without proof of individual deception, reliance, and injury, if members of the public are likely to be deceived by the misrepresentations.  For the CLRA, which requires each class member to suffer actual injury, causation may still be established on a class-wide basis by materiality. 

The Supreme Court’s opinion in Dukes was not to the contrary; Dukes requires that class members have suffered the same injury.  “But post-Dukes, the underlying substantive law remains the same and district courts have continued to certify classes in cases alleging violations of the UCL, FAL, and CRLA for allegedly deceptive labeling.… Plaintiffs meet the Dukes standard because the entire proposed class has suffered the same injuries flowing from the alleged misrepresentations, and the requested injunctive relief, prohibiting defendants from advertising beverages containing HFCS or citric acid as ‘natural’ (or variants thereof) will have the effect of remedying the purported harm class-wide.”

Finally, defendants argued that not every class member was exposed to the exact same label.  But close enough: the claims arose from a statement, worded in several ways, made on every container; the named plaintiff’s claims were reasonably coextensive with those of absent members.  Plaintiffs’ claims were also sufficiently typical, given the objective standard used by California law, even though consumers’ preferences may vary.  Some variation in consumer preferences is “inherent” in consumer class actions.

The court considered Rule 23(b)(2) certification generally appropriate for declaratory and injunctive relief.  But what about plaintiffs’ request for restitution?  Dukes says 23(b)(2) “does not authorize class certification when each class member would be entitled to an individualized award of monetary damages,” even if the award is equitable.  Claims for statutory or punitive damages could avoid individualization, but not the claims here, which would depend on how many bottles the class member bought.  And the monetary claims were small per class member, but in the aggregate hardly incidental.  Thus, class certification was granted for purposes of declaratory and injunctive relief, but denied for monetary damages including restitution, refund, reimbursement and disgorgement.

Today's transformative works

The Hawkeye Initiative: What it looks like when male comics characters get the crotch-first-attack pose or spine-bending-present-both-chest-and-butt pose treatment.  A picture's worth a thousand words.

a label that says "sue me"

Via an eagle-eyed correspondent, here's a Gawker story about a California-based company that sells a clothing line, Unionmade, that ... is not made by unions.  The company says that it "aims to improve the lives of our customers, community and suppliers by offering fairly priced products made from the best available materials."  And also by deceiving them and disrespecting actual union-made products!

Further from Gawker:

First, we heard from a woman who emailed Unionmade saying that she wanted to buy a present for her dad, a Teamster. They informed her that, no, their goods are not actually union made—"The name UNIONMADE is an overarching concept and narrative for the store, signifying that we strive to carry well made and aesthetically timeless goods." A rather unsatisfying explanation for a term that already has a well understood explanation.

Then, we heard from another disappointed would-be customer, who wrote:
There is a store (and website) in San Francisco that calls itself "Union Made Goods" (http://www.unionmadegoods.com/). As a member of a union household, I was initially excited to learn about the store, as I try to buy union-made goods as much as possible. Unfortunately, when I inquired by email whether the store called Union Made Goods does in fact sell union-made goods, I was disappointed to learn that the name is merely an "homage to a time in our history when products were crafted with care, quality, longevity, and respect to the people that made them." The email went on to say "we try to carry products that represent the "Union Made" ideals of yesteryear as it is virtually impossible to curate a store entirely of union labor made products."
While I support the store's effort to 'curate' its inventory with products that are crafted with care, etc., the name of the store seems pretty fraudulent and insulting. "Union made" is not just an "ideal of yesteryear." There are websites out there that sell goods that were actually made by union members, under the protection of a union contract. See, e.g., http://www.unionlabel.com/. ...

Now, suppose this prima facie falsity and materiality weren't enough. Take a look at this ad, with particular attention to the small circular images of shaking hands below "Unionmade":

Now take a look at the AFL-CIO handshake "Union Made" logo:

Unionmade's terrible response to Gawker?

You are correct, though some of the brands we carry are union made, many are not. The unfortunate reality is that there are not many unions left in the garment industry and so the name was cultivated as a signifier of well-made and aesthetically timeless goods. There have been customers that take issue with the store's name and we certainly understand and respect their opinion, though by and large the majority of our customers understand the use of the name as an overarching narrative of the store.

You don't get to advertise falsely because it's hard to find the products you could make a truthful claim about.  This store's arrogance and disrespect for actual union-made products, and blithe assumption that it can appropriate a specific feature it doesn't have as its "signifier," makes me yearn for it to get stomped on, hard, ideally by consumers, regulators, and competitors. And also the AFL-CIO, which has sent a C&D that for once I think wasn't harsh enough.

(How can you posture that unions are dead as the dodo and then copy an existing union logo?  That's some numbskullery.)

Okay, I'm gonna go take a deep breath now.

Press release distributed to patient groups is covered by Lanham Act

Genzyme Corp. v. Shire Human Genetic Therapies, Inc., --- F. Supp. 2d ---, 2012 WL 5974049 (D. Mass.)

Genzyme alleged that Shire violated the Lanham Act by publishing a press release falsely advertising the superiority of Shire’s Gaucher disease drug VPRIV over Genzyme’s competing Cerezyme.  (There’s a related corporation that’s dismissed for lack of jurisdiction, which I’ll ignore.)  Gaucher disease is caused by an enzyme deficiency that causes harmful levels of lipids to build up in the body. Symptoms include liver and spleen enlargement, reduced bone density, and weakened bones.  Cerezyme has been FDA approved since 1994 as a long-term enzyme replacement therapy.  VPRIV was approved in 2010, and is Cerezyme’s main competitor in long-term enzyme replacement therapy.

Shire issued a press release, “Shire's VPRIV (velaglucerase alfa for injection) Shows Significant Improvement in Gaucher–Related Bone Disease.”  The subhead said, “[i]n a head-to-head trial between VPRIV and Cerezyme (imiglucerase), only patients treated with VPRIV experienced statistically significant improvement in lumbar spine bone mineral density at 9 months.”  Further, it announced “new data that show VPRIV … significantly improved selected markers of Gaucher-related bone disease in patients.”  The press release was distributed to PR Newswire and to patient organizations serving the Gaucher community.

Shire argued that the release didn’t count as commercial advertising or promotion, and was First Amendment-protected “scientific speech.”  In order to report the results of its research, Shire needed to identify the products, and thus, Shire argued, any commercial elements were inextricably intertwined with noncommercial scientific speech.

Genzyme responded that the secondary dissemination of scientific research can be commercial speech if it has a “pecuniary gloss” and is targeted to consumers for marketing purposes.  This is consistent with Gordon & Breach, the classic Lanham Act case defining “commercial advertising or promotion,” which found that journal articles became covered by the Lanham Act when reused for marketing purposes targeted at core consumers.  Thus, while the original presentation of the comparative data at a scientific convocation was protected scientific expression, its secondary dissemination in a press release wasn’t.  The press release wasn’t a scientific publication; it named the primary competitors and listed Shire’s stock symbols on its first line.  It was selective dissemination of information favorable to VPRIV/harmful to Cerezyme to an audience including doctors who prescribe Gaucher treatments and patients who might request specific treatments.

Shire also argued that Genzyme failed to allege falsity, because the press release accurately reported the underlying scientific analysis and results.  But unless it’s perfectly clear that no reasonable person could be misled, falsity wasn’t appropriately resolved on a motion to dismiss.  Answering the falsity question here “involves a delving into murky scientific data and analysis.”

Shire then argued that Genzyme failed to allege consumer deception because physicians who treat Gaucher disease are sophisticated.  But selective promotion of favorable information could mislead even sophisticated and experienced doctors.  Also, patients are less sophisticated and also constitute part of the relevant audience because they’re the ultimate consumers.

Pistachio bins as protectable marks

Paramount Farms Intern. LLC v. Keenan Farms Inc., 2012 WL 5974169 (C.D. Cal.)

“This trade dress infringement action concerns the appearance of bins used to hold pistachios in grocery stores.”  Paramount sued Keenan under §43(a) and coordinate state law, and also brought a federal dilution claim.  Keenan argued that the claimed dress was functional, lacked secondary meaning, and was unlikely to be confused with Keenan’s competing bins.  The court initially announced it was granting Keenan’s motion for summary judgment in toto, but in the written opinion it only killed the dilution claim and preserved the infringement claims.

Paramount claimed the following elements of its in-store bins as protectable, though unregistered, trade dress, with a first use in 2007:

(1) the prominent use of a unique bright green color; (2) the thin, sans serif font for the word "pistachios" which is displayed in all capital letters; (3) the vertical orientation of the word "pistachios," which is written from bottom to top; (4) use of the color black, as trim or otherwise, drawing contrast to the unique bright green color; and (5) images of pistachios.

Kennan began using new bins in 2011.  These are the parties’ bins.

 

Kennan initially argued that the claim failed because Paramount’s product line didn’t have a “consistent overall look.”  But Paramount was only seeking protection for the pistachio bins, which could have a protectable trade dress.  This was true even if not every bin or ad Paramount produced had the five elements of the claimed trade dress.  (There’s a bit of a wiggle here: as we’ll see below, the claimed secondary meaning for the bins comes from the presence of some of these elements in ads.)

Keenan didn’t argue utilitarian functionality, but rather the general “non-reputational disadvantage”/aesthetic kind of functionality, since competitors need to use bright green against a dark background and images of pistachios.  But the functionality of individual elements isn’t dispositive, and Keenan didn’t show that the combination here, including the sans serif, thin font, and vertical orientation of “pistachios” as well as the color and images, was functional.  Thus Keenan failed in its burden on summary judgment.  (Since there’s no registration, isn’t the burden on plaintiff to show nonfunctionality?  Wouldn’t it have to come forward with some evidence of nonfunctionality, such as the possibility of noninfringing bins that used the functional elements like pictures of pistachios and the use of green?  Especially since it’s apparently suing Walgreens over different pistachio bins, this would seem to be important.)

Keenan also argued that the bins weren’t inherently distinctive since all the claimed elements were in use before by pistachio competitors, but the court found an issue of fact on whether the overall combination was fanciful and therefore distinctive. “In the Court's view, the stark contrast between two colors-black and bright green, the use of capitalized, thin, sans serif print, and the vertical printing of ‘pistachios,’ together create an overall impression of modern simplicity. By contrast, none of the competitor's pistachio bins combined these same elements to create a comparable impression. For example, the other brands predominantly used other color combinations such as green and blue, green and yellow, or red and green.”  Thus, this was more than a mere refinement of existing trade dress.

There was also a triable issue on secondary meaning given the circumstantial evidence.  Evidence of deliberate copying could also support an inference of secondary meaning, though competitors may copy product features for a variety of reasons, including a belief in their functionality.  Paramount showed evidence of extensive sales and advertising, including TV ads that “contain elements to educate viewers” about the trade dress. At the end of each ad, Paramount’s pistachio package emerges from a pistachio shell, in an image identical to that found on its bin.  Paramount has used similar ads and coupons. 

And there was circumstantial evidence of intentional copying.  Before 2007, none of Keenan’s bins “remotely” resembled the allegedly infringing bin—in 2004, its bin was dark green and red, with “Snack Zone” in military font.  A 2005 bin used “pistachios” printed vertically, the words were in thick serif and the rest of the bin was dark green and yellow.  The 2008 and 2009 bins were predominantly green and yellow and again used a thick serif font.  In 2011, though, Keenan used a monochrome bright green background with "pistachios" in thin, sans serif font, scrolling from the bottom up.  This clear similarity supported an inference of deliberate copying, especially because there was only one other pistachio producer who uses in-store display bins.  (This would seem to interact with functionality: if the use of in-store display bins is a useful sales technique, then the form is functional.  However, that may also create an obligation on other users of that technique to stay further away from the other, nonfunctional elements of Paramount’s trade dress.)  “Given that Defendant had many options to choose from, the fact that it selected a trade dresses so similar to Plaintiff's lends weight to the inference that it deliberately copied.”

As for likely confusion, the court also found a triable issue.  The bins were similar in color; the use of “pistachios” in thin, all-capitalized, sans serif font, scrolling from bottom to top; and images of outsize pistachios, creating a striking similarity.  In context, in some Wal-Mart stores, the bins are immediately adjacent to each other, magnifying the similarity.  (In other circumstances, the opportunity for side-by-side comparison makes confusion less likely; most stores sell the generic cola next to the Coca-Cola, but that tends to make it easier to tell the two apart despite the similar color schemes.)  There were also differences between the bins, including the Keenan logo at the top of the bin, different pistachio shapes, and dark green versus black trim.  “The impact of these differences, however, is substantially reduced in light of Plaintiff's evidence that the top of Defendant's bin is often cut off by grocery stores, so that the Keenan Farm's logo, as well as the complementary dark green, is entirely absent.”  This factor weighed “decisively” in favor of likely confusion, by which the court meant Keenan had to lose its summary judgment motion.

Mark strength also weighed in Paramount’s favor because of the evidence that the mark was either inherently distinctive or had seconary meaning. (This simply can’t be true as stated; protectable doesn’t mean strong, or else strength would always favor the plaintiff who had a minimally valid mark.)

There was no evidence of actual confusion, but that wasn’t necessary, especially because the use was so new.  Proximity of the goods and marketing channels favored confusion.  The court also rejected Keenan’s argument that pistachio consumers are generally college educated and that pistachios are expensive as nuts go.  “College graduates may be just as prone to exercise less care when buying something as inexpensive as a bag of nuts. Moreover, even if pistachios are expensive as far as nuts go, that does not change the fact that nuts are a relatively low cost commodity.”  In addition, only one other company uses in-store display bins for its pistachios, so one might reasonably infer that consumers aren’t accustomed to discriminating between pistachio bins, and thus less likely to exercise care once they spot a bin they associate with a particular producer (again see the interaction with functionality).

The court also reiterated its conclusions about the possibility of finding intentional copying.  “It is difficult to imagine why Defendant would suddenly change its bins to look less like its own packaging, and more like the bin and packaging of its competitor. The reasonable inference is that Defendant was intentionally copying Plaintiff's trade dress to take advantage of its reputation among consumers.”

In balancing the factors, the court took note of the fact that the actual packaging of Keenan pistachios was “readily distinguishable” from Paramount’s.  The use of different names or distinctive logos can reduce the likelihood of confusion, and that principle applied with greater force here, “since the packages are distinguished not only by the presence of each party's name or logo, but also by unique package designs.”  There was still a triable issue of fact, though—the question was properly left to the jury.  A reasonable consumer could conclude that Paramount was endorsing Keenan’s pistachios, or even that Paramount actually owned Keenan and was marketing them as a different product line.  (Ordinarily we don’t expect side-by-side competitors, distinctively packaged—by concession—to come from the same source; there’s a case about this.)  Given the evidence of secondary meaning, it’s reasonable to infer that a consumer who sees a bin that strongly resembles Paramount’s bin would associate the pistachios in the bin with Paramount.  This is especially true given the lower level of care exercised with respect to relatively inexpensive items and given that few competitors use bins to display pistachios.  “A reasonable consumer who is unaccustomed to discriminating among several bins is more likely to rely on heuristics at the point of sale.”  And the evidence of intentional copying was also relevant: a jury could find an intent to mislead.

Turning to dilution, the court preposterously found a triable issue on federal fame, even though the evidence doesn’t come close to showing that the claimed mark was “widely known among the general consuming public” just because Paramount spent a lot of money on advertising elements of this unregistered mark and made a lot of pistachio sales.  The court seemed particularly impressed that the brand has a Facebook page with almost 300,000 likes.  However, Paramount offered no argument for why Keenan’s use would cause blurring—why consumers who saw the Keenan trade dress and then subsequently saw the Paramount trade dress would think of both parties, or of Keenan alone.  So summary judgment was granted on dilution.

state TM infringement without distinctiveness?

Medisim Ltd. v. BestMed LLC, 2012 WL 5954757 (S.D.N.Y.)

Medisim sued BestMed for patent and copyright infringement; false designation of origin and false advertising under the Lanham Act; and false advertising, unfair competition, and unjust enrichment under New York law.  BestMed and Medisim once had a distribution agreement for BestMed to distribute Medisim’s digital thermometer.  But BestMed ultimately replaced Medisim with K-Jump, which allegedly used Medisim’s IP to make a competing thermometer that allegedly looks similar, has the same features, and produces identical audible and visual messages.  When Medisim sought to sell its thermometers on its own, several retailers rebuffed it in favor of the K-Jump-made thermometers from BestMed, which CVS was even selling under the same SKU it had used for the Medisim-made ones.

Medisim sought trade dress protection for its product configuration and packaging design.  The claimed configuration was “a predominantly white teardrop[-]shaped device with light blue accents surrounding the elongated probe, and a body in an oval shape on which is centered a square LCD display, with a light blue on/off switch positioned above the LCD display.” BestMed's forehead thermometer also had these features.  Medisim also claimed rights in two packaging designs—the one used in CVS, and the one used in Rite Aid.  Each of those used the respective house brands and were mostly clear plastic over the card holding the device with promotional text/pictures.

BestMed argued that Medisim failed to articulate the allegedly distinctive features of its product until too late (its opposition to the summary judgment motion), but BestMed should have moved to dismiss earlier on vagueness grounds.  Anyway, the lack of fact and expert discovery on these features was more trouble for Medisim, which had the burden of showing distinctiveness and nonfunctionality, than for BestMed.

BestMed argued that its product packaging was inherently distinctive, citing Second Circuit precedent that because packaging possibilities are virtually unlimited, product package trade dress will “typically” be inherently distinctive.  But this still requires a look at the product and the market.  BestMed argued that Medisim didn’t situate its packaging features relative to the marketplace, but the court thought that was irrelevant, since “a virtually infinite array of colors, shapes, and text descriptions were available to both BestMed and Medisim.”

Nonetheless, Medisim flunked the fundamental distinctiveness test because the packaging failed to identify Medisim, which wasn’t named anywhere on the package.  Though a mark may be entitled to protection as long as it identifies a source, albeit anonymous, this packaging did identify sources: the retailers—CVS, Rite Aid, etc.  There was no evidence that consumers were aware of or cared about the identity of those who manufactured the products on those retailers’ behalf.  Medisim couldn’t identify any cases in which a manufacturer’s trade dress was held entitled to Lanham Act protection despite identifying the retailer and not the manufacturer.  Each claimed trade dress identified a different retailer.

Medisim suggested that the retailers might be the relevant consumers, and offered some evidence that they might have been confused as to source.  But that would require evidence of secondary meaning to the retailers, which Medisim didn’t have; at most, they may have identified it with BestMed.  (The court seemed to hold, despite its earlier reasoning, that the claimed mark was descriptive, but didn’t say much about that.)

As for the product configuration, Medisim argued acquired distinctiveness, but still didn’t show any reason to think that the configuration would do anything other than identify the retailer even if distinctive.  “[I]t is difficult to envision how consumers would identify the packaging with an unidentified manufacturer.”  As for retailers, they presumably either knew who made the thermometers or didn’t care who BestMed’s source was; there was no evidence they made purchasing decisions based on the shape or packaging of the thermometers.

Medisim also claimed protectable rights in the CVS SKU, then failed to respond to BestMed’s arguments about why it could have no protectable interest or consumer confusion.

The court then turned to the NY unfair competition claim, which, it held, didn’t require evidence of secondary meaning for Medisim’s trade dress claim.  (If this is so, I would think federal copyright and patent law would preempt it, as per Sears/Compco.)  This claim also required bad faith in the form of a competitor’s “palming off, actual deception, appropriation of the plaintiff's property, or deliberate copying of a trade dress,” and was sufficiently pled.  (Look at that language!  An intent element doesn’t avoid preemption, nor does a limitation of the class of potential defendants to competitors.)

However, and I admit I’m not entirely clear on how this goes down, the court also apparently treated likely confusion as an element of the unfair competition claim, even in the absence of secondary meaning (and apparently in the absence of inherent distinctiveness, since that wasn’t ever resolved).  There was no evidence on the strength of the mark, but there was a high degree of similarity between the trade dresses, they competed, and there was evidence of bad faith.  Thus, even without evidence of actual confusion, a jury could find likely confusion.  (Again, I’m mystified about the lack of preemption.  In the absence of secondary meaning, the likely confusion finding can only stem from similarity—that is, copying—which is pretty much exactly what the Supreme Court found preempted in Sears/Compco.)

Medisim’s evidence of bad faith was testimony that BestMed desired the shape and packaging of the K-Jump-manufactured thermometers to appear similar to the shape and packaging of Medisim's product; (2) testimony that BestMed asked K–Jump to copy the exact “beep sequence” of the Medisim device; (3) testimony that BestMed sent K–Jump an instruction manual from a Medisim thermometer so that it could closely copy the device's operation; and (4) BestMed's use of the same SKU for CVS.  This was sufficient to allow a jury to conclude that the similarities between the devices and packaging were a result of direct and intentional efforts.  (That is, of copying.)  So summary judgment on the NY unfair competition/trade dress claim was denied.

Extra commentary: if NY’s common law doesn’t have a functionality requirement, then it is clearly preempted by patent law even setting Sears/Compco aside, so the failure to analyze nonfunctionality here, especially as to the configuration of the device itself, is very odd.

Turning to the false advertising claims, the court applied Famous Horse on standing: Medisim needed a reasonable interest to be protected and a reasonable basis for believing it would be damaged by BestMed’s advertising.  Medisim argued that its interests were its “commercial and pecuniary interests in selling its products”; and “maintaining its commercial reputation.” The former was a reasonable interest, but not the latter, since Medisim had no name recognition among consumers and its name didn’t appear on its own trade dress: it had no commercial reputation to be damaged.  It argued that a customer who bought Medisim’s device expected to receive Medisim’s high quality product, not BestMed’s inferior device, but that presumed that there was evidence that it had any reputation in the market.  Nor did Medisim offer evidence that thermometer purchasers are repeat customers whose past experiences are likely to affect future purchase decision.  Anyway, this was a backdoor trademark confusion argument.  And Medisim hadn’t even offered evidence of inferiority.  Except for the idea that it would lose sales because of likely confusion—another trade dress argument—there was no reason to think Medisim would be harmed by BestMed’s noncomparative advertising, which only touted its own advantages without direct reference to competing products.  Thus, Medisim lacked Lanham Act false advertising standing.

In addition, the only statement Medisim identified as false was BestMed's statement that its thermometer “rapidly tracks heat flow.” This was the same phrasing used when BestMed distributed Medisim’s thermometer; Medisim argued that this described the method performed by the two-sensor Medisim device. The K-Jump device had one sensor, and Medisim argued that it was literally false to say that it “rapidly tracks heat flow” because that was synonymous with “performs a heat flux calculation,” which a one-sensor device couldn’t do.  Even assuming that was all correct, Medisim would still need evidence of materiality, which it didn’t have.  Medisim provided no evidence that consumers equated “rapidly tracks heat flow” with “performs a heat flux calculation,” let alone that they knew or cared what the latter was.

Medisim’s NY GBL §§ 349 and 350 claims failed because the gravamen of its complaint wasn’t consumer injury or harm to the public interest.

The unjust enrichment claim, however, survived because the unfair competition claim did, and so it wasn’t just duplicative of the copyright infringement claim and preempted.  The Lanham Act doesn’t preempt state law (but see above).

BestMed also managed to kick out claims for statutory damages for copyright infringement, since the registration followed the commencement of infringement, which occurred many years after first publication.  Medisim’s patent claims, which I haven’t discussed, survived.

FTC news

Via the Consumer Law & Policy blog, a news piece detailing the legacy of my esteemed colleague, David Vladeck, at the FTC.

Problem of the day

This OrderExpress store appears on the way between Midway and the University of Chicago.  What does FedEx think? Note that it targets Spanish-speaking customers.  The website bears a (R) symbol, which appears to be for the standard word mark in the US, not the stylized version, which could bear on any potential dilution claim.

(Picture by me, 10/2012)