Friday, September 17, 2010

Egg Works Left With Egg On Its Face After Court Denies Preliminary Injunction Against Egg World

(I doubt they are smiling today)

The owners of the Las Vegas breakfast restaurants The Egg & I and Egg Works got egg on their face when a federal court denied their motion for preliminary injunction against a competing Las Vegas restaurant named Egg World.

Back in June, Bradley Burdsall, along with his two companies Egg Works, Inc. and Egg Works 2, LLC (collectively “Egg Works”), brought a trademark infringement lawsuit against Egg World, LLC, and two of its principals, Gabrijel Krstanovic, and Dejan Debeljak (collectively “Egg World”). See Egg Works, Inc. et al v. Egg World LLC et al, Case No. 10-cv-01013 (D. Nev.). A copy of the complaint can be downloaded here. The Las Vegas Sun ran an article about the dispute back when the suit was filed.

Probably figuring that upstart Egg World would not have the financial resources to devote towards legal fees, Egg Works came out guns blazing filing a Motion for Temporary Restraining (which was quickly denied) followed by a Motion for Preliminary Injunction – along with what can only be described as a litany of declarations from purportedly confused consumers that Egg Works submitted in support of its argument for trademark infringement of its registered mark EGG WORKS and for why an injunction should be issued immediately against Egg World while the lawsuit is pending.

An evidentiary hearing was held and on September 14, 2010, District court Judge Lloyd George denied Egg Works motion for preliminary injunction on the basis that Egg Works had not shown a likelihood of success on the merits of its trademark infringement claims. A copy of the court's order can be viewed here.

Analyzing the likelihood of confusion between Egg Works and Egg World, the court went though each of the Sleekcraft factors.

Regarding “strength of the mark,” the court rejected Egg Work’s unsupported assertion that the mark does not directly convey any feature or characteristic of its services to consumers and concluded that the mark was “descriptive” and “not entitled to protection absent a showing of secondary meaning” (an issue which Egg Works had not expressly addressed). As such, the court stated that “the descriptive nature of the mark indicates that this factor is likely to weigh in favor of defendants.” [Comment: Not sure how this reconciles with the fact that the PTO did register the EGG WORKS service mark, albeit with a disclaimer for the word EGG. Nonetheless, the court’s comments still reflect that Egg Works’ mark is not as strong as Egg Works would have this court believe].

The court next turned its attention to the factor of actual confusion, which even the court acknowledges “[f]rom the outset, Egg Works has relied heavily on its argument of actual confusion” and how Egg Works submitted “numerous declarations of consumers” and even called consumers as its first three witnesses. The court then provides a good background legal discussion, citing the Ninth Circuit’s recent decision in Fortune Dynamic, Inc. v. Victoria's Secret Stores Brand Mgmt., ___ F.3d ___ , Case No. 08-56291 (9th Cir. Aug. 19, 2010), into the often overlooked, but important distinction between relevant confusion and non-relevant confusion.

Regarding Egg Works' evidence of actual confusion in the form of customer declarations, the court found that “the evidence presented by Egg Works reveals that a substantial number of consumers expressed a non-relevant confusion; confusion that resulted from something other than Egg World’s mark.”

The court noted several declarations from consumers mentioning that they were looking for the “Egg & I” restaurant and got confused when they saw Egg World. The court dismissed each of these declaration as express non-relevant confusion: “While the court agrees that these consumers are expressing confusion, their statements also establish that they are expressing a non-relevant confusion. Although the plaintiffs brought this action and motion to protect Egg Works’ mark, and though none of the above quoted declarants were subjected to cross-examination, each expressed confusion concerning the Egg & I. As Egg Works acknowledged and argued, this matter does not concern the Egg & I.”

The court recognized that the evidence “strongly indicates that the source of the consumers’ non-relevant confusion is the close affiliation between the Egg & I and Egg Works.” Other declarations from consumers supported customer recognition of this affiliation – consumers expressing a belief that Egg World was part of the Egg & I and Egg Works affiliated restaurants.

The court then eloquently explained how this particular type of consumer confusion is not relevant confusion for purposes of determining if Egg World infringes Egg Works:

While each of these declarants reveal their knowledge of the relationship between the Egg & I and Egg Works, they also reveal that this relationship is the source of their confusion. Each of the declarants quantify the relationship between the Egg & I and Egg Works as being a chain or group of restaurants. Each states a confusion whether Egg World was owned by or part of the Egg & I and Egg Works chain or group of restaurants. Based upon this belief, these consumers express a non-relevant confusion that Egg World was being opened as part of the chain or group of restaurants that includes Egg Works and Egg & I. Stated otherwise, the plaintiffs’ marketing successfully informed their consumers that they operated three breakfast and lunch restaurants under two dissimilar names that included the word “egg.” The consumers, so educated, submitted declarations expressing confusion whether the plaintiffs opened (or were opening) a fourth breakfast and lunch restaurant using a third name that included the word “egg.”

(emphasis added). [Comment: It’s statements like these that restores my faith in an impartial court’s ability to cut through all of the legal arguments propounded by attorneys on both sides and ascertain the truth – and then articulate that truth so brilliantly, eloquently, and concisely]. And with those words, the court essentially knocked away all of Egg Works evidence of actual confusion and found that Egg Works was not likely to succeed in showing that this factor weighed in their favor.

Regarding “similarity of the mark,” on the one hand, the court recognized that Egg Works disclaimed the word “EGG” in their trademark registration. The court, noting how one consumer in their declaration equated “egg” to the Egg & I restaurant (which is not Egg Works mark at issue, stated that:

The consumer’s reliance upon the disclaimed “egg” in relation to an entity that is not before the court suggests that little weight can be given to the similarity caused by the fact that both “Egg Works” and “Egg World” begin with the descriptive word “egg.”

The court also found “Egg World” and “Egg Works” are dissimilar in meaning and definition. Nonetheless, the court, mindful that similarities are given greater weight than differences, concluded that Egg Works is as likely to succeed as it is likely to fail in showing that this factor weighed in its favor – and accordingly, found this factor to neither favor Egg Works or Egg World.

On “relatedness of the services,” this favored Egg Works because both operate breakfast/lunch restaurants. Regarding “intent in selecting the mark,” the court rejected Egg Works purported evidence that the Defendants chose the Egg World mark after seeing Egg Works. The court also commented that “the conceptual strength of both ‘Egg Works’ and ‘Egg World’ strongly indicates that both are descriptive rather than suggestive.” The court found that this factor did not favor either side.

The court gave no weight to the “similarity of marketing channels” since the “only overlap of any significance identified by Egg Works is that both restaurants use exterior signs” and since the nearest Egg Works restaurant is located more than four miles from Egg World, such “marketing channel” “does little to suggest that confusion is likely to result from defendant’s use of its mark.”

The court found the factor of “likelihood of expansion into other markets” to be neutral based on the presented evidence – which thus favors the defendants (since its Egg Works burden to prove that the factors are in its favor in a motion for preliminary injunction).

Regarding the “degree of care likely to be exercised by consumers,” the court found that the evidence of this factor was “equivocal” because on the one hand, some Egg Works consumers “exercised so little care that they were initially confused by seeing the word egg on Egg World’s sign”, yet the evidence also indicated that the “actual confusion was caused by plaintiffs’ operation of three restaurants using two names.” [Hmm, one wonders why Mr. Burdsall has maintained the one “Egg & I” location rather than rebranding it as Egg Works in order to create a uniform brand? After all, wouldn't this also avoid confusion with the Ft. Collins, Colorado-based The Egg & I franchise chain which owns a trademark registration for the mark THE EGG & I?]

Based on its balancing of the Sleekcraft factors, the court concluded that Egg Works was not likely to succeed on the merits of showing a likelihood of confusion caused by the Defendant’s use of Egg World.

[Full Disclosure: The law firm I work for does represent one of the Defendants in some legal matters, but did not represent any of the Defendants in this case.]

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