Hakkasan denied preliminary injunctive relief in cybersquatting case for failure to establish irreparable harm

Trademark attorneys in the Ninth Circuit continue to face the fallout from last year’s Ninth Circuit decision in Herb Reed Enterprises, LLC v. Florida Entertainment Management, Inc., 736 F.3d 1239, 1249 (9th Cir. 2013), cert. denied, 2014 WL 1575656 (Oct. 6, 2014) (“Herb Reed”).  In Herb Reed, the Ninth Circuit, following the Supreme Court’s precedents in eBay Inc. v. MercExchange, 547 U.S. 388 (2006) (which held that the traditional four factor test, including establishing irreparable harm, must be employed in patent cases) and Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008) (which held that parties seeking a preliminary injunction must demonstrate that irreparable harm is likely in the absence of an injunction), rejected the notion that a plaintiff in a trademark infringement lawsuit was entitled to a presumption of irreparable harm upon demonstrating a likelihood of confusion from alleged trademark infringement and held that a plaintiff seeking a preliminary injunction in a trademark infringement case must demonstrate irreparable harm in order to get preliminary injunctive relief:

Gone are the days when “[o]nce the plaintiff in an infringement action has established a likelihood of confusion, it is ordinarily presumed that the plaintiff will suffer irreparable harm if injunctive relief does not issue.” Rodeo Collection, Ltd. v. W. Seventh, 812 F.2d 1215, 1220 (9th Cir. 1987) (citing Apple Computer, Inc. v. Formula International Inc., 725 F.2d 521, 526 (9th Cir.1984)). This approach collapses the likelihood of success and the irreparable harm factors. Those seeking injunctive relief must proffer evidence sufficient to establish a likelihood of irreparable harm.

The Herb Reed case has since left many trademark litigation practitioners (at least those practicing in the Ninth Circuit), after years of being able to obtain preliminary injunctions based on a showing strong showing of likelihood of confusion and the presumption of irreparable harm thereby, now trying to figure out what type of actual “evidence” can be shown to overcome this threshold of demonstrating a likelihood of irreparable harm and having to inform some trademark clients that a preliminary injunction might not be as easily obtainable for trademark infringement as it once was. 

  

The latest example of the struggle to overcome this irreparable harm threshold comes from a court decision by Nevada District Judge Jennifer Dorsey who denied the owner of the Hakkasan nightclub chain preliminary injunctive relief for alleged cybersquatting against an individual who had registered various domain names containing the term “hakkasan.”  See Hakkasan LV, LLC et al v. Eddie Miller, Case No. 2:15-cv-290-JAD-PAL (D. Nev).

Hakkasan had filed a cybersquatting lawsuit against Defendant Miller for his registration of the domain names domain names , , , , and (the “Contested Domain Names”) – one of which was linked to a website offering the domain name for sale for $5000 and the other four linked to a webpage located at (also owned by Miller), which encouraged third parties to “partner” with him. 

Along with the filing of the complaint, Hakkasan also sought an ex parte temporary restraining order and preliminary injunction against Miller.  However, the Court – without receiving any opposition from Miller – denied Hakkasan’s request for preliminary injunctive relief on the grounds that Hakkasan had failed to show any evidence of a likelihood of irreparable harm arising from Miller’s actions.

In rejecting Hakkasan’s arguments of irreparable harm, the Court stated that “there is no evidence that Miller has taken any steps to compete with Hakkasan’s business beyond registering the Contested Domain Names and offering them for sale.”   And while Hakkasan alleged that Miller was using the domain names to “solicit partners to offer counterfeit services to the public,” the Court found

no indication that Miller has sold any of the domain names, partnered with any other person, or constructed a website designed to create confusion with Hakkasan’s business, siphon customers from Hakkasan’s business, or otherwise cause Hakkasan irreparable harm. Speculation of what Miller will do with the domain names is hardly enough to bridge the legal gap between Miller’s actions and Hakkasan’s irreparable injury. Instead, these are the sorts of “platitudes” that the Herb Reed court warned may show harm Hakkasan might suffer, but not harm a party seeking injunctive relief is likely to suffer

Order at p. 4 (emphasis in original).

The Court also rejected as unpersuasive several other cases cited by Hakkasan as support that its evidentiary proffer was sufficient to show irreparable harm.  One case – Starbucks Corp. d/b/a Starbucks Coffee Company v. Heller, 2014 WL 6685662, at *8 (C.D. Cal. Nov. 24, 2014) – involved a case where the court found irreparable harm where the presence of infringing products in the market could damage business goodwill.  However, the Court noted that Hakkasan had not offered any evidence that Miller had “introduced any competing or counterfeit ‘products’ into the marketplace or taken any steps other than to register the domain name and attempt to sell it to third parties.” Order at p. 4. The second case – Kalologie Franchising LLC v. Kalologie Skincare Medical Group of California , 2014 WL 953442, at *5 (C.D. Cal. Mar. 11, 2014) – involved a defendant who was continuing to use the alleged infringing mark at the defendant’s facility through a point of sale system and a website and where the court found irreparable harm from “plaintiff’s loss of control over its business reputation resulting from a defendant’s alleged unauthorized use of its protected mark during the pendency of an infringement action.”  In the case of Hakkasan, however, there was no indication that Hakkasan’s marks were being used by Miller in a manner that was similar to the Kalologie case. 

Finally, Hakkasan made one final “Hail Mary” argument that Herb Reed was a trademark infringement case and that the Ninth Circuit’s decision did not expressly overrule the presumption of irreparable harm in a cybersquatting case.  The Court rejected such argument, especially given the Ninth Circuit past statements that “cybersquatting is a form of trademark infringement.”  The Court further noted two other cybersquatting court decisions issued post-Herb Reed where the plaintiffs were granted preliminary injunctive relief  –  one involving an evidentiary record showing systematic cybersquatting that was intended to deceive customers (Bittorrent, Inc. v. Bittorrent Marketing GMBH, 2014 WL 5773197 (N.D. Cal. Nov. 5, 2014) and another where “loss of control over business reputation” established irreparable harm in circumstances where the domain name owner actually operated a business in the same market as the plaintiff and sold products “slightly dissimilar” from plaintiff’s products (Kreation Juicery, Inc. v. Shekarchi, 2014 WL 7564679, at *12 (C.D. Cal. Sept. 17, 2014)).  The Court found that Hakkasan had failed to show use of the Contested Domain Names by Miller that reached the same levels as those in the Bittorrent and Kreation Juicery cases. 

Accordingly, because Hakkasan had failed to demonstrate a likelihood of irreparable harm, the Court denied both Hakkasan’s Application for Temporary Restraining Order and Motion for Preliminary Injunction.

Royal trademark battle over who will be the reigning WINE KING of New Jersey

The “Real” Wine King?
(Photo Credit: Will Bullas)

(used with permission)

Last Monday, a New Jersey district court judge denied a motion for preliminary injunction brought by the owner of three Northern New Jersey liquor stores named “Wine King” against a Southern New Jersey liquor store that is also using the name “Wine King.” See MNI Management, Inc. v. Wine King, LLC, et al., Case No. 07-6111 (D. N.J. March 10, 2008). A brief background article can be read here. A copy of the decision is available upon request.

The case is an illustration of what can happen when a business does not seek federal registration of its business’ trademarks and service marks, and instead must rely on the rules protecting unregistered trademarks. In addition, while most people recognize that “likelihood of confusion” is an important part of demonstrating infringement, this case also illustrates that such confusion actually comes in two forms – direct confusion and reverse confusion.

The plaintiff, MNI Management, Inc. (“MNI”), operates three liquor stores in Northern New Jersey under the trade name WINE KING (two in Bergen County and one in Morris County) with a combined sales volume over $10 million per year. MNI’s predecessor-in-interest began using the trade name WINE KING in 1998 to identify its retail liquor store and began using the mark as a service mark in 2001 (the “First Mark”) with the opening of its second and third locations. MNI affixed the First Mark to its store signage in 2001 and promoted the mark in its print ads and flier inserts (the web page http://www.thewineking.com/ was not functional as of the date of the decision). MNI also offers a frequent buyer program in which over 13,000 customers from New Jersey and other nearby states have enrolled. MNI filed a Section 1(a) use-in-commerce application for the mark WINE KING on November 19, 2007, for, inter alia, retail store services in the field of alcoholic and non-alcoholic beverages and wine accessories (with a first use in commerce date of 2001) . The application is scheduled to be published for opposition on April 8, 2008.

The defendant, Wine King, LLC, is the company established by defendant Venkata G.R. Indukuri (“Indukuri” and together with Wine King, LLC, the “defendants”) to own and operate a retail wine and liquor store. In March 2006, Indukuri asked his accountant to investigate forming an LLC under the name Wine King, LLC. When the accountant informed Indukuri that no other corporations or LLCs were named “Wine King” and that “Wine King” was not a registered trademark, Indukuri instructed his accountant to form Wine King, LLC. The defendants signed a lease for a retail store location in Southern New Jersey (Monmouth County) in June 2007. In October 2007, defendants filed an application to register the WINE KING mark (the “Second Mark”) with the state of New Jersey – defendants maintain that they did not know about MNI’s retail stores at that time. While the state application was initially rejected because proper specimens and a proper description were not included, defendants refiled and were issued the Second Mark on November 26, 2007. Defendants opened their retail store on November 16, 2007. Defendants are advertising their retail stores through a highway billboard, on radio and TV ads in the Monmouth County area, in newspapers, and online (http://www.wine-king.com/).

MNI apparently discovered defendants' use of the WINE KING mark around November 16, 2007. A cease and desist letter was sent on November 21, 2007, but the defendants refused to comply with MNI’s demands. On December 26, 2007, MNI filed its trademark infringement complaint alleging trademark infringement and unfair competition under the Lanham Act and New Jersey common law along with a motion for a preliminary injunction to enjoin the defendants from infringing the mark WINE KING.

In the court’s memorandum opinion, the district court concluded that MNI had not proven all of the elements necessary to obtain a preliminary injunction. In particular, the court found that the MNI had not shown a reasonable probability of success on the merits with respect to its claims

Preliminary Injunction
For a moving party to be granted the “extraordinary remedy” of injunctive relief, the court must consider whether (1) the movant has shown a reasonable probability of success on the merits, (2) the movant will be irreparably injured by denial of the relief, (3) granting the preliminary relief will result in even greater harm to the nonmoving party, and (4) granting the preliminary relief is in the public interest. ACLU of N.J. v. Black Horse Pike Reg'l Bd. of Educ., 84 F.3d 1471, 1477 n.2 (3d Cir. 1996); see also AT&T Co. v. Winback & Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994). The court grants the preliminary injunction only if the moving party has produced sufficient evidence to convince the court that all four factors favor the preliminary injunction.

Reasonable Probability of Success
In demonstrating the first factor -- reasonable probability of success on the merits – the party seeking the injunction has the burden to make a prima facie case showing a reasonable probability that it will prevail on the merits. Oburn v. Shapp, 521 F.2d 142, 148 (3d Cir. 1975).

Because the service mark in this case was not registered on the federal register, relief is found under Section 43(a) of the Lanham Act. In order for a plaintiff to prevail on a trademark infringement claim for an unregistered mark under federal law (as well as New Jersey law), such plaintiff must show that (1) the mark is valid and legally protectable, (2) the plaintiff is the legal owner of the mark, and (3) the defendant's use of a similar mark is likely to create confusion concerning the origin of the plaintiff's goods or services. Freedom Card, Inc. v. J.P. Morgan Chase & Co., 432 F.3d 463, 470 (3d Cir. 2005);

Valid and Legally Protectable
The district court concluded that MNI’s mark was valid and legally protectable on the basis that it is inherently distinctive. The court found that the mark was suggestive in that it suggests rather than describes the characteristics of MNI’s services and it is not immediately apparent from the combination of “Wine” and “King” what services MNI provides. The court also found that even it were merely descriptive, the First Mark was protectable because it had acquired secondary meaning in MNI’s geographic area (through MNI’s marketing efforts) at the time and place that the defendants began using the Second Mark.

Ownership
Regarding the second factor for proving trademark infringement, a plaintiff must show ownership of the mark at issue. In order for a court to determine ownership of an unregistered trademark, the court considers (1) priority of use and (2) market penetration.

Normally, priority of use is determined by the first party to use a mark – the senior user is the first to use the mark anywhere in the United States while the junior user is the second user of a mark regardless of whether the junior user adopts and uses a mark in a geographically remote location. To the extent that two users of the same mark are competing in the same market, the trademark rights of the senior user will trump those of the junior user.

However, where the two users of the same mark are operating in geographically remote markets, priority is not legally relevant. Because trademark rights grow out of use (and not mere adoption), a senior user cannot stop the use of mark in a market into which the senior user has not somehow reached and where the mark may already represent the source of origin of some other party. A senior user of an unregistered trademark enters a new market subject to the trademark rights already acquired in good faith by another user. This is known as the “Tea Rose-Rectanus” doctrine. See ACCU Personnel, Inc. v. Accustaff, Inc., 846 F.Supp. 1191, 1205 (D. Del. 1994).

Therefore, for a senior user to claim trademark rights in a particular market, the senior user must show evidence of (1) market penetration in a particular market, (2) reputation in a particular market, or (3) a “zone of natural expansion” extending into a particular market. Laurel Capital Group, Inc. v. BT Fin. Corp., 45 F.Supp.2d 469, 482 (W.D. Pa. 1999). [Note: While the Third Circuit Court of Appeals has neither expressly embraced nor rejected the reputation theory and the zone of natural expansion theory to show market penetration, other district courts within the Third Circuit have endorsed both theories while others have noted that whether a senior user is entitled to protection is to be decided only under four factors of the market penetration theory.]

The market penetration of the senior user's trademark must be significant enough to pose a real likelihood of confusion among the consumers in that area, and is analyzed under four factors as of the time the junior user first adopted and began using the trademark: (1) volume of sales; (2) positive and negative growth trends in the area; (3) the number of actual customers in relation to the potential number of customers; and (4) the amount of advertising in the area. Natural Footwear Ltd. v. Hart, Schaffner & Marx, 760 F.2d 1383, 1398-99 (3d Cir. 1985).

As for reputation, the court analyzes whether a senior user's reputation has penetrated a particular market area prior to the junior user's first use of the mark.

Furthermore, to the extent the senior user has failed to establish market penetration in a particular market, the court can also look at whether the senior user is entitled to a “zone of natural expansion” through evidence of constant expansion and a small distance between the two users’ markets and conclude that the senior user is reasonably expected to expand in the junior user’s market. The mere hope of expansion is not sufficient to establish a zone of natural expansion. Instead, the court considers several factors as of the date the junior user adopted and began the mark:

Rather, when determining whether a junior user falls within the senior user's zone of natural expansion, the Court considers, as of the date the junior user adopted and used the mark, (1) the geographic distance from the senior user's actual location to the perimeter of the claimed zone, (2) the nature of the business and the size of the senior user's zones of market penetration and reputation, (3) the history of the senior user's expansion and assessment as to when the senior user could potentially reach the zone the senior user claims, and (4) whether it would take a “great leap forward” for the senior user to enter the zone; that is, whether expansion into the claimed zone is the next logical step. Laurel Capital Group, Inc., 45 F.Supp.2d at 493 (quotation and citations omitted); ACCU Personnel, Inc., 846 F.Supp. at 1209

2008 U.S. Dist. LEXIS 18091 at *26-27.

Finally, if a senior user cannot prove entitlement to trademark protection under one of the above three theories, a junior user is entitled to trademark protection in the junior user's market so long as the mark was adopted and used in good faith. And, at least in the Third Circuit, a user's prior knowledge of the senior user's trademark is not enough, by itself, to compel a finding of bad faith, and instead is only probative of the question whether the junior user acted in bad faith.

Likelihood of Confusion
If a senior user shows superior rights in the mark in the relevant geographic area, then the senior user must demonstrate that the junior user's use of the mark is likely to cause confusion as to the source and origin of the goods or services

The district court goes on to describe the two specific types of “likelihood of confusion” that a plaintiff can assert -- likelihood of “direct confusion” or likelihood of “reverse confusion.” Direct confusion is where the junior user of a mark attempts to free-ride on the reputation and goodwill of the senior user by adopting a confusingly similar or identical mark. Reverse confusion, however, involves the situation where junior user begins using the mark of a senior user in such a way that the junior user’s use of the mark overwhelms the senior user’s use such that the public will assume that the senior user’s goods and services are those of the junior user. In effect, reverse confusion causes the senior user to lose the product identity and goodwill that the senior user has built up with respect to its mark.

The same “likelihood of confusion” factors are analyzed for each type of confusion. Because the district court is in the Third Circuit, the factors are the ten “Lapp” factors:

(1) the degree of similarity between the senior user's mark and the alleged infringing mark, (2) the conceptual and commercial strength of the senior user's mark, (3) the price of the goods and other factors indicative of the care and attention expected of consumers when making a purchase, (4) the length of time the junior user has used the mark without evidence of actual confusion arising, (5) the intent of the junior user in adopting the mark to “ride on the goodwill of the senior user's mark”, (6) the evidence of actual confusion, (7) whether the goods, competing or not competing, are marketed through the same channels of trade and advertised through the same media, (8) the extent to which the targets of the parties' sales efforts are the same, (9) the relationship of the goods in the minds of consumers, whether because of the near-identity of the products, the similarity of function, or other factors, and (10) other facts suggesting that the consuming public might expect the senior user to (i) manufacture both products, (ii) manufacture a product in the junior user's market, or (iii) expand into the junior user's market.

Id. at *29; see also Interpace Corp. v. Lapp, Inc., 721 F.2d 460, 463 (3d Cir. 1983); A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc., 237 F.3d 198, 215 (3d Cir. 2000).

However, with respect to “reverse confusion,” some of the factors are analyzed slightly differently. For example, analysis of the strength of the two marks focuses on the commercial strength of the junior user's mark and the conceptual strength of the senior user's mark. In addition, the intent of the junior user in adopting the mark focuses on intent to exploit confusion in order to push the senior user out of the market. Furthermore, evidence of actual confusion may involve evidence that the public thought that the junior user was the source of the senior user's product or that the public would expect the larger junior user to be the manufacturer of both user’s products.

Likelihood of Direct Confusion
Because neither party in this case had registered its mark federally or with New Jersey by the time the defendants began using the Second Mark (i.e., the date the defendants opened their store for business), the initial question of ownership first had to be determined by analyzing each user’s territorial rights under the “Tea Rose-Rectanus” doctrine.

While MNI is the senior user (having first used its mark in 2001) in this case, such prior use does not resolve ownership because the parties used their marks in different geographic areas within New Jersey.

The court found that MNI could not show that it had penetrated defendant’s geographic market or that its reputation extended into defendant’s geographic market. With MNI’s stores located solely in Northern New Jersey, MNI could not show any actual retail sales in defendants' market. Furthermore, MNI had no concrete plans to expand into defendant’s geographic market. With most of MNI’s customers in Northern New Jersey, MNI could not show a large number of actual and potential customers in the defendants’ geographic market. MNI’s did not show that it had engaged in any advertising in defendants' market and conceded that most of its advertising was on its own stores. Moreover, the mere fact that some customers residing in defendants' market happen to have patronized MNI’s stores was insufficient to prove that MNI’s reputation zone encompasses the towns or counties in which such customers reside.

MNI also failed to show that it is entitled to a “zone of natural expansion” into defendants' market. The two markets are approx. 70 miles apart and MNI’s market penetration and reputation focused on Northern New Jersey and MNI’s limited expansion efforts have only been in the Northern New Jersey area. The mere hope of expansion is not enough to establish a zone of natural expansion, and indeed MNI had no concrete plans to expand into defendants' market.

Finally, the court found that MNI had failed to provide sufficient evidence showing that the defendants lacked good faith when they adopted and began using the Second Mark.

As such, the court concluded that MNI had not established the necessary market penetration of the First Mark in defendants' geographic area to allow MNI to claim to be the legal owner of such unregistered mark in the defendants' market. Because MNI could not establish legal ownership of such mark in the defendants' market, it could not meet the second element necessary for a plaintiff to prevail on a trademark infringement claim for an unregistered mark.

Likelihood of Reverse Confusion
The court then went on to find that MNI had not established a likelihood of reverse confusion in its market either.

As previously discussed, the First Mark was found to be valid and protectable. Furthermore, with respect to market penetration, the defendants did not dispute that MNI had penetrated its own geographic market, and therefore was the legal owner of the mark in MNI’s market. Therefore, having determined validity and ownership, the court went on to apply the “Lapp” factors to determine likelihood of reverse confusion.

The degree of similarity favored MNI because both parties are using the identical mark WINE KING, which have the same overall commercial impression, and thus reverse confusion is likely if defendants are permitted to use the Second Mark in MNI’s geographic market. The degree of care exercised by consumers favored MNI because consumers typically do not exercise a high degree of care when purchasing a relatively low cost item such as a bottle of alcohol. Regarding similar trade channels and similar customers, the court found that there were some similarities between the type of marketing campaigns run by each party (signage, print ads, online websites) which are directed to the same type of customers, namely purchasers of alcohol and alcohol-related products, in each party’s market (which may then frequent the other party’s stores while traveling in New Jersey). As such, the court found this factor to favor a finding of reverse confusion. Regarding the relationship of the goods in the minds of consumers, the court found that this factor also favored a finding of reverse confusion because of the similarity of the services offered by each party.

Regarding actual confusion, however, while MNI showed evidence of three instances of actual confusion on the part of MNI’s suppliers, MNI did not offer any evidence of actual confusion on the part of MNI’s customers (e.g., customers mistakenly assuming that defendants' store is connected to MNI’s stores) or defendants' customers (e.g., customers mistakenly assuming MNI’s stores are connected to defendants' store). While recognizing that the defendants just started using the mark in November 2007 and that evidence of actual confusion may still arise, the court held that this factor presently favored the defendants.

In addition, with respect to defendants’ intent to confuse, the issue becomes defendants’ intent to cause reverse confusion (i.e. to push the senior user out of the market); however, the court found that MNI had not provided any evidence of any such intent on the part of the defendants when the defendants adopted and began using the Second Mark. The court noted that a search for a federal or state registration of the mark at the time defendants adopted and began using the Second Mark would not have even revealed anything because MNI’s trademark was unregistered at the time. As such, while there was evidence that the defendants may have been careless in their search regarding the name WINE KING (i.e., defendants may not have looked hard enough to see if anyone else was using the name), such evidence by itself is not enough to show that the defendants had the requisite intent to push MNI out of its market.

What appears to have been the most important factor in the court’s decision, however, is with respect to the strength of the two marks, which the court found does not indicate that reverse confusion is likely. In a reverse confusion context, the conceptual strength of the First Mark is compared to the commercial strength of the Second Mark; and in order to determine the latter, the court compares the commercial strength of the Second Mark with that of the First Mark and determines whether the defendants have employed a marketing or advertising campaign in MNI’s market that has saturated public awareness of the defendants' mark. See Freedom Card, Inc. v. J.P. Morgan Chase & Co., 432 F.3d 463, 473 (3d Cir. 2005). In order for this factor to favor MNI, MNI must show that while the First Mark is conceptually strong, the Second Mark, though the defendants’ aggressive marketing efforts, has become commercially stronger in MNI’s market.

The court agreed that the First Mark is conceptually strong (based on the aforementioned “suggestive” nature). However, the court also found that the First Mark is commercially strong in MNI’s Northern New Jersey geographic market based on MNI’s large customer base, sales volume, and advertising efforts. The defendants do not operate a store in either one of the counties in which MNI currently operates. In addition, the court found that defendants’ newspaper, television, and radio advertising primarily occurred in the Southern New Jersey area. The court rejected the minimal amount of advertising that may have occurred either in MNI’s market or online – finding that such efforts do not establish that the defendants' use of the Second Mark has saturated MNI’s market with awareness of that mark. Therefore, while the First Mark is conceptually strong, the commercial strength of the First Mark compared to the commercial strength of the Second Mark in MNI’s market does not suggest that a likelihood of reverse confusion.

On balance, the court found that the MNI had not established that the defendants’ use of the Second Mark is likely to create reverse confusion in MNI’s market concerning the origin of MNI’s services. Because MNI had not established a likelihood of confusion, it could not meet the third element necessary for a plaintiff to prevail on a trademark infringement claim for an unregistered mark.

Irreparable Injury
Regarding the second factor for deciding to grant a preliminary injunction (irreparable harm), because MNI could not demonstrate a likelihood of direct or reverse confusion, the court would not presume that MNI would be irreparably harmed by defendants’ continued use of the Second Mark. Furthermore, in response to MNI’s argument that the injunction was necessary to prevent loss of control of reputation, loss of trade, and loss of goodwill, the court noted that MNI, as discussed above, has not shown that either MNI or the defendants have penetrated the others’ market such that the defendants' use of the Second Mark is likely to affect MNI’s reputation, goodwill, or trade.

Harm to Defendants
Regarding the third factor for deciding to grant a preliminary injunction (greater harm to nonmoving party), the court found that the defendants would be irreparably harmed if injunctive relief were granted because they would likely have to change their name in order to continue their services and would lose the goodwill behind that name that they have been building (even though only for a short amount of time). The court added that an injunction would be a particularly extraordinary remedy in this case given that MNI has not presented a compelling case of infringement. On balance, the court concluded that granting the injunction would harm defendants more than denying the injunction would harm MNI.

The Public Interest
Regarding the final factor for deciding to grant a preliminary injunction (the public interest), the court reiterated that the basic public interest implicated in nearly all Lanham Act infringement cases is “the interest in prevention of confusion, particularly as it affects the public interest in truth and accuracy.” However, since the court concluded that the defendants' continued use of the Second Mark does not create a likelihood of confusion with respect to the First Mark, the public interest would not be served by the granting of a preliminary injunction, and indeed, the public interest in free competition would be better served by allowing the defendants to continue operating. Thus, the public interest factor weighs in favor of denying MNI’s claim for injunctive relief.

Conclusion
This case serves as a good illustration to those who may not appreciate the potential downside of not applying for federal registration of their trademarks and service marks. If MNI had sought and received a federal registration for its WINE KING mark back when it first began using it as a service mark in 2001, MNI would have been in a much stronger position to make its current case for trademark infringement (and more likely, the defendants would not have even chosen the name once their representative had uncovered that the name was already being used as a service mark for liquor stores).

Two of the primary benefits of federal registration is that the certificate of registration serves as prima facie evidence of the registrant’s ownership of the mark and registrant’s exclusive right to use the registered mark in commerce on or in connection with the goods or services specified in the certificate (see §7(b) of the Lanham Act, 15 U.S.C. §1057(b)) and provides constructive nationwide notice to the public of the registrant's claim of ownership of the mark (see §22 of the Lanham Act, 15 U.S.C. §1072).

MNI was unable to make its case for likelihood of direct confusion given the court’s conclusion that MNI was not even the owner of such mark in defendants' geographic area. MNI’s geographically limited use of the mark would not have been a factor had MNI obtained a federal registration. In addition, if MNI had registered the First Mark, then the defendants could not have maintained that they did not know about the mark when they began using the Second Mark. The defendants would be deemed to have been put on constructive notice of MNI’s mark and of MNI's prima facie exclusive right to use the registered mark in commerce on or in connection with the goods or services specified in the certificate.

While the court’s opinion is merely a decision on MNI’s motion for preliminary injunction, the court’s analysis of MNI’s case for likelihood of confusion does not bode well for MNI. Unless the parties work out some kind of agreement, it looks like there may be two reigning WINE KINGs in New Jersey.

One possibility that similarly situated parties often pursue is for MNI and the defendants to enter into a non-royalty license agreement whereby the defendants license the WINE KING mark from MNI. This way, MNI benefits from the use of its mark in another part of New Jersey (and can proclaim itself the sole WINE KING of the State) and the defendants can continue to use the mark without interruption and without additional cost (although subject to the terms set forth in the license agreement such as quality control).

Meanwhile, with MNI’s federal service mark application on its way to registration (assuming no party attempts to oppose it), MNI may soon be able to proclaim itself the WINE KING of the U.S. Once MNI has its federal registration, then MNI can at least prevent the defendants from expanding the use of the WINE KING beyond the defendants’ current little fiefdom in Southern New Jersey.

Lulu lo-loses first round of trademark hubbub with Hulu

In the trademark infringement lawsuit brought by Lulu Enterprises, Inc. (lulu.com) against N-F Newsite, LLC (a/k/a hulu.com) (see prior Vegas™Esq post here), the District Court, on Friday, October 19, 2007, denied Plaintiff Lulu’s request for a preliminary injunction against Defendant Hulu. See Lulu Enterprises, Inc. v. N-F Newsite, LLC, Case No. 5:7-CV-347-D, Document 116 (E.D. N.C.) (download order here).

The court first explained the four factors for deciding whether to grant a preliminary injunction:

1. likelihood of irreparable harm to the plaintiff if the injunction is denied, where the irreparable harm is actual and imminent, and not remote or speculative;


2. if plaintiff shows actual and imminent irreparable harm, then harm must be balanced against the likelihood of irreparable harm to the defendant if the injunction granted;


3. likelihood that plaintiff will succeed on the merits, where the extent of the likelihood of success that needs to be shown depends on the balance of the harms (i.e., if balancing the harm favors the plaintiff, then plaintiff need only show serious questions about the merits of the case that are fair grounds for litigation; whereas if the balancing the harm favors the defendant, then plaintiff must show strong probability of success of the merits; and


4. whether the injunction would serve public interest.

See Direx Israel, Ltd. v. Breakthrough Med. Corp., 952 F.2d 802 (4th Cir. 1991).

While the court also set forth the Fourth Circuit’s seven factor test for determining likelihood of confusion in order to assess Lulu’s unfair competition claim (see CareFirst of MD., Inc. v. First Care, P.C., 434 F. 3d 263, 267 (4th Cir. 2006)), the court determined that such analysis was not necessary because Plaintiff’s asserted harm was not actual and imminent. The mere existence of irreparable harm is not enough – the plaintiff must make a clear showing of irreparable harm that is actual and imminent.

Lulu’s argument of irreparable harm rested on the premise that Hulu was intending to enter Lulu’s line of business. Lulu cited to Hulu’s intent-to-use trademark application, but the court rejected the long list of goods and services set forth in Hulu’s registration application, instead reinforcing that what matters is how the marks are used in the marketplace. Lulu also cited to a Hulu’s responses to discovery interrogatories as well as statements by Lulu representatives during depositions. However, the court felt that this evidence was outweighed by other sealed evidence as well as Hulu’s statements at oral argument which indicated that Hulu’s plans “are very narrow and are limited exclusively to making big-budget feature TV and movie content available for its user.” Order at 7.

In short, the court believed that Hulu did not intend to enter Lulu’s line of business (internet self-publishing) once Hulu fully launched its website, and thus faces no actual or imminent harm from Hulu’s business. The court did emphasize, however, that this decision to deny the injunction under the unfair competition claims was based strongly on Hulu’s good-faith assurance about what its website will and will not contain, and the court intends to hold Hulu to its word.

The court also denied a preliminary injunction based on Lulu’s cyberpiracy claims on the grounds that Plaintiff could not show bad faith on the part of Hulu in choosing the URL hulu.com.