The Rat Pack is . . . Generic! -- Ninth Circuit Affirms Nevada District Court’s Decision that “The Rat Pack” is Generic in connection with “Rat Pack” tribute shows

The title of this blog post could also be entitled “How I won at the Ninth Circuit without doing a thing.” 

On February 16, 2016, the Ninth Circuit Court of Appeals issued its ruling in the appeal that was filed in 2013 by TRP Entertainment, LLC, seeking to overturn the Nevada district court’s 2009 decision which found that the “Rat Pack” was generic and ordered a disclaimer of the term “RAT PACK” on TRP’s trademark registration for “THE RAT PACK IS BACK.”  A copy of the decision can be downloaded here.   See TRP Entertainment, LLC v. BC Entertainment et al., Case No. 13-16754 (9th Cir.)

In upholding the lower court’s decision, the Ninth Circuit found that “the record demonstrates that the term ‘The Rat Pack’ describes a type of live entertainment show and does not identify any particular producer of a Rat Pack tribute show.”  The Court noted that even TRP had referred to “Rat Pack performances as a ‘genre’ of entertainment.”  As such, the district court did not err in determining that “The Rat Pack” is generic in the context of live shows about or in tribute to members of the Rat Pack.  The Ninth Circuit also held that the district court did not abuse its discretion in ordering a disclaimer of the term “The Rat Pack” modifying TRP’s trademark registration (citing 15 U.S.C. § 1119, which allows a court to order the modification of a trademark registration to include a disclaimer of generic components).  As such, the Ninth Circuit affirmed the district court’s grant of partial summary judgment and remanded the case back to the district court to instruct the Director of the United States Patent and Trademark Office to enter a disclaimer of the term “THE RAT PACK” on TRP’s trademark registration for ““THE RAT PACK IS BACK.” 

In order to understand how this victory is one for which I can claim some credit, I will defer to my prior detailed post on the district court’s decision when it was first handed down.  I was no longer Defendants’ counsel of record on the case at the time the decision was handed down, but it was the Motion for Partial Summary Judgment that I prepared and filed on behalf of the Defendants in that case that the district court ultimately ruled on in deciding that “Rat Pack” was generic – a decision that the Ninth Circuit has now affirmed.

Moreover, I was not involved in any briefings relative to TRP’s appeal, so that is why I write that I won at the Ninth Circuit without doing a thing – because indeed I did not.   In fact, the Ninth Circuit ruled against TRP despite having no substantive opposing briefs filed by the Defendants.  Original Defendant Barrie Cunningham did send a one page letter to the Ninth Circuit asking for the lower court’s decision to be upheld, but otherwise, no briefs were filed by the Defendants arguing in favor of upholding the lower court’s decision – which makes the decision of the Ninth Circuit to uphold the decision anyway all the more sweeter.  This victory for Defendants also demonstrates that just because no one opposes you on appeal does not necessarily mean you are going to win your appeal.

So short of an appeal by TRP of the Ninth Circuit’s decision to the U.S. Supreme Court or possibly a request for reconsideration with the Ninth Circuit, this decision marks the end of the great “Rat Pack Generic” saga that started as far back as 13 years ago.  The glory days of TRP claiming to have exclusive rights to the term “THE RAT PACK”  in connection with a “Rat Pack” tribute show – much like the “Rat Pack” itself – is forever gone. 

Trade Dress Protection does not Prevent a Competitor from Copying your Product

[Post by Mark Borghese]

When a competitor makes an identical copy of your product, but sells the copy-cat product under a different brand name, do you have any recourse? What if your product and the competitor's product are so close they look as if they came from the same mold? Is that enough to sue?

Unless you have a utility patent, or some of the copied portions are artistic or ornamental, the answer is almost always no.

In the United States, utility patents are the only way to protect functional elements of a product. Over the years, litigants have made many attempts to protect product engineering with something other than a utility patent with very little success. Often, when a competitor duplicates a product there is no patent claim (because a patent was never granted), no trademark claim (because the product is sold under a different brand), and no copyright claim (because nothing artistic was copied). Often the only possible intellectual property claim left is "trade dress" which refers to the visual appearance of a product or its packaging that signals to consumers the product's source. But not just any visual appearances are entitled to trade dress protection. Only non-functional visual appearances count. This means something artistic or arbitrary in a product's design or packaging.

In Secalt S.A. v. Wuxi Shenxi Construction ___ F.3d ___ (9th Cir. 2012), one of the Plaintiffs, Tractel, Inc., manufactures and sells the Tirak traction hoist pictured below.



These type of traction hoists typically raise and lower swing stage scaffolding platforms on large buildings like this one sold by Tractel.



During a tradeshow in Las Vegas, Tractel saw a Chinese competitor, Jiangsu Shenxi Construction Machinery Co. ("Jiangsu") exhibiting a competing product that looked strikingly similar to Tractel's product.


Tractel sued the Chinese competitor in the District of Nevada alleging trade dress infringement. When discovery closed, both parties moved for summary judgment. The presiding district judge, James C. Mahan, ruled in favor of the Defendants. Judge Mahan found there was no trade dress infringement as all of the claimed "trade dress" served a functional purpose.

Plaintiff appealed to the Ninth Circuit Court of Appeals which upheld Judge Mahan’s ruling. The Ninth Circuit held:

Tractel's hoist is . . . a utilitarian machine with no indication that the visual appearance of its rectangular exterior design is anything more than the result of a simple amalgamation of functional component parts. Absent are any indicia of arbitrary or fanciful design. "To uphold a finding of infringement here . . . would suggest that the general appearance of almost any unpatented product rarely if ever could be copied faithfully. That is not the law." Leatherman, 199 F.3d at 1011. The form of Tractel's hoist follows its function, making the hoist a classic example of "de jure" functionality. We affirm the district court’s determination that Tractel did not present evidence sufficient to create a triable issue as to the nonfunctionality of its claimed trade dress.

Tractel attempted to argue that the overall exterior appearance of its product was non-functional due to its "cubist" and "modern" look and feel. The Ninth Circuit rejected these arguments. In fact, the court found Plaintiff's arguments to be nothing more than semantic trickery.

It is not enough to say that the design portrays a "cubist" feel—so does a square table supported by four legs. The fins may be attractive but they serve a functional purpose. And the cube-shaped gear box is simply housing. Except for conclusory, self-serving statements, Tractel provides no other evidence of fanciful design or arbitrariness; instead, here, "the whole is nothing other than the assemblage of functional parts, and where even the arrangement and combination of the parts is designed to result in superior performance, it is semantic trickery to say that there is still some sort of separate 'overall appearance' which is non-functional."

What Tractel really lacked in this litigation was evidence that any of its customers viewed the design of Tractel’s hoists as non-function or a source identifier. The Ninth-Circuit noted that one of Tractel’s customers testified that everything about the hoist design is functional.

[T]he entire design is predicated on function from what I've seen, and again as with most hoist manufacturers, every element on there is critical to the design otherwise they wouldn’t waste the money or the weight which again comes back to the weight is the key component. So in my opinion every element on there is important to the function.

The Ninth Circuit found that Tractel's other witnesses were just as unpersuasive.

From its own witnesses, Tractel at best offered either unsupported or conclusory claims about the design. Fatal to its claim was the testimony of its own witnesses who honestly laid out the functional nature of the design. Lacking was any evidence, like engineering notebooks or testimony from the designers, about design or aesthetics. Even more devastating was the testimony of third-party witnesses called by Tractel who laid bare the claim of nonfunctionality. For example, they testified that the fins play an important function of dissipating heat and are not for aesthetics. Likewise, the shape of the hoist is practical because it fits in confined construction sites and it is "more efficient and more compact" than some of the other hoists on the market.

Trade dress protection claims -- especially unregistered trade dress protection claims -- are notoriously difficult to prove. And, as the Ninth Circuit held here, impossible to prove without evidence that the design elements are non-functional.

--
About the author
Mark Borghese is a Las Vegas entertainment law attorney with the law firm of Borghese Legal, Ltd.

Egg Works Loses 9th Circuit Appeal Despite No Opposition From Egg World

The owners of the Las Vegas breakfast restaurants The Egg & I and Egg Works got another dose of egg on their face when the Ninth Circuit Court of Appeals affirmed a lower court’s decision to deny the restaurant chain's motion for preliminary injunction that had been sought against a competing Las Vegas restaurant named Egg World (which did not even file any kind of brief in the appeal).

Last 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.). On September 14, 2010, the lower court entered an order denying Egg Works’ Motion for Preliminary Injunction. (a copy of that order can be viewed here). For my previous blog post discussing the lower court’s decision, click here.

Because the counsel of record for Egg World in the lower court case withdrew from the case soon after the court’s decision (the basis for withdraw was a dispute over money – an unfortunate, all too common issue in litigations), Egg Works recognized that if it appealed the court’s denial of its motion for preliminary injunction, the Egg World defendants would probably not file any kind of brief in such an appeal. And so Egg Works filed an appeal to the Ninth Circuit Court of Appeals of the lower court's decision to deny Egg Works’ Motion for Preliminary Injunction. And if the defendants don’t file an any kind of brief in the appeal, Egg Works would easily win, right? Well as this case aptly demonstrates, that’s not necessarily true.

On September 27, 2011, the Ninth Circuit Court of Appeals in an unpublished decision rendered without oral argument (and without the benefit of any kind of briefs from the Egg World defendants) affirmed the Nevada District Court’s decision to deny Egg Works’ Motion for Preliminary Injunction. See Egg Works, Inc., et al v. Egg World LLC, et al, Appeal No. 10-17534 (9th Cir. April 27, 2011) (unpublished). A copy of the decision can be downloaded here.

The decision is fairly straightforward, with the Court of Appeals finding no abuse of discretion on the part of the lower court in denying Egg Works’ Motion for Preliminary Injunction:

The district court correctly identified the legal standard for likelihood of confusion of a trademark, its findings were not clearly erroneous, and the district court did not clearly err in finding no likelihood of confusion concerning appellants’ trademark. See AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979). We conclude that the district court did not abuse its discretion in concluding that appellants failed to meet the requirements to merit preliminary injunctive relief. Accordingly, we affirm the district court’s denial of appellants’ motion for a preliminary injunction.

So where does the case go from here? Well, assuming Egg Works decides not to waste any more money by seeking reconsideration or appealing to the U.S. Supreme Court, the case goes back to Nevada district court and continues to move forward. But with Egg World not currently represented by counsel, Egg Works will now be able to obtain a default and seek a default judgment against thecompany. And Egg Works may try to seek defaults against the individual defendants as well, who have not show any particular interest in continuing the fight in court (even though they did win both at the lower court and on appeal – although admittedly only at an early preliminary stage).

Of course, given that the Egg World restaurant that gave Egg Works so much heartburn last year closed down earlier this year [Comment—I know from firsthand experience that running a restaurant is tough, and probably more so in these economic times], does Egg Works really want to continue to spend legal fees fighting this out after suffering two battle defeats – even after having essentially won the war at the end of the day? We shall see.

[Full Disclosure: My law firm has represented one of the Defendants in other legal matters, but did not represent any of the Defendants in this case.]

Ninth Circuit Gives Victory to Pro Se Defendants Fighting Against Toyota

The Ninth Circuit Court of Appeals reversed a lower court decision issuing an injunction against two individual defendants that were sued by Toyota for trademark infringement over their ownership and use of two domain names that contained the trademark LEXUS. See Toyota Motor Sales, U.S.A., Inc. v. Tabari, Appeal No. 07-55344 (9th Cir. July 8, 2010). News reports on the decision here and here.

Justice Alex Kozinski – fresh off his recent controversial trademark dilution decision in Visa Int'l Serv. Ass'n v. Jsl Corp., 2010 U.S. App. LEXIS 13380 (9th Cir. June 28, 2010) – issues another trademark related decision that has all of the hallmarks of a Kozinski opinion (a trademark Kozinski opinion). This time, the decision addresses the nominative fair use doctrine with respect to domain names.

A lower district court enjoined the defendants, Farzad and Lisa Tabari, from using the domain names buy-a-lexus.com and buyorleaselexus.com on the basis of infringement of Toyota’s LEXUS trademark. The Ninth Circuit reversed and remanded, finding the injunction overbroad.

The Tabaris worked as auto brokers – “the personal shoppers of the automotive world” – and offered their services through the aforementioned websites. Lexus objected to their use of the term “lexus” in the domain names, sued and after a bench trial, the district court found infringement (on the basis of liklihood of confusion) and enjoined the Tabaris from using their domain names. The Tabaris appealed.

The Court of Appeals knocked out the lower court’s application of the eight-factor test for likelihood of confusion articulated in AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979), by noting that “the Sleek-craft analysis doesn't apply where a defendant uses the mark to refer to the trademarked good itself. See Playboy Enters., Inc. v. Welles, 279 F.3d 796, 801 (9th Cir. 2002); New Kids on the Block v. News Am. Publ'g, Inc., 971 F.2d 302, 308 (9th Cir. 1992).” In this case, the Tabaris were using the term Lexus to describe their business of brokering Lexus automobiles. “We've long held that such use of the trademark is a fair use, namely nominative fair use. And fair use is, by definition, not infringement.”

The Court then turned its attention to the scope of the district court’s injunction. “A trademark injunction, particularly one involving nominative fair use, can raise serious First Amendment concerns because it can interfere with truthful communication between buyers and sellers in the marketplace. . . . To uphold the broad injunction entered in this case, we would have to be convinced that consumers are likely to believe a site is sponsored or endorsed by a trademark holder whenever the domain name contains the string of letters that make up the trademark.”

In finding the injunction overbroad, the Court stated:

The injunction here is plainly overbroad--as even Toyota's counsel grudgingly conceded at oral argument-- because it prohibits domain names that on their face dispel any confusion as to sponsorship or endorsement. The Tabaris are prohibited from doing business at sites like independent-lexus-broker.com and we-are-definitely-not-lexus.com, although a reasonable consumer wouldn't believe Toyota sponsors the websites using those domains. Prohibition of such truthful and non-misleading speech does not advance the Lanham Act's purpose of protecting consumers and preventing unfair competition; in fact, it undermines that rationale by frustrating honest communication between the Tabaris and their customers.

The Court went on to note that the district court’s injunction, even if modified to exclude domain names that expressly disclaim sponsorship or endorsement, would still be too broad because it would prevent the Tabaris from doing business at lexus-broker.com, “even though that's the most straightforward, obvious and truthful way to describe their business. The nominative fair use doctrine allows such truthful use of a mark, even if the speaker fails to expressly disavow association with the trademark holder, so long as it's unlikely to cause confusion as to sponsorship or endorsement. . . . Speakers are under no obligation to provide a disclaimer as a condition for engaging in truthful, non-misleading speech.”

The Court then discusses a very important point (and does so in a truly articulate manner that one expects from Kozinski -- so well that I've chosen to simply quote most of it rather than simply paraphrase the discussion and not do his words justice) about trademarks appearing in domain names and the sophistication of modern internet users – a point with which I would imagine many trademark owners are likely to disagree:

When a domain name consists only of the trademark followed by .com, or some other suffix like .org or .net, it will typically suggest sponsorship or endorsement by the trademark holder. Cf. Panavision Int'l, L.P. v. Toeppen, 141 F.3d 1316, 1327 (9th Cir. 1998). This is because “[a] customer who is unsure about a company's domain name will often guess that the domain name is also the company's name.” Id. (quoting Cardservice Int'l v. McGee, 950 F. Supp. 737, 741 (E.D. Va. 1997)) (internal quotation marks omitted); see also Brookfield Commc'ns, Inc. v. W. Coast Entm't Corp., 174 F.3d 1036, 1045 (9th Cir. 1999). . . .
But the case where the URL consists of nothing but a trademark followed by a suffix like .com or .org is a special one indeed. See Brookfield, 174 F.3d at 1057. The importance ascribed to trademark.com in fact suggests that far less confusion will result when a domain making nominative use of a trademark includes characters in addition to those making up the mark. Cf. Entrepreneur Media, Inc. v. Smith, 279 F.3d 1135, 1146-47 (9th Cir. 2002). Because the official Lexus site is almost certain to be found at lexus.com (as, in fact, it is), it's far less likely to be found at other sites containing the word Lexus. On the other hand, a number of sites make nominative use of trademarks in their domains but are not sponsored or endorsed by the trademark holder: You can preen about your Mercedes at mercedesforum.com and mercedestalk.net, read the latest about your double-skim-no-whip latte at starbucksgossip.com and find out what goodies the world's greatest electronics store has on sale this week at frys-electronics-ads.com. Consumers who use the internet for shopping are generally quite sophisticated about such matters and won't be fooled into thinking that the prestigious German car manufacturer sells boots at mercedesboots.com, or homes at mercedeshomes.com, or that comcastsucks.org is sponsored or endorsed by the TV cable company just because the string of letters making up its trademark appears in the domain.
When people go shopping online, they don't start out by typing random URLs containing trademarked words hoping to get a lucky hit. They may start out by typing trademark.com, but then they'll rely on a search engine or word of mouth. If word of mouth, confusion is unlikely because the consumer will usually be aware of who runs the site before typing in the URL. And, if the site is located through a search engine, the consumer will click on the link for a likely-relevant site without paying much attention to the URL. Use of a trademark in the site's domain name isn't materially different from use in its text or metatags in this context; a search engine can find a trademark in a site regardless of where exactly it appears. In Welles, we upheld a claim that use of a mark in a site's metatags constituted nominative fair use; we reasoned that “[s]earchers would have a much more difficult time locating relevant websites” if the law outlawed such truthful, non-misleading use of a mark. 279 F.3d at 804. The same logic applies to nominative use of a mark in a domain name.

(footnotes omitted) (bold underline emphasis added).

The court recognized that there would be exceptions to nominative fair use for those cases where the domain name containing a mark suggested sponsorship or endorsement by the trademark holder (e.g., trademark-USA.com, trademark-of-glendale.com, e-trademark.com, official-trademark-site.com, we-are-trademark.com). However, the district court’s injunction was not limited to this type of usage.

The Court again articulates a modern, Internet-saavy take on the use of trademarks in domain names:

When a domain name making nominative use of a mark does not actively suggest sponsorship or endorsement, the worst that can happen is that some consumers may arrive at the site uncertain as to what they will find. But in the age of FIOS, cable modems, DSL and T1 lines, reasonable, prudent and experienced internet consumers are accustomed to such exploration by trial and error. Cf. Interstellar Starship, 304 F.3d at 946. They skip from site to site, ready to hit the back button whenever they're not satisfied with a site's contents. They fully expect to find some sites that aren't what they imagine based on a glance at the domain name or search engine summary. Outside the special case of trademark.com, or domains that actively claim affiliation with the trademark holder, consumers don't form any firm expectations about the sponsorship of a website until they've seen the landing page --if then. This is sensible agnosticism, not consumer confusion. See Jennifer E. Rothman, Initial Interest Confusion: Standing at the Crossroads of Trademark Law, 27 Cardozo L. Rev. 105, 122-24, 140, 158 (2005). So long as the site as a whole does not suggest sponsorship or endorsement by the trademark holder, such momentary uncertainty does not preclude a finding of nominative fair use.

(bold underline emphasis added).

In response to Toyota’s arguments regarding its entitlement to the exclusive use of the string “lexus” in any internet domain names because of its hundreds of millions of dollars spent every year investing in the name, the Court notes that such wholesale prohibition of the nominative use of Lexus in domain names “would be unfair to merchants seeking to communicate the nature of the service or product offered at their sites. And it would be unfair to consumers, who would be deprived of an increasingly important means of receiving such information. As noted, this would have serious First Amendment implications. The only winners would be companies like Toyota, which would acquire greater control over the markets for goods and services related to their trademarked brands, to the detriment of competition and consumers. The nominative fair use doctrine is designed to prevent this type of abuse of the rights granted by the Lanham Act.”

After setting forth the general principles regarding nominative fair use in domain names, the court then specifically directed its attention to applying the doctrine to the two domain names at issue in the case. The court found the Tabaris' use of the mark “necessary” given the near impossibility of informing consumers that they are Lexus car brokers without mentioning Lexus. And the fact that the Tabaris sold other cars was irrelevant given their right to focus on one particular car brand: “The Tabaris are entitled to decide what automotive brands to emphasize in their business, and the district court found that the Tabaris do in fact specialize in Lexus vehicles. Potential customers would naturally be interested in that fact, and it was entirely appropriate for the Tabaris to use the Lexus mark to let them know it.”

The Tabaris had also used the stylized Lexus mark and “Lexus L” logo on their website – something that Toyota argued was more than necessary and suggested sponsorship or endorsement by Toyota. The Court agreed, but also noted that the site had changed by the time of trial (removing the stylized logos and adding a disclaimer). Toyota claimed that the revised site with its disclaimer “came too late to protect against confusion caused by their domain names, as such confusion would occur before consumers saw the site or the disclaimer.” The Court disagreed since the domain names by themselves did not contain words suggesting that it was like “authorized” or “official.” “Reasonable consumers would arrive at the Tabaris' site agnostic as to what they would find. Once there, they would immediately see the disclaimer and would promptly be disabused of any notion that the Tabaris' website is sponsored by Toyota. Because there was no risk of confusion as to sponsorship or endorsement, the Tabaris' use of the Lexus mark was fair.”

The Court reversed and remanded – sending the case back to the district court to determine if an injunction was even necessary given that the Tabaris had stopped all infringing activities by the time of trial and where there may be no risk that any infringing conduct would recur. And to the extent an injunction would be necessary in the case of the Tabaris, then the proper injunction would be one that does not entirely prohibit use of the domain names at issue in this case and which allows the use of the Lexus mark in the two domain names owned by the Tabaris.

The Court’s remand included the following guiding principle for the district court: “The important principle to bear in mind on remand is that a trademark injunction should be tailored to prevent ongoing violations, not punish past conduct. Speakers do not lose the right to engage in permissible speech simply because they may have infringed a trademark in the past.” The Court also reminded the district court that the case should be analyzed solely “under the rubric of nominative fair use” – thus putting the burden on Toyota to establish that the Tabaris' use of the Lexus mark was not nominative fair use given that the Tabaris used the mark to refer to the trademarked goods. Miller v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003) (en banc).

What makes the Ninth Circuit's decision all the more interesting is the fact that the trial and appeal were pursued pro se by the two individual defendants, Farzad Tabari and Lisa Tabari. Apparently, they had a lawyer, but when legal fees got to be too much [ed.—the unfortunate price of justice], they decided to go at it by themselves. According to one of the articles, Lisa Tabari was quoted as saying “everyone in the court system, they were so wonderful to us.” And they have shown that with enough hard work and dedication, the little guy can pursue justice in our legal system and be victorious against the big corporation and its army of overpriced lawyers without hiring a lawyer and incurring thousands of dollars in legal fees (although, as a lawyer, I certainly wouldn't advise such a course of action -- after all, they may not have had to shell out dollars to lawyers, but they certainly did pay a cost if you put a monetary value on the amount of time the Tabaris likely spent on the case, including this appeal, along with all of the other things they could have done with their time, but instead had to be devoted to this case).

On a related note, the Court couldn’t help but take one final jab at both the district court and Toyota’s lawyers. In the opinion’s concluding paragraph, the Court stated: “Many of the district court's errors seem to be the result of unevenly-matched lawyering, as Toyota appears to have taken advantage of the fact that the Tabaris appeared pro se . . . . To avoid similar problems on remand, the district court might consider contacting members of the bar to determine if any would be willing to represent the Tabaris at a reduced rate or on a volunteer basis.”

Of course, what’s truly sad and most pathetic is that Toyota’s lawyers, rather than doing the right thing at this stage and just ending the litigation (possibly with a consent agreement, but on terms that allow the Tabaris to keep their domain names but which alleviates any concerns Toyota has regarding confusion) will more than likely continue to push for the domain names even though the Tabaris have clearly shown that they will not back down in this case and will continue to fight. Toyota may even be foolish enough to appeal this Court's decision to the U.S. Supreme Court (although not before filing a motion for reconsideration, possibly en banc). One wonders why Toyota would want to continue paying its high-priced attorneys in the face of such a defeat against two unrepresented parties. But based on the Ninth Circuit’s decision and the Tabaris’ unwielding determination (and acquired acumen regarding the legal system and due process), who really has the better chance of winning in the end?

Ninth Circuit Tackles Trademark Tacking in “O'” Trademark Dispute

The Ninth Circuit addressed the unique issue of trademark tacking in affirming a lower court’s decision on a trademark lawsuit between two companies that produce clothing aimed towards participants of motor cross racing. See One Industries, LLC v. Jim O’Neal Distributing, Inc., No 08-55316, 2009 U.S. App. LEXIS 18967 (9th Cir. August 24, 2009).

On the one side is Jim O’Neal Distributing, Inc. (“O’Neal”), an apparent leader in the industry with 17.5% of the market for motocross apparel and helmets in 1998. Since 1991, O’Neal has used a stylized “O” followed by an apostrophe (the “O’ mark”) on its products. However, over the years, O’Neal used several different version of this O’ mark.

For purposes of this case, the relevant marks were the 1997 version – a thicker, boxier O’ mark with rounded corners (the “Rounded O’ mark”) – and the 2003 version – which abandoned the rounded corners of the 1997 mark in favor of an angular approach (the “Angular O’ mark”).

One Industries, LLC (“One Industries”) was originally founded in 1997 and began by selling stickers and decals; however, by 2003, One Industries had added helmets and clothing to its product lines which made it a competitor with O’Neal.

In 1999, One Industries developed the “One Icon” mark, which it describes as two interlacing number ones (pictured above), and also developed an angular version of the word “One” in its name (the “One Angular” mark) (pictured below). One Industries uses both of these marks on motorcycle-related apparel and headgear.

In 2006, O’Neal accused One Industries of infringing the 2003 Angular O’ mark as well as the O’NEAL mark. One Industries believed that O’Neal was misrepresenting the length of time that it had been using its O’ mark and that the One Icon and One Angular marks, which were created and registered in 1999, were actually senior to the Angular O’ mark created in 2003. One Industries filed a declaratory judgment action that its One Icon and One Angular marks did not infringe O’Neal’s trademarks. O’Neal in turn asserted counterclaims for trademark infringement.

Before discovery commenced, One Industries moved for a more definite statement under Federal Rule of Civil Procedure 12(e), arguing that O’Neal’s complaint did not identify the particular O’ mark that it claimed was allegedly infringed. O’Neal claimed that the O’ mark, with some slight changes over the years, was always the same mark.

The district court granted One Industries’ motion for a more definite statement reasoning that the two of the marks appear to be more than slightly different. O’Neal then amended its counterclaims to assert infringement of the 1997 Rounded O’ mark (in order to get around One Industries’ 1999 priority date for its own marks). The district court subsequently granted summary judgment to One Industries on all claims and O’Neal appealed.

O’Neal maintained that the district court erred by refusing to “tack” the different versions of the O’ mark dating back to 1991 since, according to O’Neal, each iteration of the O’ mark constituted a continuation of the same mark rather than a creation of a new mark.

As the Court of Appeals explains,

Tacking matters because One Industries first used the One Icon in 1999 -- after O’Neal developed the 1997 Rounded O’ mark but before O’Neal created the 2003 Angular O’ mark. It is a cardinal principle of federal trademark law that the party who uses the mark first gets priority. See Brookfield Commc’ns, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036, 1047 (9th Cir. 1999) (“It is axiomatic . . . that the standard test of ownership is priority of use . . . [T]he party claiming ownership must have been the first to actually use the mark in the sale of goods or services.” (internal quotation marks omitted)). Thus, if the Rounded and Angular O’ marks are the same mark, then the district court should have compared the One Icon with the 2003 Angular O’ mark; if the marks are different, however, then the district court correctly compared the One Icon with the 1997 Rounded O’ mark.

One issue raised by O’Neal was the fact that the district court resolved the issue on a Rule 12(e) motion for a more definite statement rather than in the context of a summary judgment motion. O’Neal felt that summary judgment was premature because discovery had not yet been completed and O’Neal had been deprived of the opportunity to demonstrate that evolving versions of the O’ mark created the same, continuing commercial impression to consumers. While the Ninth Circuit acknowledged that “tacking requires a highly fact-sensitive inquiry” and that the “better practice is to resolve it on summary judgment, after full discovery,” in this case, the court was persuaded that there was no reversible error because O’Neal failed to ask the district court to postpone ruling until after discovery and did not move for reconsideration. “Having acquiesced in the resolution of the issue in the disposition of the Rule 12(e) motion, O’Neal cannot now complain that the district court should have acted differently.”

As for the merits of O’Neal’s tacking claim, the court laid out the legal standard as follows:

A trademark owner may “claim priority in a mark based on the first use date of a similar, but technically distinct, mark--but only in the exceptionally narrow instance where the previously used mark is the legal equivalent of the mark in question or indistinguishable therefrom such that consumers consider both as the same mark.” Brookfield, 174 F.3d at 1047-48 (internal quotation marks omitted). Tacking is a question of fact. See Quiksilver, Inc. v. Kymsta Corp., 466 F.3d 749, 759 (9th Cir. 2006). “A question of fact may be resolved as a matter of law if reasonable minds cannot differ and the evidence permits only one conclusion.” Id.

“The standard for ‘tacking’ . . . is exceedingly strict: [t]he marks must create the same, continuing commercial impression, and the later mark should not materially differ from or alter the character of the mark attempted to be tacked.” Brookfield, 174 F.3d at 1048 (internal quotation marks omitted). Our precedent demonstrates that tacking is allowed only in narrow circumstances. In Brookfield, we concluded that “moviebuff.com” cannot be tacked onto “The Movie Buff’s Movie Store.” Id. at 1049. There, we reasoned that “ ‘The Movie Buff’s Movie Store’ and ‘moviebuff.com’ are very different, in that the latter contains three fewer words, drops the possessive, omits a space, and adds ‘.com’ to the end.” Id. Similarly, in Quiksilver, we held that the district court erred in tacking “QUIKSILVER ROXY” onto “ROXY.” Quiksilver, 466 F.3d at 760. We reasoned that “a reasonable jury could easily conclude that ‘QUIKSILVER ROXY’ and ‘ROXY’ did not create the ‘same, continuing commercial impression’ at the time the ‘ROXY’ brand was introduced.” Id.

Because the district court decided the tacking issue as a matter of law, the court was faced with deciding whether O’Neal’s Rounded O’ mark, developed in 1997, and the Angular O’ mark, developed in 2003, differ to such a degree that no reasonable jury could conclude that they create the “same, continuing commercial impression.”

In affirming the lower court’s decision, the Ninth Circuit panel stated the following regarding O’Neal’s two marks:

We recognize that this is a close case, but we agree with One Industries and with the district court that O’Neal cannot meet the “exceedingly strict” standard for tacking. Although both marks consist of a styled O followed by an apostrophe, the similarities largely end there. The apostrophes are markedly different: in the Rounded O’ mark it is entirely separated from the O and appears to be a standard apostrophe. In contrast, the Angular O’ mark’s apostrophe is connected to the main image and looks like a triangle. The lower and upper horizontal lines on the Rounded O’ mark are thinner than the corresponding lines on the Angular O’ mark. While the Rounded O’ mark is boxy, the Angular O’ mark looks like the outline of a lemon. These differences, in our view, establish that the two marks are not “indistinguishable.” Brookfield, 174 F.3d at 1047. Like the marks at issue in Brookfield and Quiksilver, the Rounded O’ mark and the Angular O’ mark differ in several material respects.

The court also noted that cases from other circuits and from the Trademark Trial and Appeal Board have only allowed tacking when the marks are “virtually identical.” As such, the court concluded that the district court properly granted One Industries’ motion for a more definite statement because the differences between O’Neal’s Rounded O’ mark and Angular O’ mark are so material that they do not meet the “exceptional” instances where tacking should be allowed.

The remainder of the court’s decision addresses the district court’s decision finding no likelihood of confusion with O’Neal’s marks. The court, reviewing the lower court’s summary judgment decision de novo and applying the eight factor test used by the Ninth Circuit for determining “likelihood of confusion” set forth in AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979), concluded that there was no likelihood of confusion in this case – primarily based on the dissimilarity of the marks, the lack of evidence of actual confusion, and the weakness of the mark given the presence of other similar O marks in the marketplace. “In the absence of evidence of actual confusion or intent to deceive, we decline to grant O’Neal a virtual monopoly on the use of the letter “O” on motorcycle helmets. The mere fact that the two companies are direct competitors and happen to use the same letter on their products is not sufficient to show infringement.” The same was true for the claims that One Industries’ marks infringed on O’Neal’s O’NEAL mark (marks were entirely different). And such lack of confusion also refuted O’Neal’s claims of trade dress infringement (which were based on the position of the O’NEAL on a helmet).

Accordingly, the Court of Appeals affirmed the district court’s granting of the motion for more definite statement and motion for summary judgment in favor of One Industries.

Judge Graber, concurring in part and dissenting in part, believed that the district court erred in resolving the tacking question as a matter of law in a motion for a more definite statement:

In my view, it was inappropriate for the court to decide that O’Neal was not permitted to tack its 2003 mark to its older marks as a matter of law in a pre-discovery Federal Rule of Civil Procedure 12(e) order. At that stage in the litigation, it would have been impossible for the district court to conclude that reasonable minds could not differ and that the evidence permitted only one conclusion regarding tacking. Indeed, the court made no such finding, and the majority itself concedes that this is a “close case.” Maj. op. at 11609. The order granting the motion states only that the “Court is unpersuaded by O’Neal’s claim that it uses only one mark that has been slightly altered over the years.” That conclusory statement, unsupported by any evidence in the record at that time, is not enough to decide the highly fact-dependent question of tacking as a matter of law. I would therefore reverse and remand.

Ninth Circuit “Eviscerates” Laches Defense Against Trademark Infringement

The Ninth Circuit has denied a defendant the defense of laches against a plaintiff despite the fact that the plaintiff waited seven years to assert its trademark rights – all because the defendant had (in the majority’s view) not spent that enough money developing the alleged infringing mark as its own (and thus was not prejudiced by the delay). See Internet Specialties West, Inc. v. Milon-Digiorgio Enterprises, Inc., Nos. 07-55199, 07-55087 (9th Cir. March 17, 2009).

Internet Specialties West, Inc. (“ISW”) and Milon-Digiorgio Enterprises, Inc. (“MDE”) are both internet service providers. ISW registered the domain name ISWest.com in May 1996. In July 1998, MDE registered the domain name ISPWest.com. ISW discovered MDE’s website in late 1998, but took no action at the time supposedly because while ISW offered dial-up, DSL and T-1 internet access nationwide, MDE only offered dial-up access in Southern California.

MDE expanded it business nationwide in 2002 and began offering DSL in 2004. In 2005, ISW sent a cease and desist letter to MDE and later brought a trademark infringement lawsuit against MDE’s use of the name ISPWest. See Internet Specialties West, Inc. v. Milon-Digiorgio Enterprises, Inc., Case No. 05-cv-03296, 05-cv-03296 (C.D. Cal.). A jury found that while MDE had infringed ISW’s mark, there was no damages from the infringement. Nonetheless, with such finding, the district court imposed an injunction against any further use of the mark by MDE. Moreover, the district court also determined that ISW’s claims were not barred by laches.

MDE appealed the district court’s decision to the Ninth Circuit Court of Appeal. A divided Ninth Circuit panel affirmed the jury’s verdict on infringement and also upheld the district court’s decisions on laches and the injunction imposed on MDE.

The defense of laches is often categorized as embodying the principle that a plaintiff cannot sit on the knowledge that another company is using its trademark, and then later come forward and seek to enforce its rights. See Grupo Gigante S.A. de C.V. v. Dallo & Co., 391 F.3d 1088, 1102-03 (9th Cir. 2004). The two part test for the defense of laches is 1) was the plaintiff’s delay in bringing suit was unreasonable and 2) was the defendant prejudiced by the delay. See Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 838 (9th Cir. 2002); Tillamook Country Smoker, Inc. v. Tillamook County Creamery Association, 465 F.3d 1102, 1108 (9th Cir. 2006). The six factors analyzed by courts in deciding whether laches precludes a claim are: “1) the strength and value of trademark rights asserted; 2) plaintiff’s diligence in enforcing mark; 3) harm to senior user if relief denied; 4) good faith ignorance by junior users; 5) competition between senior and junior users; and 6) extent of harm suffered by junior user because of senior user’s delay.” E-Systems, Inc. v. Monitek, Inc., 720 F.2d 604, 607 (9th Cir. 1983).

The Ninth Circuit found that the district court had wrongfully decided the first issue and that indeed ISW’s delay in bringing suit was unreasonable. The district court found that the relevant period of time started running in 2004; however, the court found that the earlier 1998 date was when ISW knew or should have known about its cause of action based on ISW’s actual notice of MDE’s use of the mark in connection with internet services. Based on this earlier date of 1998, ISW’s filing of an action outside of the applicable four-year statute-of-limitations period created a presumption that laches applied.

However, in analyzing the second factor (prejudice resulting from the unreasonable delay in bringing suit), the Court found that MDE was not prejudiced by the 7 year delay by ISW in enforcing its trademark rights. It is this particular point where the Ninth Circuit panel split. The dissent found obvious prejudice from MDE’s expansion of its business from 2,000 customers to 13,000 customers along with the accompanying sales and expenses.

The majority opinion, however, felt differently stating:

While we are sympathetic to MDE’s position, the meaning of prejudice in this context is not so simple. “If this prejudice could consist merely of expenditures in promoting the infringed name, then relief would have to be denied in practically every case of delay.” Tisch Hotels, Inc. v. Americana Inn, Inc., 350 F.2d 609, 615 (7th Cir. 1965). Laches is meant to protect an infringer whose efforts have been aimed at “build[ing] a valuable business around its trademark” and “an important reliance on the publicity of [its] mark.” 6 McCarthy on Trademarks and Unfair Competition § 31:12 (citations omitted) (emphases added). Therefore, we feel compelled to analyze whether MDE’s claim of prejudice is based on “mere[ ] expenditures in promoting the infringed name,” Tisch Hotels, 350 F.2d at 615, or whether it is based on an investment in the mark ISPWest as the identity of the business in the minds of the public. See Jarrow, 304 F.3d at 835-36 (finding prejudice where had the plaintiff “filed suit sooner, [the infringer] could have invested resources in an alternative identity . . . in the minds of the public.”)

The majority noted that the district court had found that MDE did not demonstrate prejudice from ISW’s delay in bringing suit because MDE had not expend any time or resources during the interim developing brand recognition of its mark. The district court focused on the fact that most of MDE’s advertising was in the form of “pay-per-click” advertisements (which typically did not include the ISPWest mark) – efforts that the court stated “creates little to no brand awareness.” “It is a simple premise that MDE cannot create 'public association' between ISPWest and the company if it does not even use the ISPWest mark in its most prevalent form of advertising.” The district court also found that MDE would not have to undertake significant advertising expenditures to change its name at this juncture. Finally, the majority did not feel that its view of what constitutes prejudice was in defiance of the court’s prior decision in Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 838 (9th Cir. 2002) and Grupo Gigante S.A. de C.V. v. Dallo & Co., 391 F.3d 1088, 1102-03 (9th Cir. 2004).

As such, the majority found no error or abuse of discretion in the district court’s finding that MDE was not prejudiced, and thus laches would not bar ISW’s lawsuit. The majority also found the scope of the district court’s injunction requiring MDE to cease all use of the ISPWest.com mark reasonable in order to prevent consumer confusion.

Judge Andew Kleinfeld’s dissenting opinion agrees with every part of the majority opinion’s decision on laches – except for the decision regarding prejudice, which Kleinfeld describes as an enunciating “a new and unfair standard for prejudice in trademark law. . . . The practical effect of this new rule is to eviscerate the defense of laches in trademark law.”

Kleinfeld noted that the key to the majority’s rationale was its holding that “[i]f this prejudice could consist merely of expenditures in promoting the infringed name, then relief would have to be denied in practically every case of delay.” The dissent further notes that this language came from a Seventh Circuit decision where the delay was less than under a year and the infringement was deliberate as opposed to the instant case where the delay was far in excess of the applicable statute of limitations and the infringement was arguably not deliberate.

Kleinfeld's dissent focuses on the fact that when ISW first discovered ISPWest, the company only had about 2000 customers; and yet by the time ISW brought action, ISPWest had grown to 13,000 customers with over $1.5 million in marketing expenses. In Kleinfeld's view, this showed that MDE continued to build a valuable business around its trademark during the time that the plaintiff delayed the exercise of its legal rights – which is sufficient for establishing prejudice. “All this expansion happened while Internet Specialties knew about the infringement and did nothing to stop it. Until today, ISPWest’s five or sixfold expansion of its business would have been more than enough to establish prejudice.”

One of the key (and most eloquent) statements made by Kleinfeld is the following:

As the majority concedes, Jarrow Formulas, Inc. v. Nutrition Now, Inc., establishes that laches is presumed to bar a claim made outside of the analogous limitations period, 4 years here. 304 F.3d 829, 835-36 (9th Cir. 2002).The district court did not apply this presumption because, as the majority holds, it failed to determine the proper period for laches. Majority Op. at 3410-11. In fact, the district court applied a presumption against laches. Accordingly, the district court necessarily committed an abuse of discretion on this issue, and we cannot properly defer to its discretion. The majority’s deferential review is erroneous.

Kleinfeld argued that the majority’s decision cannot be reconciled with the Ninth Circuit’s decision in Grupo Gigante in which the Ninth Circuit did not mention a need for “brand awareness” or “public association” before finding laches in the Grupo Gigante case – what mattered was that the party asserting laches “has continued to build a valuable business around its trademark during the time that the plaintiff delayed the exercise of its legal rights.” The same decision also reinforced the importance of a trademark holding conducting “an effective policing effort” in order to obtain judicial enforcement of its trademarks. Moreover, in Grupo Gigante, the Ninth Circuit held that the plaintiff “cannot simply wait without explanation to see how successful the defendant’s business will be and then ask for an injunction to take away the good will developed by defendant in the interim.”

Kleinfeld further notes that the Ninth Circuit based its decision to apply laches in E-Systems v. Monitek, Inc., where the defendant “incurred substantial advertising expenditures and rapidly expanded its business” despite the fact that the plaintiff sued the same year that it discovered the infringement but barred because of a 6-year delay from the time when it should have known about the infringement.

Kleinfeld argues that where the presumption of prejudice applies (and there is no question that it does in this case), the prejudice exists where an infringer is “forced to abandon its long-term investment in its presentation of [its product] to the public.” (citing Jarrow Formulas, 304 F.3d at 840).

Kleinfeld also added his own thoughts about the injunction being an abuse of discretion because it failed to take into account the “public interest” of the burden on MDE’s customers who will have to change their e-mail addresses because MDE can no longer use the ispwest.com domain name. “Thousands of individuals ought not be required to alert family, friends, business contacts, banks, listservs, and their online subscription providers of a change in e-mail address, all because of Internet Specialties’ delay. An injunction without even weighing these burdens on the innocent is an abuse of discretion.”

But nothing says it better than Kleinfeld’s closing paragraph:

The majority’s evisceration of laches means that a big company can lurk in the tall grass while its little prey gradually fattens itself by dint of great effort and expense. Then, when the small competitor has succeeded, the big company can shake it down for a cut of its hard-won success, or destroy the name under which it innocently did business for years. That is trademark law as protection racket, rather than trademark law as prevention of consumer confusion.

[Comment: What about trademark troll?]

Vegas™Esq. Comments:
If it’s not apparent from the tone of the above write-up, I find the majority’s decision quite troubling – for all of the reasons articulated by Judge Kleinfeld's eloquent dissent. This decision is screaming for en banc review and I certainly expect MDE to petition for such review.

First Amendment Protects Grand Theft Auto from Strip Club’s Trademark Infringement Lawsuit

Much has already been written about the Ninth Circuit’s decision in E.S.S. Entertainment 2000, Inc. v. Rock Star Videos, Inc., Case No. 06-56237 (9th Cir. Nov. 5, 2008) finding that the First Amendment protected the makers of the video game Grand Theft Auto from trademark infringement claims brought by the owner of the Los Angeles strip club “Play Pen” over a depiction of a fictional strip club named “Pig Pen” in the video game.

Rather than do my own write-up , I’m opting to provide links to authors who have already written eloquently about the decision:

• Summaries by Filewrapper and Seattle Trademark Lawyer.

• Commentary by Eric Goldman and Rebecca Tushnet.

• News articles by Findlaw and The Register.

• Link to the district court’s decision (here) and commentary at Gamasutra.

Ninth Circuit Decision Broadens Scope of Civil Penalty for Counterfeit Goods Bearing Registered Trademarks

The Ninth Circuit concluded that U.S. Customs can impose a civil penalty on importers who import merchandise bearing a counterfeit mark of a registered trademark even though the owner of the registered mark does not manufacture or sell the same type of merchandise imported. See United States v. Able Time, Inc., Case No. 06-56033 (9th Cir. September 25, 2008).

On May 7, 1999, Able Time, Inc. (“Able Time”) imported a shipment of watches into the United States that bore the Tommy Hilfiger registered trademark “Tommy”. At the time, Tommy Hilfiger had a registered trademark for the mark TOMMY for cosmetic goods such as cologne, after-shave and deodrants (in International Class 3). Even though Tommy Hilfiger did not make or sell watches at the time (a class of goods in International Class 14), the watches were seized by the Bureau of Customs and Border Protection (“Customs”) pursuant to 19 U.S.C. § 1526(e) (which allows Customs to seize merchandise bearing a “counterfeit mark”). Tommy Hilfiger later applied to register the mark TOMMY for watches in class 14 on November 30, 1999, and received its registration on September 17, 2002.

Meanwhile, Customs filed in rem forfeiture action against the watches on November 3, 2000, but the action became mired in appeals and defective service of process such that the government was ultimately unable to pursue the forfeiture lawsuit because the statute of limitations had run and the watches were returned to Able Time on April 8, 2005.

In February and March 2004, Customs also issued several notices to Able Time of the imposition of a civil penalty on Able Time pursuant to 19 U.S.C. § 1526(f) which allows for the imposition of a penalty against any person who imports merchandise seized under § 1526(e). Customs filed the current lawsuit at issue over the civil penalty on April 15, 2004. The district court ultimately granted Able Time’s motion for summary judgment after concluding as a matter of law that the imported watches could not be “counterfeit” under the Tariff Act because Tommy Hilfiger did not make watches at the time of the seizure.

The government appealed to the Ninth Circuit, which reversed the district court’s granting of Able Time’s motion for summary judgment and remanded the case for further proceedings. The Ninth Circuit agreed with the government that the Tariff Act (19 U.S.C. § 1526 et seq) does not require an the owner of the registered mark to make the same type of goods as those imported bearing the counterfeit mark – the so-called "identity of goods or services" requirement:

We conclude that the Tariff Act does not contain an identity of goods or services requirement. We hold that Customs may impose a civil penalty pursuant to 19 U.S.C. § 1526(f) upon an importer of merchandise bearing a counterfeit mark, even though the owner of the registered mark does not manufacture or sell the same type of merchandise.

While there is a lot of discussion from the Court addressing other trademark statutes and the legislative history therof in addressing each of Able Time’s valiant (but ultimately doomed) arguments that the Tariff Act does require identity of goods or services, at the end of the day the Court found that the plain language of the statute does not contain an identity of goods or services requirement, and because the language of the statute is unambiguous, one should not be read into the statute.



Just a friendly reminder to all registered trademark owners holding a trademark registered on the Principal Register which brands goods which are susceptible to counterfeits being made overseas and imported into the U.S. – you can electronically record your registered trademark with U.S. Customs and Border Protection through CBP’s Intellectual Property Rights e-Recordation (IPRR) application. Recordation allows CBP officers monitoring imported goods to prevent the importation of goods bearing a counterfeit infringing mark.

Ninth Circuit amends decision in Jada Toys v. Mattel to apply current dilution law and likelihood of dilution standard

The Ninth Circuit Court of Appeals issued an amended opinion today in the appeal of Jada Toys v. Mattel, Inc., No. 05-55627 (9th Cir. February 21, 2008). For good summaries of the original decision, see blog posts by Seattle Trademark Lawyer and Filewrapper Blog.

While the court' s decision is the same, the primary difference between the two is that the court revised its discussion on dilution to apply the current federal dilution law (the Trademark Dilution Revision Act) instead of the pre-2006 federal dilution law (the Federal Trademark Dilution Act).

In the court’s original decision (link here), the court, in addressing Mattel’s dilution cause of action, applied the old federal dilution standard under the Federal Trademark Dilution Act, as described in the following footnote:

Because this action was filed in 2004, prior to the 2006 amendment of § 1125, see Trademark Dilution Revision Act of 2006, Pub. L. No. 109-312 § 2(1), 120 Stat. 1730, the previous version of § 1125 applies, codified at 15 U.S.C. § 1125(c)(1) (2000).

In the amended order, however, the court has revised its decision to apply the current dilution standard under the Trademark Dilution Revision Act. The court revised the above footnote to read as follows:

We note that in this case the district court applied the prior version of the Federal Trademark Dilution Act (“FTDA”), 15 U.S.C. § 1125(c) (2000), which required a showing of actual dilution. The actual dilution requirement was a product of the Supreme Court’s decision in Moseley v. V Secret Catalogue, Inc., 537 U.S. 418, 433 (2003), where the Court held that the federal dilution statute required a showing of actual dilution. However, since that time the FTDA has been amended so as to require only a likelihood of dilution to succeed. Trademark Dilution Revision Act of 2006 (“TDRA”), Pub. L. No. 109-312 § 2(1), 120 Stat. 1730. In this case, we choose to apply the standard currently in operation so as to adhere to our prior precedent established in Nissan Motor Co. v. Nissan Computer Corp., 378 F.3d 1002, 1009-10 (9th Cir. 2004), in which we held that application of the FTDA to an alleged diluting mark that was in use before the statute’s passage was not retroactive because the FTDA authorizes only prospective relief.

We are aware that in Horphag Research Ltd. v. Garcia, 475 F.3d 1029, 1035 (9th Cir. 2007), we applied the FTDA retroactively, thereby creating an unintentional intra-circuit conflict with Nissan. In Horphag, however, neither party mentioned the TDRA in its briefs, nor moved for a petition for panel rehearing or to vacate the mandate in light of the TDRA’s passage. Moreover, the plaintiff in Horphag prevailed under the more stringent version of the federal dilution statute. Accordingly, recalling the Horphag mandate at this point would serve no purpose.

Slip op. at 1573, n.2.

The court went on to adjust its analysis of the degree of fame a mark retains to recite the non-exclusive list of four factors that a court may consider as stated in 15 U.S.C. § 1125(c)(2)(A) instead of the eight factors listed in the prior version of the statute. Slip op. at 1575.

Finally, the court’s original decision analyzed Mattel’s evidence under the actual dilution standard; however, because the standard under the revised dilution statute is likelihood of dilution, the revised order applies the statutory factors for making a determination of likelihood of dilution by blurring or tarnishment. Slip op. at 1575-76.

The court’s analysis of the evidence and its ultimate conclusion about the district court’s grant of summary judgment remain the same. In the end, the court decided that “a reasonable trier of fact could conclude that this evidence was sufficient to establish the existence of a likelihood of dilution,” (slip op. at 1577) and therefore reversed the district court’s entry of summary judgment based on genuine issues of material fact raised by Mattel’s evidence.

Ninth Circuit gives copier companies second shot at Ikon/GE in complaint alleging false statements, antitrust violations, and racketeering

The Ninth Circuit today reversed a district court decision to grant a motion to dismiss a complaint brought by Newcal Industries, Inc., Pinnacle Document Systems, Inc. and Kearns Business Solution, Inc. (together “Newcal”) against Ikon Office Solution and General Electric Corporation (together “IKON”). See Newcal Industries Inc. v. Ikon Office Solution, No. 05-16208 (9th Cir. January 23, 2008). The decision can be downloaded here.

Newcal and IKON compete to lease name-brand copier equipment to commercial customers and to provide service contracts for the maintenance of such equipment during the lease term. Newcal alleged in its complaint that IKON was engaging in a scheme to defraud IKON customers by amending their customers’ lease agreements and service contracts without disclosing that the amendments would lengthen the term of the original agreement. By extending such agreements, IKON made it more difficult for Newcal to compete for the business of IKON’s customers at such time as the original lease or service contract expires would normally expire. Newcal alleged antitrust violations under the Sherman Act, false advertising under the Lanham Act, and racketeering under RICO. Newcal also sought a declaratory judgment that IKON’s fraudulently procured contracts were invalid.

The district court dismissed without leave to amend Newcal’s declaratory judgment cause of action, but did allow leave to amend the other claims. Newcal later filed a first amended complaint; however, on motion to dismiss brought by IKON under Rule 12(b)(6) for failure to state a claim, the district court concluded that Newcal had failed to allege a legally cognizable “relevant market” under the Sherman Act, that it had failed to allege any false statement of fact under the Lanham Act, and that it had failed to meet RICO standing requirements, and dismissed the complaint with prejudice.

On appeal, the Ninth Circuit reversed the district court’s dismissal and remanded the case. The court found that Newcal, assuming all facts alleged in the complaint are true (as the court must done in deciding an appeal from a Rule 12(b)(6) dismissal), had pled sufficient allegations to support its asserted claims.

Focusing just on the court’s discussion of Newcal’s Lanham Act claim for allegedly false and misleading statements, Newcal alleged that five particular statements were false or misleading. The district court found all five statements insufficient to support a Lanham Act claim. On appeal, however, the court reversed finding that four of the five statements rested on factual findings rather than legal conclusions, and therefore could not be dismissed under Rule 12(b)(6).

The court began by setting forth the elements necessary to state a prima facie case of false or misleading description or representation of fact in commercial advertising or promotion which misrepresents the nature, characteristics, qualities of the person’s goods, services, or commercial activities under the Section 43(a)(1)(B) of the Lanham Act (15 U.S.C. §1125(a)(1)(B)):

Under the Lanham Act, a “prima facie case requires a showing that (1) the defendant made a false statement either about the plaintiff’s or its own product; (2) the statement was made in commercial advertisement or promotion; (3) the statement actually deceived or had the tendency to deceive a substantial segment of its audience; (4) the deception is material; (5) the defendant caused its false statement to enter interstate commerce; and (6) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to the defendant, or by a lessening of goodwill associated with the plaintiff’s product.” Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829 (9th Cir. 2000).

Slip op. at 987.

Newcal set forth in its complaint five particular statements that it alleged were false or misleading statements of fact:

(a) that IKON [ ] would deliver “flexibility” in their “cost-per-copy” contracts and that they would lower copying costs for consumers; (b) that IKON [ ] would deliver 95% up-time service in their IKON Contracts; (c) that original IKON Contracts were intended by IKON to be for a fixed term of sixty (60) months and would expire at the end of that term; (d) that IKON Amendments for sixty (60) months applied only to the changes on the Amendment, not to the entire fleet of IKON [ ] Copier Equipment of the consumer; and (e) that IKON’s “flexing” practices had been declared legal by [the District] Court in its opinion of December 23, 2004.

Slip op. at 987-88 (alterations in original)

The district court had concluded that statement (a) constituted “puffery” and the Ninth Circuit agreed. Citing Cook, Perkiss, & Liehe v. Northern California Collection Service, Inc., 911 F.2d 242, 245-46 (9th Cir. 1990), the court noted that determining whether an alleged misrepresentation is a statement of fact or is instead “mere puffery” is a legal question that may be resolved on a Rule 12(b)(6) motion. The court further noted that a statement is considered puffery if the claim is extremely unlikely to induce consumer reliance and that ultimately, the difference between a statement of fact and mere puffery rests in the specificity or generality of the claim (i.e., consumer reliance will be induced by specific rather than general assertions). A statement that is quantifiable, that makes a claim as to the specific or absolute characteristics of a product may be an actionable statement of fact while a general, subjective claim about a product is non-actionable puffery. The court held that statement (a) was not a quantifiable claim and does not describe any specific or absolute characteristic of IKON’s service, but instead is a general assertion that IKON provides its customers with low costs and flexibility.

As for statement (b), the court noted that whether IKON does or does not actually “deliver 95% up-time service in their IKON Contracts” is a factual question – Newcal’s allegation that this was a false statement at the time it was made is sufficient to survive a 12(b)(6) motion to dismiss.

With respect to statement (c), the court found that this statement could be proved false or possibly true but misleading. In either case, Newcal’s allegation that IKON’s assurance of a 60 month limitation on the contract was misleading since IKON fraudulently extended those contracts will depend on whether IKON knew at the time that it made the statement that it would fraudulently extend the contracts beyond their 60 month terms. IKON’s knowledge and intent at the time and whether the statement was intentionally misleading at the time it was made are factual questions.

As for statements (d) and (e), the issue was whether those statements could reasonably be said to have been made in “a commercial advertisement or promotion.”

The court, citing Coastal Abstract Service, Inc. v. First American Title Insurance Co., 173 F.3d 725, 735 (9th Cir. 1999), stated that in order for a statement of fact to constitute commercial advertising or promotion, it must be (1) commercial speech; (2) by the defendant who is in commercial competition with the plaintiff; (3) for the purpose of influencing consumers to buy defendant’s goods or services; and (4) disseminated sufficiently to the relevant purchasing public to constitute “advertising” or “promotion” within that industry (i.e., the representations need not be made in a “classic advertising campaign” and can include informal types of “promotion”).

The court again notes that whether the statements were disseminated sufficiently to the relevant purchasing public is a factual question, but that Newcal’s allegation that IKON made its allegedly false statements in commercial advertising and promotion of its goods and services through the dissemination of promotional literature to thousands of representatives and employees is sufficient to withstand dismissal at this stage.

As such, the court reversed and remanded Newcal’s Lanham Act claim, finding that the complaint sufficiently alleges all of the elements of a Lanham Act violation, including several false statements of fact that were allegedly disseminated to the relevant market’s consumers.

Ninth Circuit upholds eBay’s infringement victory against PerfumeBay and gives eBay a second shot at dilution claim

On November 5, 2007, the Ninth Circuit Court of Appeals issued its decision in PerfumeBay.com, Inc. v. eBay Inc., No. 05-56794 (9th Cir. Nov. 5, 2007). A copy of the decision can be downloaded here. A good summary of the decision can be found on the Filewapper Blawg (link here). Another posting can be found here from the law firm that argued the case on behalf of eBay at the district court and before the Ninth Circuit.

The Ninth Circuit mostly affirmed the district court’s decision, which held that a) Perfumebay’s use of the mark “Perfumebay” was likely to cause confusion with eBay’s name; b) Perfumebay should be enjoined from using the domain names perfumebay.com and perfume-bay.com; and c) Perfumebay’s use of "Perfume Bay" (not conjoined) was not likely to cause confusion (even though, as discussed below, it may be likely to cause dilution).

However, the Ninth Circuit reversed the district court’s decision of no likelihood of dilution under California law finding that the district court applied the applicable test for dilution too narrowly. eBay argued at the district court that online retailers using names that combine a generic word for the goods or services sold with the suffix “Bay” (CarBay, AutoBay, RentBay, JewelryBay, EventsBay, and, of course, PerfumeBay) diluted eBay’s famous mark and threatened to make the suffix "Bay" synonymous with “online marketplace.” However, in denying eBay’s dilution claim, the lower court determined that eBay’s famous mark was not “nearly identical” to “PerfumeBay.” In reversing this decision, the Ninth Circuit found that the lower court had not considered the “highly distinctive” qualities of eBay’s famous mark in determining whether the marks were “nearly identical.” The court held that there was a likelihood of dilution given a) the “distinctiveness and fame” of the eBay mark, b) the strong recognition and association of eBay’s mark with its services, c) the presence of the dominant suffix “Bay” in the PerfumeBay mark, and d) both parties use the Internet to sell similar products. To the extent that online retailers such as PerfumeBay use the ‘Bay’ suffix in it name, consumers may no longer associate the usage of the ‘Bay’ suffix with eBay’s unique services, which would dilute the uniqueness of eBay’s mark.

The owner of PerfumeBay, Jacquelyn Tran, has her own blog, MakesNoScents, where she says she will continue fighting eBay by seeking an emergency stay of injunction as well as appealing to the Supreme Court. According to PerfumeBay’s court papers, Tran’s selection of the name PerfumeBay was not meant to confuse or deceive customers into believing her company was affiliated with eBay. Rather, she chose the name because it evoked an image of “a bay filled with ships importing perfumes from all parts of the world.” But the district court noted that Tran’s website did not contain any pictures of ships or a Bay or anything suggesting perfume-filled ships. Tran even admitted that some consumers called her asking if she was affiliated with eBay.

One part of the decision that seems a little inconsistent is that the court would affirm the injunction against the domain name perfume-bay.com, but also affirm the finding of no likelihood of confusion for the name Perfume Bay (with a space between the two words). The dash in the domain name serves the same purpose as a space in the Perfume Bay name, and yet this domain name was found to be likely to confuse. To the extent that Ms. Tran should be enjoined from using this particular domain, it should probably be on grounds of dilution rather than likelihood of confusion. Of course, eBay will now get to go back to district court to make its case for dilution against PerfumeBay – an argument that the Ninth Circuit appears to have wholeheartedly endorsed.

Ninth Circuit reverses district court’s dismissal of DermaNew’s declaratory judgment action against Avon

The Ninth Circuit Court of Appeals overturned a district court’s decision to dismiss a trademark declaratory judgment action for lack of subject matter jurisdiction. See Rhoades v. Avon Products, Inc., No. 05-56047 (9th Cir. October 15, 2007) (decision here).

Dean Rhoades owns DermaNew, Inc. (“DermaNew”), a cosmetics and skin care company that sells hand-held microdermabrasion devices and related skin care products. Rhoades filed several trademark registration applications with the USPTO for the names of various products and slogans, including “DermaNew,” “KeraNew,” “GemaNew,” “DermaNew Institute,” “If It Is Not DermaNew, It Is Not Personal Microdermabrasion,” and “DermaNew Palm Microdermabrasion System.”

Since 2001, Avon Products, Inc. (“Avon”), which sells a skin-care product line called ANEW, has filed oppositions to five of DermaNew’s applications (Opposition Nos. 91121754, 91151696, 91160851, 91160985, and 91162392) and filed cancellation proceedings against two of DermaNew’s registered marks (Cancellation Nos. 92043538 and 92043601). See also three additional oppositions (91171771, 91171772, and 76477667) initiated by Avon since the original lawsuit was filed. Avon has pursued similar opposition and cancellation proceedings against DermaNew in other countries, including Brazil, Canada, Hong Kong, Israel, South Korea, and the European Community. (Interesting to note that Avon’s registered trademark for ANEW, which was the basis for its original opposition, was subsequently cancelled for failure to file its Section 8 and Section 9 declarations).

The parties began contentious settlement talks that went on four years without resolution. According to DermaNew, at one settlement conference, Avon’s in-house counsel threatened a trademark infringement action if DermaNew did not get rid of all of its products within 60 days. A letter sent by Avon’s counsel in 2001 after the first TTAB proceeding had been initiated threatened to proceed with the pending proceeding and initiate whatever additional proceedings or litigations is necessary to protect Avon’s trademarks. Finally, on March 22, 2005, Avon’s counsel informed DermaNew’s counsel that Avon would not give up its right to damages unless DermaNew accepted Avon’s proposed settlement.

On March 24, 2005, DermaNew filed a complaint in the U.S. District Court for the Central District of California, seeking a declaratory judgment under 28 U.S.C. § 2201 that its trademark applications and registrations do not infringe on any of Avon’s trademarks. Avon responded with a motion to dismiss under Federal Rules of Civil Procedure 12(b)(1), arguing that the district court lacked subject matter jurisdiction because DermaNew had not stated a case or controversy, or alternatively, under 12(b)(6), arguing that the court should decline to exercise jurisdiction because the action was brought in bad faith.

At the hearing on the motion to dismiss, DermaNew’s counsel tried to respond to Avon’s arguments, but the court ruled, without any additional elaboration: “I think that the complaint is improper, brought for an improper motive, and I’m not exercising my discretion to undertake the declaratory judgment action since it should be back where it belongs and be finished there motion [sic].”

The Court of Appeals reviewed de novo the district court’s dismissal under Rules 12(b)(1) and 12(b)(6), presuming as true all facts alleged in the complaint. Holcombe v. Hosmer, 477 F.3d 1094, 1097 (9th Cr. 2007). The district court’s decision not to hear a declaratory relief action is reviewed for abuse of discretion. Wilton v. Seven Falls Co., 515 U.S. 277, 289-90 (1995).

Dismissal Under Rule 12(b)(1)
The court initially noted that since Avon’s motion to dismiss was based entirely on the argument that DermaNew had not satisfied the “cases or controversy” requirement and since a motion to dismiss on such grounds can only be brought under Rule 12(b)(1), the court construed the district court’s ruling as based solely on Rule 12(b)(1).

Under Article III of the U.S. Constitution, federal courts may adjudicate only actual cases or controversies. See U.S. CONST. art. III, § 2, cl.1. The requirement of a true case or controversy ensures that a judgment from a federal court faced with a claim for a declaratory judgment is not simply rendering an advisory opinion. See Pub. Serv. Comm’n v. Wycoff, Co., 344 U.S. 237, 244 (1952).

The court, citing Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555-56 (9th Cir. 1990), stated that an action for a declaratory judgment that a trademark is invalid or that a plaintiff is not infringing another party’s trademark presents a case or controversy if the plaintiff has a real and reasonable apprehension of being subjected to liability if the plaintiff continues to sell his goods or services. The court analyzes this apprehension from the plaintiff’s perspective to determine if the threat perceived by the plaintiff was real and reasonable. See Cheesebrough-Pond’s, Inc. v. Faberge, Inc., 666 F.2d 393, 396 (9th Cir. 1982).

The court concluded that DermaNew sufficiently alleged the required real and reasonable apprehension necessary for Rule 12(b)(1). While the court noted that concrete threats are not required under the Ninth Circuit’s “flexible approach” (unlike the Federal Circuit’s approach, which requires places a heavier burden on plaintiffs to show an explicit threat or other action), the court nonetheless found the above alleged threats by Avon’s counsel to be sufficiently concrete.

The statement by Avon’s counsel that the company would pursue a trademark infringement action if DermaNew did not get rid of all of its products within 60 days was an explicit threat. Avon had already filed all of the TTAB actions that it could, and a federal infringement action would be the only other “additional” litigation that could be pursued. Finally, Avon’s reference to damages must refer to an infringement action because the TTAB cannot award damages. After all, the TTAB’s powers are limited to determining and deciding rights with respect to trademark registration (see 15 U.S.C. §§ 1067(a), 1063(a), and 1064), while a federal district court can determine registration rights (15 U.S.C. § 1119) as well as trademark infringement (15 U.S.C. § 1114) and may grant injunctive relief (15 U.S.C. § 1116) and award damages (15 U.S.C. § 1117). All of these threats were made after Avon had initiated seven actions in the TTAB, and the last threat made after years of unsuccessful and tense settlement negotiations. Under these circumstances, the court found that DermaNew’s apprehension of being subjected to liability was more than reasonable: “DermaNew thus had good reason to worry about the stability and profitability of its product lines, and to suspect that Avon would make good on its threats and seek hefty damages for any infringement.” Slip op. at 13954.

The court brushed aside Avon’s arguments regarding bad faith, finding Avon’s evidence as either irrelevant or de minimis. If anything, the evidence of the long-running settlement negotiations demonstrated DermaNew’s good faith attempt to resolve the matter and suggest that DermaNew filed the action after settlement negotiations had stalled out of fear of an infringement lawsuit by Avon.

Factual Allegations and Rule 408 Privilege
Avon argued that DermaNew’s evidence of threats were a) “wholly fabricated” and b) were privileged and cannot be admitted as evidence by the court because they occurred during the course of settlement negotiations.

In response to Avon’s arguments that DermaNew’s allegations are “wholly fabricated,” the court reminded Avon that the court must accept DermaNew’s version of events as true for the purposes of establishing jurisdiction and surviving a 12(b)(1) motion.

With respect to Avon’s privilege argument, the court reminded Avon that the plain text of Rule 408 states that evidence from settlement negotiations may not be considered in court when offered to prove liability for, invalidity of, or amount of a claim that was disputed as to validity or amount, or to impeach through a prior inconsistent statement or contradiction. The court stated “Rule 408 is designed to ensure that parties may make offers during settlement negotiations without fear that those same offers will be used to establish liability should settlement efforts fail. When statements made during settlement are introduced for a purpose unrelated to liability, the policy underlying the Rule is not injured.” Slip op. at 13960.

In this case, DermaNew is not relying on Avon’s threats in an attempt to prove whose trademark is valid, or to impeach Avon, but instead, uses the threats to satisfy the jurisdictional requirements of an action for declaratory relief. Furthermore, it did not matter that Avon’s letter claimed an absolute privilege by warning that it was “written for settlement purposes only and shall not be admissible for any purpose in any legal proceeding.”

The court held that DermaNew’s complaint did allege a case or controversy, and therefore the district court did have subject matter jurisdiction to hear the case. As such, the district court erred in dismissing the case under 12(b)(1).

Discretionary Dismissal under the Primary Jurisdiction Doctrine
Because the district court at the oral hearing on the motion to dismiss stated that the complaint “should be back where it belongs and be finished there [in the TTAB]” and therefore was “not exercising . . . discretion to undertake the declaratory judgment action,” the Ninth Circuit took this statement to be an invocation of the doctrine of primary jurisdiction as a basis for declining to hear the case.

The court, citing United States v. Culliton, 328 F.3d 1074, 1081 (9th Cir. 2003), described the primary jurisdiction doctrine as follows: “The primary jurisdiction doctrine provides: When there is a basis for judicial action, independent of agency proceedings, courts may route the threshold decision as to certain issues to the agency charged with primary responsibility for governmental supervision or control of the particular industry or activity involved.” Slip op. at 13962.

The court cited with approval cases in the First and Second Circuit which had already addressed the issue of whether a district court should defer, on primary jurisdiction grounds, a trademark declaratory relief action pending the completion of related TTAB proceedings. See PHC v. Pioneer Healthcare, 75 F.3d 75 (1st Cir. 1996); Goya Foods, Inc. v. Tropicana Prod., Inc., 846 F.2d 848 (2d Cir. 1988). Both Circuits held that the primary jurisdiction doctrine does not justify deferral by a district court in such cases.

The court embraced the reasoning from those two decision, concluding that: “Allowing the district court to decline a declaratory relief action on a primary jurisdiction rationale is sensible only if the agency is better equipped to handle the action. Here, however, Congress has not installed the PTO as the exclusive expert in the field. As noted, parties may litigate these issues in federal court without previously exhausting their claims before the TTAB. See, e.g., 15 U.S.C. § 1071(b)(1).” Slip op. at 13962. The court focused on the fact that the TTAB’s proceedings regarding the registration rights of trademarks would not preclude a subsequent infringement action or necessarily be determinative of all of the issues that would be involved in such infringement action.

The court acknowledged that there may be some times where deferring a declaratory judgment case until TTAB proceedings have concluded would be more efficient (e.g., where the declaratory action involves an issue of the registerability of a trademark, in which case it would make more sense for the TTAB to decide such an issue). However, the primary determining factor is efficiency (i.e., the district court should exercise jurisdiction if to do so would be more efficient).

As such, the court held that district court abused its discretion in declining to hear DermaNew’s action on the basis of the primary jurisdiction doctrine and ordered the district court to adjudicate the lawsuit.

Remand to a Different Judge
One last issue addressed by the court was DermaNew’s request to have the case assigned to a different judge upon remand. See 28 U.S.C. §2106 (remand to a different judge is appropriate if there is evidence of personal bias or unusual circumstances); see also United Nat’l Ins. Co. v. R & D Latex Corp., 141 F.3d 916 (9th Cir. 1998). The court, upon reviewing the evidence, concluded that the assigned district court judge cannot reasonably be expected upon remand to disregard his previously expressed views in this matter. Given the erroneous nature of the judge’s decisions, the court determined that the district court judge would have substantial difficulty in putting his previously expressed views out of his mind.

As such, the court vacated the decision and remanded the case back to the district court with the direction that it be reassigned to a different judge, who should exercise jurisdiction over the case.


VegasTMEsq Comment:
If there is one lesson to be learned from this decision, it would be that you should be careful what any threatening communications during trademark infringement settlement negotiations. In addition, the little trick of putting “written for settlement purposes only and shall not be admissible for any purpose in any legal proceeding” may not provide the type of protection you thought.