(Bill Hilton, a partner at my firm, co-authored this post with me.)
On June 30, 2020, the U.S. Supreme Court held that the addition of “.com” to a generic term has the potential to create a protectable trademark. In so ruling the Court rejected the United States Patent and Trademark Office’s “nearly per se rule” that when a generic term is combined with a generic top-level domain the resulting combination is generic. The background of this case is discussed in detail in an earlier post, Supreme Court Will Decide if “generic.com” Trademarks Are Entitled to Trademark Protection. A few days after this case was decided Kevin Kickstarter scheduled a meeting with his long-time attorney, Mr. Jaggers, to discuss how he might be able to profit from this decision. Regular readers of this blog may recall Kevin and Mr. Jaggers’ past appearances. Kevin has little regard for the attorney-client privilege, and once again he recorded his meeting with Mr. Jaggers and gave us permission to share it.
KEVIN KICKSTARTER: Hey, Mr. Jaggers. Good to see you! Are you ready to help me make a lot of money? Still hoping to sell my business to Google someday, ha ha!
JAGGERS: Good to see you Kevin. What’s up?
KEVIN: Well, I was reading Barstool Sports and I learned about this Bookings.com case the Supremes decided. Hey, dude, just kidding, I read about it in the Wall Street Journal, not Barstool! Seriously, Mr. Jaggers sir, the Supreme Court seems to be saying that you can take a generic word, add a “dot com” to it, and maybe get trademark rights in the domain name. Am I understanding that right? J
AGGERS: Yes, you are, but like most Supreme Court IP cases, there’s more to it than that …
KEVIN: So tell me about it!
JAGGERS: Well, the court agreed with the Trademark Office’s argument that “booking” for a hotel reservation service is generic. For example, someone might say, “what booking service are you going to use for your trip?” But they disagreed with the Trademark Office’s argument that “booking.com” is generic – as they note, no one would say “what booking.com are you going to use for your trip?” While “booking” may be generic, Booking.com is not a generic term to consumers. Consumers associate Booking.com with a specific website. Booking.com proved this when it commissioned an extensive consumer survey that established that — to use some trademark law lingo — Booking.com has “secondary meaning.” However, keep in mind that Booking.com only achieved secondary meaning by spending many millions of dollars marketing the name over many years.
KEVIN: That makes a lot of sense. Someone might say “what dating service are you using,” but not “what dating.com service are you using.” And everyone knows that Booking.com is a popular business.
JAGGERS: Exactly. Not to get too technical, but the court recognized that a “generic.com” term – booking.com or dating.com, for example – can convey to consumers an association with a particular website, something the Trademark Office was unwilling to do. Not to get too legalistic on you, but the way the court described it is that “whether any given ‘generic.com’ term is generic depends on whether consumers in fact perceive that term as the name of a class or, instead, as a term capable of distinguishing among members of the class.”
KEVIN: OK, I think I get it. So, I have a few ideas for some “generic.com” domain names. I think I can develop these as trademarks by investing in them, and get them to the point where consumers distinguish them as members of a class, rather than the name of a class. It may take a few years and some bucks, but if Booking.com could do it, I can do it. What do you think?
JAGGERS: Well, what you describe is certainly possible, but it will take a lot of time and money, and ….
KEVIN: …. Yeah, I get that. But I have a couple of ideas, and I have financial backers. I think I can pull this off. What’s the downside? Why not give it a try?
JAGGERS: The downside is that you’ll spend a lot of money, invest a lot of time, and be unable to pull off what Booking.com did. It’s really a low percentage shot without a huge budget and years of brand development. Also, smart competitors could poach on you and frustrate your strategy. For example, they could use domain names so similar to yours that you’ll never develop secondary meaning. In other words, they could purposefully create confusion before you acquire trademark rights that would allow you to stop them.
KEVIN: OK Mr. Jaggers, thanks. You’re a lawyer, and you’re naturally conservative – very conservative. Fortunes aren’t made without taking risks. Booking.com is a private company, but its value is soaring following the Supreme Court’s decision. So, I’m gonna give it a try. I’ll keep you in the loop, and hopefully a few years from now I’ll be able to tell you that I got the last laugh on this. Ciao, dude!
United States Patent and Trademark Office v. Booking.com, June 30, 2020
Have you ever used the website booking.com to make a hotel reservation? If you are familiar with this site and I asked whether you thought BOOKING.COM is a brand name or a generic term, what would you say? Odds are you’d say it is a brand name – 75% of people surveyed thought so.
The United States Patent and Trademark Office (the USPTO) doesn’t challenge those survey results. However, it doesn’t think BOOKING.COM is entitled to trademark registration. It concluded that BOOKING is generic for an online hotel reservation service, and adding a top-level domain name (“.com” in this case) doesn’t change that, irrespective of survey results showing that consumers view it as a brand.
The owner of the trademark, Booking.com B.V. (“Booking”), appealed, and after grinding its way through the USPTO and the courts for eight years this dispute has arrived at the U.S. Supreme Court.
The issue presented to the Court is this: you can’t register (or enforce) a generic trademark. But what if you add a top-level domain name like “.com” to the generic term? Does that take the mark out of the generic category (making it “descriptive”) and open the door to registration, assuming the owner can prove secondary meaning?
The courts — and the USPTO — have made something of a muddle of this issue. The USPTO asserts that there’s a circuit split on trademark protection for “generic.com” trademarks. There may be, but this is not as clear as it could be. To make matters worse, the USPTO has been inconsistent on the issue. It disallowed registration for BOOKING.COM in the current case, but it has allowed registration for other apparently generic marks, such as CHEAPTICKETS.COM, CHEAPROOMS.COM, UNIVERSITYJOBS.COM, DIAPERS.COM and BUYLIGHTFIXTURES.COM.
The Supreme Court now has an opportunity to straighten things out.
Booking, the plaintiff in the case now before the Supreme Court, owns the booking.com domain name, and claims BOOKING.COM as a trademark.
“BOOKING” is a generic term for hotel reservation services, or so the USPTO and the federal courts concluded. (link) There’s no question that if you started a brick-and-mortar hotel reservation business and called it BOOKING or BOOKING, INC., you’d be unable to register those terms or claim an enforceable trademark in them.
However, Booking argues that under the Lanham Act’s “primary significance” test for generic marks the key issue is what the public understands the composite mark BOOKING.COM (“booking” + “.com”) to refer to. It relies on its survey evidence, which established that 75% of consumers view BOOKING.COM as a brand, and it argues that it’s logically and grammatically impossible to use the term BOOKING.COM as a generic term for anything.
Booking’s arguments persuaded a federal district court and the Fourth Circuit, that BOOKING.COM is descriptive.
The USPTO’s counter-argument is that adding “.com” to a generic term is analogous to adding “Inc.” to a generic term and, under long-established law, adding an identity-designation such as “Inc.” to a generic term does not convert it to a protectible mark. Just as no company could register a trademark in “BOOKING, INC.,” Booking should not be permitted to register a trademark in “BOOKING.COM.” The PTO asserts that the “.com” does nothing more than tell the public that the user operates an online business, much as “Inc.” tells the public that the user is a corporation. It does not create a “descriptive” (and therefore potentially protectable) trademark.
The outcome of this case is a close call. However, in my view Booking has the better side of the case. The USPTO’s central argument – that a top-level domain such as “.com” creates a commercial impression analogous to “Inc.” or “Corp.” – seems questionable. However, even if the Court does rule for Booking, the question remains whether the Court will place “GENERIC.COM” trademarks into the established category of “descriptive” trademarks (as Booking argues) or carve out a separate legal standard for generic.com marks (or a generic word paired with any other top level domain name). For example, the Court could require that generic.com marks meet a more rigorous, sui generis standard of secondary meaning to be eligible for registration.
If the Court does decide that GENERIC.COM trademarks are protectable, I expect that we will see many more of them – perhaps even a mini-gold rush to secure domain names with generic second-level domain names. And, companies that can establish secondary meaning, like Booking, will have stronger grounds on which to freeze out potential competitors who use close variants of generic.com marks. Imagine how Booking might respond to a competitive domain name such as HOTELBOOKING.COM or EBOOKING.COM. Very likely the owners of these domains would receive a cease and desist letter, followed by an infringement lawsuit if they didn’t comply with Booking’s demands.
The Fourth Circuit decision in this case and the cert. petitions are available on the case’s SCOTUS blog page. Eventually, merits briefs, amicus briefs and the Court’s opinion will be available there as well. (link)
The U.S. Supreme Court decides very few intellectual property cases. And, it accepts review of few cases from the First Circuit Court of Appeals in Boston (my circuit). So, when the Supreme Court accepts an IP case appealing a decision from the First Circuit, as it has now, I pay attention.
The case under appeal involves a narrow but important legal issue that is of interest to both the intellectual property licensing and bankruptcy communities. Here is a brief summary of what’s at issue.
The decision on appeal is Mission Product Holdings Inc. v. Tempnology LLC (1st Cir. January 12, 2018), and the issue is a mashup of trademark and bankruptcy law.
When a company files for protection under Chapter 11 of the Bankruptcy Code, the trustee or the debtor-in-possession (the “debtor”) may secure court approval to “reject” any executory contracts to which the debtor is a party. An example would be a distribution agreement for a specific term (say five years) that has not run its course. If the distributor goes into bankruptcy two years into the five year term it can “reject” the contract – it is no longer obligated to perform during the remaining years.
The debtor doesn’t get off completely free – it is left with a liability for a pre-petition breach of the contract. 11 U.S.C. § 365(g) (“[T]he rejection of an executory contract or unexpired lease of the debtor constitutes a breach of such contract or lease … immediately before the date of the filing of the petition….”). However, the other party to the contract has nothing more than an unsecured claim, and these are often worth little in bankruptcy proceedings.
There is an important exception to this rule, which leads to the issue in this case. When the rejected contract is one “under which the debtor is a licensor of a right to intellectual property,” the licensee may elect to “retain its rights … to such intellectual property,” in effect forcing the continuation of the license. 11 U.S.C. § 365(n)(1).
However, the exception presents a potential problem for licensees in one respect – the definition of “intellectual property” includes patents, trade secrets and copyrights, but does not mention trademarks, a form of intellectual property that is often the subject of license agreements. 11 USC § 101(35)(A)
The First Circuit case involved an ongoing (“executory”) trademark license, and the debtor took the position that because trademarks are not included in the list of exceptions, it was entitled to reject (terminate) a trademark license. The licensee, the other party in the case, took the opposite position, asserting that the trademark license should continue.
The licensee lost before the bankruptcy court and appealed to the First Circuit. After a review of the statutory history of the law and the policy issues involved, the First Circuit held that Congress meant what it said by omitting trademarks from the list of the kinds of intellectual property that cannot be rejected by a Chapter 11 debtor – executory trademark licenses are an exception to the exception, and they can be rejected by a debtor. Therefore, the licensee lost its ongoing trademark license.
However, this ruling set up a “circuit conflict” with the Court of Appeals for the Seventh Circuit. For reasons too detailed to go into here, in Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC (7th Cir. 2012), the Seventh Circuit held that Chapter 11 bankruptcy does not entitle the debtor to terminate a trademark license.
This conflict between the First and Seventh Circuits led the Supreme Court to accept an appeal of this case. And, this is clearly a case worthy of Supreme Court review. Prospective licensees should know whether or not they will be able to continue to use a trademark if the licensor files for bankruptcy, not that it depends on where in the country the bankruptcy is filed and therefore which circuit’s law is controlling. A decision by the Court will resolve, nationwide, the status of trademark rights when a debtor rejects a license agreement in bankruptcy.
Briefing on this case has not yet begun, but the case is likely to be heard next year, and a decision issued before the Supreme Court 2018-19 term ends next June. I’ll update this post when a decision is issued. In the meantime, here is a link to the Scotusblog page for the case.
Update, May 2019: The Supreme Court ruled that a debtor may not terminate a trademark license. Link to decision.
The Court of Appeals for the Federal Circuit (“Federal Circuit”) has issued a typically fractured en banc decision (12 judges, 5 opinions) holding that the 70 year old disparagement provision of § 2(a) of the Lanham Act (the federal trademark statute) is unconstitutional under the First Amendment.
This law states, in relevant part:
No trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless it—
(a) Consists of or comprises immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute …. (emphasis added)
The background of this decision is straightforward. Simon Shiao Tam named his band, “The Slants”, and attempted to register it as a trademark. Tam asserted that he had chosen this name to make a statement about racial and cultural issues in the United States, and by chosing this name his band sought to “reclaim” or “take ownership” of Asian stereotypes.
The Patent and Trademark Office denied registration, finding the name disparaging to persons of Asian descent. Ultimately (at least at present), the Federal Circuit took the case “en banc” (meaning all judges in the circuit would rule on the case, not merely a panel of three judges).
The Federal Circuit reversed, stating:
Courts have been slow to appreciate the expressive power of trademarks. Words—even a single word—can be powerful. Mr. Simon Shiao Tam named his band THE SLANTS to make a statement about racial and cultural issues in this country. With his band name, Mr. Tam conveys more about our society than many volumes of undisputedly protected speech. Another rejected mark, STOP THE ISLAMISATION OF AMERICA, proclaims that Islamisation is undesirable and should be stopped. Many of the marks rejected as disparaging convey hurtful speech that harms members of oft-stigmatized communities. But the First Amendment protects even hurtful speech.
The government cannot refuse to register disparaging marks because it disapproves of the expressive messages conveyed by the marks. It cannot refuse to register marks because it concludes that such marks will be disparaging to others. The government regulation at issue amounts to viewpoint discrimination, and under the strict scrutiny review appropriate for government regulation of message or viewpoint, we conclude that the disparagement proscription of § 2(a) is unconstitutional.
It now falls to the Department of Justice, which defended the PTO in this case, to decide whether it will seek an appeal to the Supreme Court. It also remains to be seen what implications this decision will have in the Washington Redskins litigation, where the PTO was ordered to cancel several “Redskins” trademarks on the ground that they were disparaging to Native Americans. That case was recently decided by a federal district court in the Fourth Circuit (which encompasses Maryland, North and South Carolina, Virginia and West Virginia). Pro-Football, Inc. (owner of the Redskins marks) has filed an appeal to the Court of Appeals for the Fourth Circuit, which may or may not find the Federal Circuit’s decision persuasive. If it rules differently, the chances of a successful Supreme Court appeal in the Redskins case is great.
In re Tam (CAFC, December 22, 2015)
Update: the Federal Circuit’s decision was affirmed by the Supreme Court. Matal v. Tam (2017)
[Note: The decision discussed below turned out to be short-lived. On October 21, 2015, less than three months after its publication dated, the decision was withdrawn and a new opinion was issued, upholding the district court’s ruling that Amazon’s search results did not violate the Lanham Act. ]
In an unusual decision the Ninth Circuit Court of Appeals has held that the Amazon search results page for an “MTM Special Ops” watch — a product Amazon does not sell — has the potential to violate the Lanham Act. The Ninth Circuit reversed a decision holding to the contrary by the Federal District Court for the Central District of California, and remanded the case for trial.
MTM’s dealer agreements prohibit them from selling to Amazon, and MTM does not sell to Amazon directly. However, at issue were Amazon search engine results obtained when consumers searched for MTM’s Special Ops watch on Amazon. While Amazon was unable to offer its customers Special Ops watches, it brought them to a page displaying watches by MTM competitors such as Luminox and Chase-Durer.
MTM sued Amazon, but this was not a case of trademark infringement in the conventional sense – instead, of claiming that Amazon illegally used MTM’s trademark, MTM alleged that when consumers searched for MTM watches on Amazon, Amazon illegally misled them by merchandising competitive watches.
The district court dismissed the case, holding that the search results page made it unlikely that consumers would think the watches displayed were associated with the MTM watch.
The Ninth Circuit disagreed, holding that even if consumers realized that the watches featured by Amazon in place of the MTM watch were not Special Ops watches before making a purchase, Amazon’s search results may have created “initial interest confusion.” This offshoot of trademark law, which has been widely criticized and thought by many to be a thing of the past, arises when confusion arises early in the shopping process, even if the confusion is dispelled before the actual sale occurs.
The Ninth Circuit gave Amazon, and every other online retailer, an easy out from claims of this sort by repeatedly noting that “clear labeling” could avoid any confusion. In fact, the court unfavorably compared Amazon to Buy.com and Overstock.com, both of which informed consumers that they did not carry MTM Special Ops watches. Interestingly, however, in what may be an act of passive aggression by Jeff Bezos, Amazon has not yet changed its search results or added additional labeling since the Ninth Circuit’s opinion issued on July 6, 2015.
It may be a stretch to conclude that this decision has implications beyond internal search engines run by online retailers such as Amazon, but one never knows – the case may have breathed life back into the moribund “initial interest confusion” doctrine, at least in the Ninth Circuit.
Multi Time Machine, Inc. v. Amazon.com, Inc. (9th Cir. July 5, 2015)
[As initially published in the September 1, 2014 issue of Massachusetts Lawyers Weekly]
A lot has changed in the realm of intellectual property law following the record-breaking ten intellectual property cases decided by the U.S. Supreme Court in its 2013 term. Highlights of the six unanimously decided patent cases include suits in which the Court narrowed the scope of patent protection for inventions implemented on computers, made it easier to invalidate a patent for indefiniteness, and made it easier for the district courts to shift attorneys’ fees to prevailing defendants.
The Court issued two copyright decisions, including an important ruling that may have implications for cloud computing. And, one of the Court’s two Lanham Act opinions established a new doctrine for standing in false advertising cases.
Medtronic v. Mirowski Family Ventures (Jan. 22, 2014) was the first of five decisions overruling the Federal Circuit outright. The Court held that in a declaratory judgment action for non-infringement brought by a patent licensee, the burden of proving infringement lies with the licensor/patent holder, not the licensee. Medtronic can be seen as an extension of the Court’s 2007 decision in MedImmune, Inc. v. Genentech, holding that patent licensees have standing to bring declaratory judgment actions for non-infringement or invalidity, even as they continue to make royalty payments for the product in controversy.
By placing the burden of proving infringement on patent owners, the Court has made it easier for patent licensees to challenge a patent during the license term.
Octane Fitness v. ICON Health and Fitness (April 29, 2014), may have important consequences for attorneys’ fee awards in patent cases. The case was a challenge to the Federal Circuit’s “exceptional case” standard for awarding attorneys’ fees in patent litigation under 35 U.S.C. §285. That standard required a party seeking fees to show by “clear and convincing evidence” that the case was “objectively baseless” and brought in “subjective bad faith.”
Overruling, the Court held that an “exceptional case” is “one that stands out from others with respect to the substantive strength of a party’s litigating position (both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated … considering the totality of the circumstances.” The Court also changed the standard of proof to a preponderance of the evidence.
While the fee-shifting statute applies to both parties, Octane should make it easier for patent defendants to force losing plaintiffs to pay attorneys’ fees.
Highmark v. Allcare Health Management System (April 29, 2014), a companion case to Octane, held that the standard established in Octane should be left to the discretion of the district courts rather than, as the Federal Circuit had held, be subject to de novo review on appeal.
Octane and Highmark give the district courts substantial leeway within which to decide fee awards and may impact the debate over the reform of the patent laws to curb abusive lawsuits. An important component of proposed reform legislation has been to encourage judicial fee shifting, until now a rarity. These cases may be a significant step in that direction.
That said, until the lower courts demonstrate how aggressively they will apply Octane’s fee-shifting standard, the full impact of these cases will be unclear. Adding to this uncertainty is the risk that the standard will be applied unevenly in different districts (and even from judge to judge), with little authority left to the Federal Circuit, under Highmark, to intervene and shape uniform national application.
In Nautilus v. Biosig (June 2, 2014), the Court addressed the patent statute’s requirement that patent “claims particularly point out and distinctly claim the subject matter which the inventor or a joint inventor regards as the invention.” 35 U.S.C. §112(b).
The Federal Circuit had held that a patent claim passed that threshold so long as the claim was “amenable to construction” and the claim, as construed, was not “insolubly ambiguous.” Reversing the Federal Circuit for the fourth time, the Court held that “a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention” at the time the patent was filed.
While making it easier to challenge a patent based on indefiniteness, the Court left it to the district courts to interpret and apply the standard. Nevertheless, the decision also appears to be consistent with the Court’s trend during the term: to pull in the reins on a patent system widely perceived to be out of control.
The last two cases stand out as the most complex and likely most important patent decisions of the term.
In Limelight Networks v. Akamai Technologies (June 2, 2014), the issue was whether patent infringement could occur when separate entities perform the steps of a method patent, so-called “divided infringement.”
In a controversial decision, the Federal Circuit ruled that a defendant could be liable if it “induced” several parties to jointly carry out the steps necessary for infringement, whether or not the defendant performed any of the steps itself. Reversing again, the Supreme Court held that a defendant cannot be held liable for inducing patent infringement in the absence of direct infringement, which requires that all steps of a patent be performed by a single actor. The Court was not persuaded by the argument that its holding might enable defendants to evade liability by dividing performance among multiple actors.
However, the Court noted that its ruling was based on a 2008 Federal Circuit decision establishing the single actor rule for direct infringement. The Court assumed, without deciding, that that holding was correct, implying that there might be some room for the Federal Circuit (or the Supreme Court) to modify the single actor rule on which the holding in Akamai is based. In the meantime, a divided infringement defense will be a potential loophole for defendants in industries with distributed activities.
The last and most highly awaited patent case in the 2013 term was Alice Corp. v. CLS Bank Int’l (June 19, 2014). At issue was whether claims directed to a computer-implemented financial process were patent-eligible subject matter.
While many in the patent community feared (or hoped) that the decision would render software and business method inventions unpatentable, the Court was careful to avoid that outcome. Rather, it held that, like laws of nature and natural phenomena, “abstract ideas” — such as the business practice in Alice — must contain a sufficient “inventive concept” to “transform” the idea into a patent-eligible application. However, that cannot be achieved solely with a generic computer implementation. In Alice, the claims amounted to “‘nothing significantly more’ than an instruction to apply the abstract idea,” using some “unspecified, generic computer.” That was “not ‘enough’ to transform an abstract idea into a patent-eligible invention.”
While Alice did not create a per se exclusion for software and business processes, these categories will face heightened scrutiny in both prosecution and enforcement. But application of Alice will be complicated by minimal guidance on what constitutes an “abstract idea.” While using a general purpose computer to implement an abstract idea will not achieve patent-eligibility, software that improves a physical process or the functioning of the computer itself may provide the “something more” identified by the Court as a requirement to transform an abstract concept into patent-eligible subject matter.
However, those distinctions were left to the lower courts to resolve on a case-by-case basis.
In Petrella v. Metro-Goldwyn-Mayer, the first of two copyright cases decided in the 2013 term (May 19, 2014), a 6-3 Court reversed the 9th Circuit, holding that the copyright statute’s three-year “rolling” statute of limitations (17 U.S.C. §507) could not be shortened by the common law doctrine of laches. However, an unreasonable, prejudicial delay in filing suit may be relevant to awarding equitable relief and damages based on the infringer’s profits, making it less likely that the ruling will spark a flood of hitherto dormant copyright suits.
The second copyright ruling, ABC v. Aereo (June 25, 2014), involved the legality of Aereo’s system of using micro-antennas and individual digital copies to stream over-the-air TV on the Internet. Reversing the 2nd Circuit, a unanimous Court held that Aereo’s streaming service violated the copyright statute’s public performance right. The Court rejected Aereo’s argument that it was legally indistinguishable from a TV antenna/DVR supplier, holding instead that Aereo transmitted a public performance through “multiple, discrete transmissions,” and that Aereo was substantially similar to cable TV companies, which are required to pay royalties to retransmit TV broadcasts.
The impact of the decision on cloud computing remains to be seen, as does the accuracy of the three-justice dissent’s warning that the rationale of the case will “sow confusion for years to come.”
In Lexmark Int’l v. Static Control (March 25, 2014) the Court unanimously reversed the 6th Circuit’s holding that Static Control could not proceed with a false advertising counterclaim against Lexmark under §43(a) of the Lanham Act because the parties were not direct competitors. The Court announced a new, two-part test: (1) Is the claim within the “zone of interests” protected by the Lanham Act? (2) Did the alleged conduct proximately cause the alleged injury? To meet the second part of the test, a plaintiff must plead “economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising,” and that the deception causes consumers to withhold business from the plaintiff.
The ruling eliminates circuit conflicts and liberalizes standing under federal false advertising law.
In POM Wonderful v. Coca-Cola (June 12, 2014), another false advertising case, POM complained that the label for Coca-Cola’s “pomegranate blueberry” juice blend was deceptive and misleading, in violation of the Lanham Act.
The 9th Circuit held that POM’s claim was precluded by the Food, Drug and Cosmetic Act, which regulates the misbranding of food by means of false labeling. The Court reversed, holding that the federal law was not a safe harbor from the Lanham Act, and, therefore, food and drink labels are subject to competitor claims under the act.
The extent to which the ruling will lead to an increase in false advertising lawsuits over food and drink labeling remains to be seen.
Jarndyce and Jarndyce drones on. This scarecrow of a suit has, in course of time, become so complicated, that no man alive knows what it means. The parties to it understand it least; but it has been observed that no two Chancery lawyers can talk about it for five minutes, without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause; innumerable young people have married into it; innumerable old people have died out of it. . . . Bleak House, Charles Dickens
We were writing about Lexmark v. Static Control 9 years ago. (2005 article). The case itself dates back to 2002. And, after the Supreme Court decision on March 25, 2014, it is not yet over. Lovers of Bleak House may want to shift their gaze in the direction of this case.
At its outset this case involved allegations of copyright infringement and violation of the DMCA’s anti-circumvention provisions. Those issues were resolved by court decisions, but one issue lingered on: whether Static Control could proceed with its false advertising counterclaim against Lexmark under Section 43(a) of the Lanham Act, even though the parties are not direct competitors. The Sixth Circuit held it could not, but the Supreme Court reversed, holding that it could. The Court ruled that a plaintiff who alleges injury to a commercial interest in reputation or sales flowing directly from the defendant’s actions in violation of the statute falls within the “zone of interests” Section 43(a) was designed to protect, even if the plaintiff and defendant are not direct competitors.
The short background on this case is as follows. Lexmark , a producer of toner cartridges for its laser printers, developed microchips for it toner cartridges and printers so that Lexmark printers would reject toner cartridges not containing a matching microchip. The goal, of course, was to frustrate remanufacturers of Lexmark printer cartridges, who had created a secondary market for used cartridges. Static Control replicated the cartridge microchips and sold them to the remanufacturers to enable the resale of Lexmark toner cartridges. Lexmark sued Static Control for copyright violations related to its source code in making the duplicate microchips, but Static Control won against that charge, leaving in place Static Control’s counterclaim that Lexmark had engaged in false advertising when it told remanufacturers that using Static Control’s products would constitute intellectual property infringement.*
*note: This summary is oversimplified. See the Sixth Circuit’s decision for full details.
The Sixth Circuit held that Static Control could not maintain its false advertising claim since, technically speaking, Static Control and Lexmark are not actual competitors – Static Control sells microchips, while Lexmark sells toner cartridges.
In the view of the Sixth Circuit, this distinction was fatal to Static Control’s false advertising counterclaim. However, the Supreme Court rejected a potpourri of different legal tests applied by the various federal circuit courts (including the Sixth Circuit), concluding that the issue was whether a false advertising plaintiff such as Static Control falls within the class of plaintiffs whom Congress has authorized to sue under the federal false advertsing statute, Section 43(a) of the Lanham Act. Using this approach, the Court created a two-part test: (1) whether the claim is within the “zone of interests” protected by the Lanham Act and (2) whether the alleged conduct proximately caused the alleged injury. The Court held that to meet part one of this test a plaintiff must plead “an injury to a commercial interest in reputation or sales.” To meet the second part a plaintiff must plead “economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising” and that the deception causes consumers to withhold business from the plaintiff.
The Court found that Static Control’s allegations satisfied both components of this test. Having liberalized the test for standing in Lanham Act Section 43(a) false advertising cases, the Court sent the case back to the federal district court for the Eastern District of Kentucky, where Static Control will have an opportunity to attempt to prove that it suffered injury proximately caused by Lexmark’s alleged misrepresentations and where the case will resume, perhaps to someday challenge the longevity of Jarndyce v. Jarndyce.
Lexmark Int’l v. Static Components, Inc. (U.S. Supreme Court, March 25, 2014)
Oriental Financial Group, Inc. v. Cooperativa De Ahorro y Crédito Oriental (1st Cir. October 18, 2012) — In this case the First Circuit adopts the trademark law “progressive encroachment doctrine,” joining the 6th, 7th, 8th, 9th and 11th circuits. The progressive encroachment doctrine may be used as an offensive countermeasure to the affirmative defense of laches (delay in brining suit) where the trademark owner can show that “(1) during the period of the delay the plaintiff could reasonably conclude that it should not bring suit to challenge the allegedly infringing activity; (2) the defendant materially altered its infringing activities; and (3) suit was not unreasonably delayed after the alteration in infringing activity” (quoting Oriental Financial).
Harlan Laboratories, Inc. v. Gerald Campbell (D. Mass. October 25, 2012) — Applying Indiana law, Judge Patti Saris issues a preliminary injunction enforcing a one year non-compete agreement. However, the opinion makes liberal use of Massachusetts and First Circuit precedents.
Blake v. Professional Coin Grading Service (D. Mass. October 6, 2012) — In this case, which involves alleged trade secrets associated with a method to grade the “eye appeal” of coins, Judge William Young concluded that the “method” was not subject to trade secret protection due to the fact it had been publicly disseminated before being disclosed to the defendants. However, Judge Young ruled that the case could proceed based on the alleged misappropriation of a proposed marketing plan. In addition to his analysis of trade secret law, the case contains an extensive discussion of Lanham Act issues including “reverse confusion” (which is always confusing) as well as the application of Massachusetts law to the intellectual property issues raised in the case (conversion, breach of contract, the covenant of good faith and fair dealing, unjust enrichment and civil conspiracy).
In DeJesus v. Bertsch, Inc. (D. Mass. Oct. 16, 2012) Judge Young conducts a detailed analysis of corporate successor tort liability under the Massachusetts “de facto merger” and “mere continuation” exceptions. In this case he concludes that the defendant corporation is not subject to successor liability.
One of the thorniest issues in trademark law is whether and when trademark law will protect the use of a single color. After all, there are an infinite number of colors, and it would hardly be fair if one company could obtain a theoretically perpetual right to exclude others from using a color. So, the law makes it difficult to achieve this.
Cases involving color marks are rare, but the Second Circuit released an important decision last week in Christian Louboutin S.A. v. Yves Saint Laurent Am., Inc., (2nd Cir. 2012). The court held that Louboutin’s trademark, consisting of a red, lacquered outsole on a high fashion woman’s shoe (the “Red Sole Mark”), has acquired limited “secondary meaning” as a distinctive symbol that identifies the Louboutin brand, but (oddly) only where the red outsole contrasts with the color of the remainder of the shoe.
The heart of the decision is the court’s functionality analysis. Trademark law recognizes two types of functionality, “utilitarian” functionality, and “aesthetic” functionality. Utilitarian functionality occurs when a product feature is essential to the use or purpose of the article, or if it affects the cost or quality of the article. The court had no difficulty finding that the red outsole was not precluded from trademark protection by reason of utilitarian functionality, since the color serves no utilitarian purpose.
However, that did not end the inquiry. The court had to determine whether Louboutin’s Red Sole Mark was barred under the doctrine of “aesthetic” functionality.
In doing so, the court noted the “counterintuitiveness” of this inquiry: “how can the purely aesthetic be deemed functional, one might ask?” The court answered its own question by noting that “the doctrine of aesthetic functionality bars protection of a mark that is “necessary to compete in the [relevant] market.” A mark is “aesthetically functional, and therefore ineligible for protection under the Lanham Act, where protection of the mark significantly undermines competitors’ ability to compete in the relevant market.” The Red Sole Mark easily passed muster under this test.
The district court had applied a per se rule that assumed functionality (and therefore unenforceability) for color marks in the fashion industry. The Second Circuit disagreed, stating that Supreme Court precedent “requires an individualized, fact-based inquiry into the nature of the trademark, and cannot be read to sanction an industry-based per se rule.” After reviewing the record, and Louboutin’s extensive evidence supporting secondary meaning for the Red Sole Mark, the court concluded that the color mark could be asserted as a trademark only when used as a red outsole contrasting with the remainder of the shoe; it could not be used when both the sole and the remainder of the shoe were red.
I’ve posted the slides from a CLE talk I gave on Wednesday, April 25th. Hopefully, the slides are informative standing alone. They address the very recent DMCA decisions by the 9th Circuit (Veoh) and 2nd Circuit (Youtube), the copyright “first sale” doctrine as applied to digital files in the Redigi case pending in SDNY, and recent trademark “keyword advertising” cases decided in the 4th and 9th Circuits (Rosetta Stone in the 4th Circuit, Network Automation and Louis Vuitton in the 9th). There are also some slides devoted to the CFAA, including the 9th Circuit’s en banc decision in the Nosal case.
If the embedded Scribd document doesn’t appear on your computer directly below, click here to go directly to Scribd
Copyright and Trademark Issues on the Internet
A few days ago I discussed a decision by Massachusetts U.S. District Court Judge Nancy Gertner holding that purchase of a trademarked keyword to trigger a sponsored link on a search engine constitutes a “use in commerce” of the trademark under the Lanham Act (the Federal Trademark statute). (Earlier post here). In that post I mentioned that among cases addressing this issues, only the Second Circuit had held otherwise.
Now the Second Circuit seems to have changed its position on this issue. In Rescuecom v. Google, issued on April 3, 2009, the court reversed a motion to dismiss by the trial court, holding that Rescuecom properly alleged that Google’s keyword ad practices constituted a “use in commerce” under the Lanham Act.
In a somewhat unusual step, the court attached to its opinion an Appendix entitled “On the Meaning of “Use in Commerce” in Sections 32 and 43 of the Lanham Act.” The Appendix, which is described as dicta, discusses at some length the statutory history of the “use in commerce” phrase in the Lanham Act.
This decision appears to be a game-changer for Google, and will require it to modify its policies on selling key word search ads to competitors.
The issue here, presented in the context of a motion to dismiss, is whether adoption of a trademark as a search engine keyword constitutes a “use” under the Lanham Act. The Lanham Act requires “use in commerce” as a condition of infringement, and as Judge Gertner points out, various courts have taken different positions on whether purchase of a trademarked keyword to trigger a sponsored link on a search engine is a “use” of the trademark. Judge Gertner surveyed the field and noted that most of the courts that have considered this issue have found that utilizing a trademark in this manner does constitute “use” under the Act, and she sided with what she considers to be the majority view (the significant exception being the Second Circuit’s decision in 1-800 Contacts v. WhenU).
Hearts of Fire v. Blue Nile
For earlier postings on this issue click here and here.