What happens when a junior trademark holder’s business becomes so popular and well known that it threatens to swamp the reputation of a senior mark holder? The senior mark holder brings a trademark infringement case alleging “reverse confusion” among its potential customers. This was the scenario the Ninth Circuit faced in its recent decision in: Ironhawk Technologies, Inc. v. Dropbox, Inc. (decided April 20, 2021).
Ironhawk develops computer software that uses compression technology to allow for the efficient transfer of data, especially in “bandwidth-challenged environments.” It has marketed its software under the name “SmartSync” since 2004 and obtained a trademark for SmartSync in 2007. It sells its software primarily to the United States Navy but, in 2013, sold its software to at least one major pharmacy chain.
Dropbox (as most lawyers know) produces cloud storage software that millions of users utilize around the world. One of Dropbox’s software features, “Smart Sync,” allows a user to see and access files in their Dropbox cloud account without using up any of the user’s hard drive storage. Dropbox launched its Smart Sync feature in 2017 and was previously aware of Ironhawk’s SmartSync mark. Ironhawk sued Dropbox for violations of the Lanham Act, i.e., trademark infringement, and unfair competition claiming that Dropbox’s use of the name “Smart Sync” intentionally infringed upon Ironhawk’s “SmartSync” trademark.
After some discovery, Dropbox moved for summary judgment. After applying the Sleekcraft factors [from AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-349 (9th Cir. 1979)], the district court granted summary judgment to Dropbox. The Court found that “the overwhelming balance of the Sleekcraft factors weighs against a likelihood of confusion” and that no reasonable jury would find any confusion. Ironhawk appealed to the Ninth Circuit from summary judgment.
The Ninth Circuit began by recognizing that Ironhawk’s claims were based on a theory of “reverse confusion” which “occurs when consumers dealing with the senior mark holder believe that they are doing business with the junior one.” In this particular case, Ironhawk alleged that potential users or customers of its products would have been “confused” and thought that they were dealing with Dropbox instead of Ironhawk. In essence, reverse confusion can occur when “the junior user’s advertising and promotion so swamps the senior user’s reputation in the market that customers are likely to be confused into thinking that the senior user’s good are those of the junior user.”
Intuitively, this may seem like a positive effective, i.e., Ironhawk’s brand would be strengthened if associated with the more well known brand of Dropbox. However, courts have recognized that there are consequences in “reverse confusion” cases such as the senior user may be foreclosed “from expanding into related fields” and misconduct or problems with the junior user’s product could negatively impact the goodwill of the senior user if it was unfairly associated with the junior mark. In essence, courts have recognized the reverse confusion theory “to prevent the calamitous situation [where] a larger, more powerful company thus usurp[s] the business identity of a smaller senior user.” (Citing, Commerce Nat’l Ins. Servs., Inc. v. Commerce Ins. Agency, Inc., 214 F.3d 432, 445 (3d Cir. 2000).)
The Ninth Circuit continued by acknowledging that application of the Sleekcraft factors is appropriate in a reverse confusion case to determine “whether a reasonable jury could conclude that consumers would believe Dropbox is the source of or a sponsor of Ironhawk’s SmartSync.” The Ninth Circuit then laid out and analyzed each of the following Sleekcraft factors: “(1) strength of the mark; (2) proximity of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the degree of care likely to be exercised by the purchaser; (7) defendant’s intent in selecting the mark; and (8) likelihood of expansion of the product lines.” The Ninth Circuit cautioned that these factors are “neither exhaustive nor dispositive” and that courts should look to the “totality of facts in a given case.”
In order to ensure the proper application of the Sleekcraft factors, the Ninth Circuit recognized that a court must first define “the relevant consumer market.” Dropbox had argued that because Ironhawk sold primarily to the United States Navy (with only one private consumer apparently in the last 20 years), the Court should limit its attention to products that would be purchased by the United States Navy. Ironhawk, on the other hand, argued that it had explored the possibility of marketing its products beyond the United States Navy and had, in fact, actively marketed its Smart Sync to other potential customers (albeit unsuccessfully). Ironhawk also argued that because Dropbox had previously attempted or explored acquiring it, that Dropbox itself recognized that Ironhawk had a potentially larger market.
The Ninth Circuit ruled that given that because the case was decided on summary judgment, the evidence had to be construed in a light most favorable to Ironhawk. Therefore, given the evidence offered by Ironhawk in opposition to the summary judgment motion that it had attempted to sell its product in the private commercial market, the Ninth Circuit held that this should have been the appropriate market for the court’s analysis.
Turning to the Sleekcraft factors, the Ninth Circuit held that the majority of these factors weighed in favor of Ironhawk given the presumption that the Court was to view its evidence on these factors in a light most favorable. Addressing the relative strength of the marks, the Ninth Circuit focused on whether Ironhawk’s mark was “descriptive,” i.e., defined a particular characteristic of its product that does not require any imagination, or whether it was “suggestive,” i.e., requires some exercise of imagination to associate the suggestive mark with a product. The Ninth Circuit concluded that while in the end it could be determined that Ironhawk’s mark is descriptive, a reasonable jury could determine that it was in fact suggestive. The more important question, according to the Ninth Circuit, however, was “whether the junior mark is so [commercially] strong as to overtake the senior mark.” The Ninth Circuit concluded that given that Dropbox focuses its marketing to increase the visibility of its Smart Sync product, Ironhawk had come forward with evidence that “if Dropbox’s Smart Sync makes a major misstep and stains its reputation with the public, Ironhawk’s SmartSync could suffer with it.” Thus, the Ninth Circuit found that this first favor could favor Ironhawk.
As to the issue of relatedness of goods and services, the Ninth Circuit recognized that Ironhawk did not need to show that the parties are direct competitors to satisfy this prong. Ironhawk had argued that both products with its use of compression technology assisted teams in sharing data. The Ninth Circuit concluded that this was sufficient for Ironhawk to satisfy this factor in connection with the summary judgment motion.
The Ninth Circuit next examined the third factor i.e., the similarity of the marks. In doing so, a court should look first to whether there is similarity “by appearance, sound and meaning” and should consider marks in their entirety “as they appear in the marketplace.” A court should weigh similarities more heavily than differences between the marks. Finally, the greater the similarity, the more likelihood there is going to be confusion in the marketplace. The District Court had found in granting summary judgment that although the marks were “virtually identical,” there was no likelihood of confusion because each party utilized the mark in connection with its business name or “house mark.” The Ninth Circuit held that while the consistent use of a house mark could generally reduce the likelihood of confusion, “in a reverse confusion case the junior user’s use of a house mark can also aggravate confusion by reinforcing the association between the mark and the junior user.” Given this, the Ninth Circuit found that this factor likewise favored Ironhawk.
Turning to the fourth factor i.e., evidence of actual confusion, the Ninth Circuit considered Ironhawk’s evidence, which included: (1) testimony by its CEO that potential purchasers had expressed concern about “double purchasing,” i.e., why would they purchase Ironhawk’s SmartSync if they already had Dropbox’s Smart Sync; and (2) testimony by an IBM employee who claimed that consumers to whom he pitched Ironhawk’s SmartSync believed they already owned it because they had Dropbox’s Smart Sync. While there were some issues as to the credibility of both witnesses’ testimony, the Ninth Circuit concluded that for purposes of summary judgment, this testimony had to be viewed in Ironhawk’s favor and found that this factor favored Ironhawk.
As to the next factor, i.e., overlap of marketing channels, Dropbox argued that its marketing was distinctly different from Ironhawk’s and that Dropbox had customers self-register on its website whereas Ironhawk actively marketed its products at military trade shows. The Ninth Circuit concluded that while the evidence concerning these factors seemed to favor Dropbox given the very little overlap in marketing channels, it concluded that this factor should be decided by a jury.
Turning to the customer’s sophistication factor, Dropbox argued that because Ironhawk’s primary customer is the United States Navy, that it is obviously a sophisticated user. The Ninth Circuit, however, disagreed and held that because Ironhawk had offered evidence that it was attempting to market its product beyond the government, these prospective clients may be less sophisticated, and therefore this was also a factor for the jury.
Turning to the intent to infringe factor, the Court found it significant that Dropbox knew of Ironhawk’s SmartSync mark before it launched its own Smart Sync to the public. This evidence could support a reasonable jury finding in favor of Ironhawk.
Finally, given the evidence offered by Ironhawk that it had attempted to expand its products beyond the United States Navy, the Ninth Circuit concluded that the final Sleekcraft factor likewise favored Ironhawk for purposes of summary judgment in that a reasonable jury could find that there was a likelihood of expansion of product lines.
Given that the Ninth Circuit had to view Ironhawk’s offered evidence in a light most favorable to it, it determined that Ironhawk had offered evidence that could result in a jury’s finding as to a majority of the Sleekcraft factors in its favor. Therefore, the Ninth Circuit concluded that the trial court had errored in granting Dropbox summary judgment and remanded the court for trial.
Judge Wallace Tashima dissented and would have found that the trial court properly granted summary judgment to Dropbox. Judge Tashima focused on the evidence from Ironhawk that the only customers it attempted to market its product to other than the United States Navy included a large pharmaceutical chain, a leading energy technology company, and a leading data analytics company. He concluded that all of these prospective customers “are all large sophisticated buyers.” Given this, he found it very unlikely that there would be any confusion between the SmartSync product offered by Ironhawk and Dropbox’s Smart Sync.
The Ironhawk decision is a reminder that the Sleekcraft factors can play an importantly equal role in cases where a senior mark holder brings a “reverse confusion” case against a more popular and commercially successful junior holder.