A plaintiff seeking to prevail on a trademark infringement claim needs to establish that there is some likelihood of confusion between its mark and that of the defendant.  Generally, a plaintiff establishes that there is “forward” confusion by showing that customers believed they were doing business with plaintiff but because of a confusion in their respective marks, were actually doing business with the defendant.  Sometimes, however, a plaintiff will seek to establish “reverse confusion” in that a customer believing they were doing business with a defendant actually ends up doing business with the plaintiff.  The Ninth Circuit, in the case Marketquest Group v. BIC Corp. (decided July 7, 2017), was faced with the issue as to whether a plaintiff seeking to prevail under a theory of “reverse confusion” is required to plead that theory with specificity.

For nearly 20 years, Marketquest produced and sold promotional products utilizing its registered trademarks “All-in-One” and “The Write Choice.”  In 2009, BIC Corporation acquired a competitor in the promotional products field and began publishing promotional product catalogs featuring the phase “All-in-One” and in other advertising, using the phrase “The WRITE Pen Choice for 30 Years.”  Marketquest sued BIC for trademark infringement.  After the District Court granted summary judgment to BIC, Marketquest appealed to the Ninth Circuit.  (This article does not address the other issues decided by the Ninth Circuity other than the pleading requirement.)

In seeking to have the Ninth Circuit reject the appeal, BIC argued that Marketquest could not proceed under a “reverse confusion” theory because it had not specifically pled such a theory in its complaint. The Ninth Circuit began by recognizing that the Lanham Act allows a trademark owner to pursue a cause of action against someone who uses the trademark in commerce “when such use is likely to cause confusion.”  Given that neither party questioned the validity of Marketquest’s trademarks, the Ninth Circuit recognized that the main issue before the lower court was “whether there is a likelihood of confusion: that is, whether Defendants’ `actual practice[s were] likely to produce confusion in the minds of consumers about the origin of the goods … in question.’”  Since at least 2005, the Ninth Circuit has recognized two theories of consumer confusion: “forward confusion” and “reverse confusion”.  See Surfvivor Media, Inc. v. Survivor Prods., 406 F.32 625 (9th Cir. 2005).  Because Marketquest was attempting to establish trademark infringement under a theory of “reverse confusion,” BIC argued that it was required to plead such a theory with specificity in its complaint and that having failed to do so, the lower court properly granted judgment against it.

The Ninth Circuit recognized that it had not addressed this issue before, but that the First Circuit, in Dorpan, S.L. v. Hotel Melia, Inc. 728 F.3d 55 (1st Cir. 2013), had.  In that case the First Circuit ruled that “`reverse confusion’ is not a separate legal claim requiring separate pleading.  Rather, it is a descriptive term referring to certain circumstances that can give rise to a likelihood of confusion.”  The Ninth Circuit adopted this approach and ruled in Marketquest’s favor “when reverse confusion is compatible with the theory of infringement alleged in the complaint, a  Plaintiff need not specifically plead it.”

BIC argued that at least two prior Ninth Circuit cases required a different result.  BIC first cited the Ninth Circuit’s decision in Surfvivor to support its argument that strict pleading is required. However, the Ninth Circuit rejected this argument and held that the only the thing that the Surfvivor case held was that when reverse confusion is the only plausible theory in a trademark infringement complaint, a plaintiff cannot establish a viable trademark infringement claim based on “forward confusion.”

BIC also cited Murray v. Cable National Broadcasting Co., 86 F.3d 858 (9th Cir. 1996) in support of its proposition that in order to plead a “reverse confusion” theory, “a plaintiff must allege that the defendant `saturated the market with advertising’ or alleged actual reverse confusion from customers.”  The Ninth Circuit likewise rejected this argument recognizing that its Murray decision was decided before it had even recognized a theory of infringement based on “reverse confusion.”  More importantly, the Ninth Circuit concluded that the plaintiff in Murray had not alleged any cognizable trademark infringement claim regardless of whether it was based on “forward confusion” or “reverse confusion.”

The Ninth Circuit concluded that although Marketquest did not use the words “reverse confusion” in its complaint, nor did it allege that the defendants had saturated the market, it had alleged generally that customers “were confused `as to whether some affiliation, connection or association existed’ among defendants and Marketplace and specifically alleged that there were actual instances of forward confusion (i.e., that consumers that that defendant’s goods came from Marketquest).”  Although Marketquest did not raise issues of ”reverse confusion” until its motion for preliminary injunction and later on summary judgment, the lower court’s order did recognize that Marketquest was asserting infringement based on “reverse confusion.”  Although it had not pled such a theory with specificity in its complaint, the Ninth Circuit concluded that the lower court properly allowed Marketquest to proceed under a “reverse confusion” theory and held that Marketquest was not required to plead such a theory with specificity in its complaint.

The Ninth Circuit’s opinion in Marketquest will give plaintiffs some leeway in pleading their theory of trademark infringement. However, plaintiffs will still be required to allege some likelihood of confusion between its mark and that of the defendant in order to avoid a dismissal of their infringement claim.

 

James Kachmar is a shareholder in Weintraub Tobin Chediak Coleman Grodin’s litigation section.  He represents corporate and individual clients in both state and federal courts in various business litigation matters, including trade secret misappropriation, unfair business competition, stockholder disputes, and intellectual property disputes.  For additional articles on intellectual property issues, please visit Weintraub’s law blog at www.theiplawblog.com. 

By:  Eric Caligiuri

In TASER International, Inc. v. PhaZZer Electronics, Inc. et al, 6-16-cv-00366 (FLMD July 21, 2017, Order), a Florida District Court took the drastic step of entering a default judgment in favor of Plaintiff Taser, along with an award of compensatory and treble damages, an award of reasonable attorneys’ fees and costs, and injunctive relief because of Defendant Phazzer’s discovery failures and abusive litigation tactics.  According to the Court, since the outset of the litigation, Phazzer had engaged in a pattern of bad faith conduct designed and intended to delay, stall, and increase the cost of the litigation.  The Court determined no relief other than terminating sanctions would be adequate to address Phazzer’s repeated violations.  In the case, Plaintiff Taser filed a complaint against Defendant Phazzer for patent and trademark infringement, false advertising, and unfair competition. 

In the order granting the terminating sanctions, the Court began by summarizing the “abusive litigation and discovery practices” it found the Defendant undertook during the litigation.  Specifically, the Court noted that after three motions to compel, and after the case had been ongoing for nearly a year, plaintiff “TASER still has not received the most basic information regarding the details and relationships between Phazzer and its manufacturer/suppliers/distributors of the accused . . .[infringing] product.”  In addition, the Court noted that while Taser had been attempting to schedule depositions for five months, Phazzer continued to assert that “[e]very one of the handful of critical witnesses associated with Phazzer, a small, closely-held company, are represented to be on vacation, out of the country, in surgery, or convalescing.”

Furthermore, after multiple failures by corporate representative for Phazzer to appear when required, the Court order that a representative of Phazzer must attend a hearing on their counsel’s request to withdraw, cautioning that “[f]ailure to comply with this Order may result in imposition of sanctions, including entry of a default or default judgment against the offending party or counsel.”  However, the Court noted that no representative from Phazzer Electronics attended the hearing in clear violation of the Court’s Order.  Moreover, in addition to the “flagrant discovery abuse and contemptuous behavior exhibited by Phazzer,” the Court also cited to numerous attempts by Phazzer to derail the litigation by repeatedly attempting to stay the proceedings, and by filing a last minute emergency motion for a protective order.

As for legal authority for its terminating and others sanctions ordered against Phazzer, the Court stated Rule 37 of the Federal Rules of Civil Procedure “allows district court judges broad discretion to fashion appropriate sanctions for the violation of discovery orders.”  The Court then noted Rule 37 “authorizes a variety of sanctions, such as, striking pleadings, rendering a default judgment, and holding the disobeying party in contempt of court.”  Furthermore, Rule 37 provides that “the court must order the disobedient party, attorney advising that party, or both to pay the reasonable expenses, including attorney’s fees, caused by the failure, unless the failure was substantially justified or other circumstances make an award of expenses unjust.”

Although the sanction of default is seen as a “last resort,” the Court reasoned a party’s “willfull or bad faith disregard” for discovery orders may call for this type of sanction when the party failed to comply with a court order compelling discovery and warning that the failure to comply might result in a default judgment.  The Court also noted bad faith may be found through “delaying or disrupting the litigation or hampering enforcement of a court order.”  The Court then found that Defendant Phazzer engaged in the above-described misconduct with the subjective intent to abuse the judicial process.  Thus, the Court found the imposition of terminating sanctions, along with compensatory and treble damages, attorneys’ fees and costs, and a permanent injunction to be “necessary to adequately punish Phazzer for its wanton and repetitive disregard of this Court’s orders and as a consequence of its willful abuse of the discovery process. The imposition of lesser sanctions would underrepresent the seriousness of the offensive conduct.”

Although an extreme example, this case is a good reminder to parties and attorneys alike that all litigation must be taken seriously and that the discovery process must be respected.  Failure to do so can lead to sanctions, up to and including terminating sanctions in particularly egregious cases.

As you likely know, Amazon is taking the world by storm. Whether it is through its convenient offering of household goods, and pretty much anything else you can imagine, to your door, or through its expansive selection of movies and television shows provided through its Amazon Prime streaming service, Amazon is a major player in multiple industries. Recently, Amazon surprised the general public when it agreed to purchase Whole Foods Market for $13.7 billion and judging from its recently trademark application, Amazon is nowhere near done with its expansion. 

On July 6, 2017, Amazon filed a trademark application for “prepared food kits composed of meat, poultry, fish, seafood, fruit and/or vegetable.” The trademark that Amazon seeks to register is WE DO THE PREP.  YOU BE THE CHEF. Does this concept sound familiar? Perhaps even a bit like Blue Apron? If so, that’s probably because it is exactly like Blue Apron. If you aren’t familiar with Blue Apron, it is a meal-kit delivery service backed by major venture capital groups, including Fidelity and Bessemer Venture Partners. It was founded in August 2012 and has enjoyed major success to date. According to the Times Herald, as of September 2016, Blue Apron had shipped 8 million meal servings. This success led to the company going public last month.

Since that time, the value of Blue Apron’s stock has declined steadily, but it recently took its hardest hit when Amazon’s trademark application hit the public sphere, resulting in more than a ten percent drop in price per share. But what does this mean? And more importantly for purposes of this article, how is it related to intellectual property? Well, although there are likely various factors involved in the further decline of Blue Apron’s stock price, such as overvaluation, the most recent drop in stock price is likely caused by Amazon’s extraordinary goodwill.

Usually, when we discuss a mark’s goodwill, it is the product of the owner building goodwill in the mark through its use in commerce. But here, we have an instance where the mark has never been used in commerce and it already has substantial goodwill. The reason is that WE DO THE PREP. YOU BE THE CHEF. is inherently imbued with Amazon’s sizable goodwill. Not to mention, in light of the pending Whole Foods buyout, the mark is likely benefitting from Whole Foods’s goodwill, as consumers likely anticipate that Amazon will utilize Whole Foods products in its food kits. Although I don’t think that has been confirmed or even mentioned by anyone in the know, it is a reasonable assumption. Either way, it is clear that the mark is riding the coattails of its parent company and its parent company’s soon-to-be acquired subsidiary to give itself a head start into the food delivery marketplace. Whether that is indicative of future success in the marketplace remains to be seen.

In today’s age of rapid fire social media, posting to feed the ever growing hunger of a digitally connected audience has become second nature to celebrities and other influencers.  In fact, the larger the number of followers, the greater the compulsion to constantly connect.  And that’s where the problems can arise.

The facts underlying the claim seemed innocuous enough.  Hip hop celebrity Sean “Diddy” Combs was delivering an inspirational speech to young students at a new charter school he founded in Harlem.  Professional photographer Matthew McDermott took a picture of Combs surrounded by students; the picture eventually accompanied an online article in the New York Post.  McDermott’s name was featured in the credits identifying him as the photographer.  A few weeks later, Combs posts the picture on his Instagram account with comments about the charter school.  The result, a copyright infringement lawsuit for Combs.

Taking issue with Combs’ posting of the photo (and not including his credit), McDermott filed a lawsuit.  In the lawsuit, McDermott claimed that Combs did not license the photograph from him, that Combs removed his photography credit and that the page with the photograph received over 40,000 likes.  McDermott alleged that by publishing the photograph on his Instagram page, Combs infringed his copyright,  Technically, McDermott’s claim is accurate.  Under Section 106 of the Copyright Act, the owner of a copyright has the exclusive rights to (a)  reproduce the copyrighted work in copies, and (b) in the case of a picture, display the copyrighted work publicly.  Combs allegedly violated both of these rights by copying the picture from the New York Post and then posting it on his Instagram page.

McDermott’s second claim was one not regularly seen: a claim that Combs had violated Section 1202 of the Copyright, enacted pursuant to the Digital Millennium Copyright Act.  Section 1202 provides that no one shall, without the permission of the copyright owner (1) intentionally remove or alter any copyright management information; or (2) distribute, or publicly perform works knowing that copyright management information has been removed without the permission of the copyright owner knowing or having reasonable grounds to know, that it will induce, enable, facilitate, or conceal an infringement.  The term “copyright management information” is defined in the section as any of the following information conveyed in connection with copies of a work: (1) the name of, and other identifying information about, the author of a work; and (2) the name of, and other identifying information about, the copyright owner of the work, including the information set forth in a notice of copyright.

McDermott claimed that by removing the credit that was included with the photograph as it was displayed in the New York Post, Combs violated both of the above provisions of the DMCA.

Since McDermott had registered his copyright in the photograph, if found liable for infringement, Combs could face liability for statutory damages up to $150,000 and attorney fees; add to that another potential $25,000 in liability for the DMCA violation.  According to a filing with the court, Combs and McDermott have settled the dispute.  As such, we will never know whether Combs could have defeated the infringement claim with a fair use argument.  Additionally, we will never know whether the court would have accepted McDermott’s claim that his photo credit qualified as “copyright management information.” (Certain courts read Section 1202 as applicable only to technological copyright protection methods and digital methods of conveying copyright management information.)  One thing is for certain:  this most likely ended up being one expensive Instagram post for Combs.

Simon Tam is the lead singer of the rock group call “The Slants’, which is composed of Asian-Americans.  Tam applied for federal trademark registration of the band’s name.  While the term “slants” is a derogatory term for persons of Asian descent, Tam adopted the name “to ‘reclaim’ and ‘take ownership’ of stereotypes about people of Asian ethnicity,” thereby hopefully removing the term’s denigrating effect.  Despite the positive intention, the United States Patent and Trademark Office (“USPTO”) denied the trademark application for “The Slants” under a law prohibiting registration of trademarks that may “disparage … or bring … into contemp[t] or disrepute” any “persons, living or dead.”  15 U.S.C. §1052(a).  However, in its recent decision in Matal v. Tam, the United States Supreme Court found that this law violates the Free Speech Clause of the First Amendment of the U.S. Constitution.  As the Supreme Court opines, it is a bedrock principle of the First Amendment that “[s]peech may not be banned on the ground that it expresses ideas that offend.” 

The Lanham Act, enacted in 1946, serves as the foundation of our current federal trademark law.  A goal of this Act is to provide federal “protection of trademarks in order to secure to the owner of the mark the goodwill of his business and to protect the ability of consumers to distinguish among competing producers.”  The Lanham Act, however, excludes registration of certain trademarks.  For example, under 15 U.S.C. §1052(e)(1), “a trademark cannot be registered if it is ‘merely descriptive or deceptively misdescriptive’ of goods.”  Further, under 15 U.S.C. §1052(d), a trademark cannot be registered “if it is so similar to an already registered trademark or trade name that it is ‘likely … to cause confusion, or cause mistake, or to deceive.’”  In the case of the trademark “The Slants”, the USPTO invoked another exclusion, the disparagement clause of 15 U.S.C. §1052(a), to deny registration of the trademark.  The disparagement clause prohibits registration of a trademark that “may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute …”

Ultimately, the Supreme Court determined that the disparagement clause of 15 U.S.C. §1052(a) is unconstitutional “viewpoint” discrimination.  The Court noted that the law “applies equally to marks that damn Democrats and Republicans, capitalists and socialists, and those arrayed on both sides of every possible issue.” But even though “the clause evenhandedly prohibits disparagement of all groups,” it is still viewpoint discrimination because it “denies registration to any mark that is offensive to a substantial percentage of the members of any group.”  As the Supreme Court has previously stated, “the public expression of ideas may not be prohibited merely because the ideas are themselves offensive to some of their hearers.”

The Court next had to determine whether the Government’s action and this statute could survive constitutional scrutiny given that it amounted to viewpoint discrimination.  The Court considered whether trademarks are commercial speech because at least some of the justices held the opinion that the Government’s regulation of trademarks would be subject to the more relaxed scrutiny described in Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n of N.Y. rather than strict scrutiny.  In concurring opinions, other justices asserted that whenever the government creates regulations of speech because of the ideas it conveys, the regulations are subject to strict scrutiny regardless of whether the speech can be characterized as commercial in nature.  Despite this disagreement between the justices, they all concurred in the finding that “the disparagement clause violates the Free Speech Clause of the First Amendment” because it was determined that the law could not even survive the relaxed standard of scrutiny.    Therefore, Tam has the right to register his trademark “The Slants”.

As a result of this Supreme Court decision, another longstanding dispute was resolved almost immediately.  The Justice Department and five Native Americans fighting the NFL’s Washington Redskins’ trademark dropped their opposition.  While the opponents find the Redskins’ trademark to be an offensive slur, in light of the ruling in Tam, the basis for their challenge to the Redskins’ trademark evaporated, bringing an end to legal fights that date back almost 25 years.

In early 2016, pending resolution of the Tam matter and related cases, the USPTO informally suspended processing of applications for trademarks that potentially violate any aspect of 15 U.S.C. §1052(a), including not just potentially disparaging marks but also those that could fall under another clause of §1052(a) prohibiting a trademark that “[c]onsists of or comprises immoral, deceptive, or scandalous matter.”  What happens now?  While the Supreme Court did not specifically address the “immoral, deceptive, or scandalous” language in Tam, does the reasoning apply equally to immoral and scandalous trademarks?  For example, will the USPTO now allow Erik Brunetti’s trademark for his brand “Fuct”?   It seems likely.

Will this ruling impact patents as well?  As others have pointed out, the Manual of Patent Examining Procedure (“MPEP”) currently instructs patent examiners to reject or object to offensive subject matter and drawings.  For example, MPEP Section 1504.01(e) entitled “Offensive Subject Matter” instructs that “[d]esign applications which disclose subject matter which could be deemed offensive to any race, religion, sex, ethnic group, or nationality, such as those which include caricatures or depictions, should be rejected as nonstatutory subject matter under 35 U.S.C. 171.”  Further, MPEP Section 608 states entitled “Disclosure” states that

[i]f during the course of examination of a patent application, an examiner notes the use of language that could be deemed offensive to any race, religion, sex, ethnic group, or nationality, he or she should object to the use of the language as failing to comply with 37 CFR 1.3 which proscribes the presentation of papers which are lacking in decorum and courtesy. The inclusion of such proscribed language in a federal government publication would not be in the public interest. Also, the inclusion in application drawings of any depictions or caricatures that might reasonably be considered offensive to any group should be similarly objected to.

An application should not be classified for publication under 35 U.S.C. 122(b) and an examiner should not pass the application to issue until such language or drawings have been deleted, or questions relating to the propriety thereof fully resolved.

 

While it is not clear how often these MPEP procedures are applied in practice and even though they are procedural rather than statutory in nature, they represent Government “regulation” of expression of an invention.  Wouldn’t one expect rejection of patent applications under these sections of the MPEP to be unconstitutional under the reasoning in Tam?  Only time will tell just how far the Tam ruling opens the door for intellectual property protection for what many may find offensive.  But the First Amendment protects our right free speech whether or not others find it offensive.