TRADEMARKS

SupCo trademark game-changer

Take care around trials and appeals

By Peter Lemire

A recent decision by the Supreme Court will have attorneys and business paying more attention to what are known as “adversary proceedings” before the United States Patent and Trademark Trial and Appeals Board (TTAB).

Adversary proceedings are basically mini administrative trials that are conducted when one party believes that it will be harmed by the USPTO allowing the registration of a trademark to a third party. There are two forms of adversary proceedings: oppositions and cancellations. An opposition is when a third party objects to the registration of a mark prior to the granting of the registration.

A cancellation action is identical to an opposition, but it occurs after a registration has already been issued and the third party is seeking to cancel the registration. While these proceedings have for the most part been taken seriously, the Supreme Court decision in B&B Hardware, Inc. v. Hargis Industries, Inc. has exponentially raised the stakes due to the fact that the court ruled that a TTAB decision regarding whether there exists a likelihood of confusion between two trademarks can in some cases have a preclusive effect (meaning that the TTAB decision would be binding in the later infringement action) in a subsequent trademark infringement litigation.

This is a big deal.

To illustrate what a potential game-changer this decision is, some background is probably in order. Historically, there has been somewhat of a divide between the world of registration at the USPTO and the world of infringement that is battled over in the federal courts.

This is due to the fact that the trademark system is somewhat of a dual system of common law (unregistered marks) and federally registered trademarks. Contrary to what many people believe, the federal registration does not create trademark rights. Trademark rights are actually created by an individual’s or company’s use of the mark to identify its goods or services. It’s the use that actually creates the rights, known as common law rights.

By federally registering these rights through the USPTO, an individual or business gains certain extra advantages. In today’s world, most businesses – especially small- and medium-sized businesses and startups – greatly benefit from federal registration; however, it is not a necessity.

The Lanham Act (the federal trademark statute) sets out the rules and process for federal trademark registration. One of these rules is that a registration can’t issue if it causes a likelihood of confusion with another registration.

Additionally, owners of federal registrations and common law users who believe that they will be harmed by a registration can contest the registration through an opposition or cancellation proceeding. These proceedings are quasi judicial proceedings wherein limited discovery is generally conducted and the “trial” generally amounts to written testimony and arguments submitted to the TTAB.

Historically, these proceedings had fairly low consequences, due to the fact that an adversary proceeding only deals with the issue of whether a mark is registerable with the USPTO, and not whether it infringes on another mark. The only downside to a party defending an adversary proceeding was that the mark may be prohibited from registration or an existing registration was cancelled.

No damages, attorney’s fees or injunctions can be awarded in an adversary proceeding. If a mark holder lost an adversary proceeding, they could always just rely on their previously established common law rights. Furthermore, if an infringement action was subsequently filed, the mark holder would essentially have a second bite at the apple if they wished to defend the litigation, since the likelihood of confusion standard, with some differences, is also the test for infringement.

With the Supreme Court’s decision, how the adversary proceeding is prosecuted and argued can now have a profound effect on a subsequent infringement action. A mark holder whose mark is found to cause a likelihood of confusion at the TTAB leve, can also now have that determination applied against them in an infringement case, where they would be liable for damages and attorney’s fees, and could face an injunction preventing them from using their mark. Therefore, these actions should now be fought just as aggressively as one would in an infringement case.

The takeaway from all of this is that for businesses facing adversary proceedings at the TTAB, the stakes now just got higher. Businesses will need to be more strategic with their arguments in front of the TTAB, and probably conduct significantly more discovery than was done in the past. Interestingly, this may also encourage more settlement at the adversary proceeding stage.

If both parties are wary of potential preclusive effect of a TTAB decision, this may lead them to engage in more serious settlement talks in order to avoid the risky proposition of having an adverse TTAB decision bind them in future proceedings. Time will tell.

By | April 7th, 2015|INTELLECTUAL PROPERTY, PATENTS, TRADEMARKS|Comments Off on SupCo trademark game-changer

Trademarks + marketing = power

Take Ford, for example

By Kurt Leyendecker

Anyone who has watched even a small amount of television over the past year or so is probably familiar with the Ford commercials featuring Mike Rowe of Dirty Jobs fame pitching cars with engines that utilize EcoBoost® technology.

EcoBoost engines are those that offer power comparable with that of their larger counterparts but do so at about a 20 percent improvement in fuel efficiency. The two most prominent examples of EcoBoost technology are the 4-cylinder engine in the new Ford Mustang that produces over 300 hp and the V6 engine in the F-150 that produces 365 hp as well as oodles of torque for hauling and towing. Both engines offer significant improvements in rated MPG over larger available engines not incorporating the technology.

The EcoBoost engines have been tremendously successful for Ford and are now being rolled out in more sizes and being made available for more cars in the manufacturer’s lineup. Ford’s skillful marketing and education campaign has been able to convince even skeptical truck buyers that the old adage “there is no replacement for displacement” may no longer be true. Ford has even been able to charge more for smaller displacement EcoBoost engines than its larger counterparts, thus turning a legacy of more than 50 years of automotive sales tradition on its head.

The truth is, however, that EcoBoost technology isn’t revolutionary or even particularly unique. Simply, the term describes engines that are both turbocharged and direct injected. Turbocharging has been available on cars sold in the United States since at least the early sixties, back when a turbocharger was an option on the Chevrolet Corvair, the car with suspect handling that helped to launch Ralph Nadar’s career.

Direct injection is a newer technology but numerous car companies offer engines that incorporate it. “EcoBoost” is, therefore, really nothing more than trademarked name for a couple of technologies that are already fairly well known.

While trademarks are most commonly used to identify brands and product names, they can also be used to identify features that are incorporated or utilized in a particular product or in relation to a particular service. But why obfuscate the actual underlying technology in some made-up name?

Ford could have easily spent millions advertising its line of direct injected turbocharged engines, rather than using the same amount to promote a line of engines incorporating “new” EcoBoost technology, with roughly the same level of success.

Not everyone (and probably very few automotive consumers) knows or even cares what the underlying technologies incorporated in an EcoBoost engine are. To many of us, EcoBoost technology is engineering magic that somehow, in some way completely unbeknownst to us, increases the fuel efficiency of our cars.

And magic, with all of its glamour and seduction, sells far better than a straightforward list of already well-known techniques that are now being incorporated in an engine – even if the truth behind the words is exactly the same. This is not lost on me.

Even though I know exactly what makes an engine an EcoBoost engine, I still have an underlying, subconscious belief that an engine boasting the “EcoBoost” designation is somehow something special and unique. This is testament that a good trademark backed by a great advertising and PR campaign is very powerful stuff, indeed.

What’s more, to Ford’s credit, the brand probably understood from the start that marketing the actual technologies behind EcoBoost engines rather than the shiny, new, branded product would inadvertently also market similar engines produced by other manufacturers – and they didn’t want that.

They didn’t want to simply educate consumers about existing technologies but also create and perpetuate the idea that their proprietary blend of these technologies was somehow better than the rest. If they had done it another way, other manufacturers who produce turbocharged and/or direct injected engines could have benefited from Ford’s hard-earned (and handsomely paid for) marketing efforts. By creating and marketing a specific name, however, the company was able to simultaneously educate the consuming public and elevate the Ford name.

Because Ford chose to market a combination of technologies under the EcoBoost banner, the best a competitor (such as, say, Chevrolet) could do would be to run an advertisement or air a commercial describing how its engines incorporate the same technologies as Ford’s EcoBoost – thus repeating the Ford name, and extending the reach of the company’s original marketing campaign even further.

Of course, no self-respecting marketing department (Chevrolet’s or otherwise) would think to run such an ad or commercial, at the risk of helping their competitor out – but also at the risk of (depending upon the actual use of Ford’s trademark) finding themselves on the wrong side of a trademark infringement suit.

It’s an ingenious strategy, and one that would probably be effective even without the help of a celebrity endorsement. Well played, Ford.

By | February 20th, 2015|BLOGGING, TRADEMARKS|Comments Off on Trademarks + marketing = power

Trademarks on wheels

Caveat emptor

By Kurt Leyendecker

For as long as I can remember, I have loved bicycles. In 1981, two high school buddies and I biked around Lake Ontario. The next year, two of us cycled across New England. On both these trips I rode a Motobecane, which was the premier French bicycle brand back in late 70’s and early 80’s.

My obsession with bicycles and a desire to make them stronger and lighter inspired me to get a degree in materials engineering, which I applied to building satellite components as an engineer with a major aerospace company. In the early 90’s, before becoming a lawyer, I started a company that made mountain bike components of my design. Sadly, I don’t ride as much anymore, preferring now to simply strap on a pair of running shoes. Nevertheless, I still enjoy bicycles and maintain a small stable in my garage.

A little while back, I got the desire to obtain a track bike – or “fixie,” as they are commonly known. They have been all the rage the past five years or so, as some people have eschewed multi-speed bicycles for the inherent simplicity of the fixie.

I hopped online to investigate and find a suitable fixie, and ended up at a website that sold several brands I was very familiar with from back in my high school days – including my old favorite, Motobecane. I also noticed several other brands from my youth: Dawes, a once well-known English manufacturer of touring bicycles; Mercier, another high-end French bicycle manufacturer from the 70’s; and Windsor, an early 80’s brand that produced high-quality but low-cost bicycles in Mexico. Interestingly, despite knowing that all these brands had either gone bankrupt or stopped importing to the United States many years ago, I found myself still favorably disposed to these new versions.

I did some research. The current trademarks for all these brands are owned by the same Florida company that appears to import bikes from China, and sell them for relatively low prices directly over the Internet. The current brands have absolutely no connection to the old brands. Rather, when the original trademark owners failed and the marks went abandoned, they were re-registered by the current owner, who is now benefiting from the warm feelings that people like me still have towards the old brands. In essence, the new owner is benefiting from the goodwill created by the long failed company, finding it easier to sell a budget bike as a Motobecane instead of under a new name that has no name recognition.

The whole purpose of a trademark is to designate quality and the source of a good or service. You know when you by a Coke that it is going to taste substantially the same as any other Coke you have recently consumed, and that it was produced by the Coca-Cola Company. Trademark law prevents competitors from using the mark of another or using a mark that is confusingly similar to another’s mark. For example, Coca-Cola could stop a company from selling cola under the name Koke, as the mark might confuse some consumers into thinking the Koke cola is made by Coca-Cola or that the product possesses the same taste and quality that has been established over the years by Coca-Cola. In essence, the purpose of trademarks is to protect consumers so that they know what they are buying.

However, when a company fails and its marks go abandoned, anyone can pick them up and register them as their own – and then sell products under the old venerable brand. Even though I know the new Motobecane has no relationship to the old company, I still am inclined to trust the brand more than a no name brand by the same manufacturer. Other consumers not in the know may be even more inclined. Accordingly, the new owner may be able to sell a Motobecane branded bike for a little bit more than it could if it was identified by an unknown brand. The consumer is fooled into thinking he or she is buying a bike from a French company, not an importer based in Florida.

Perhaps the best example of this is another two-wheeled cycle brand, Indian Motorcycle. The trademark is currently owned by Polaris Industries, a snowmobile manufacturer. The company in its advertising invokes the Indian tradition of 60-70 years ago, when Harley-Davison and Indian competed for dominance in the world of American-made motorcycles. U.S.-based Indian failed in the early 50’s but another company acquired the trademark rights and sold slightly modified English motorcycles under the Indian brand until 1960, when the mark was sold to another company that soon went out of business.

In 1962, Floyd Clymer Imports started using the Indian name. Clymer had no relationship with the previous owners. The lineage of the mark back to 1898 was broken. Over the years the mark has traded hands many times until coming to rest with its current owner. Polaris Indian Motorcycles owe their lineage to a 50cc Italian minibike sold by Clymer, not the post-WWII chiefs of legend and lore that they would have us believe.

So, when you see an old venerable brands suddenly reappear: caveat emptor.

By | December 10th, 2014|BLOGGING, TRADEMARKS|Comments Off on Trademarks on wheels

A forgotten right the government can’t take away

If you have followed the news lately, you’ve probably have heard about the United States Patent and Trademark Office’s (USPTO) board decision to cancel the Washington Redskin’s federal trademark registrations covering their name and graphical logo. The USPTO had determined that the term, “Redskin” and the graphical logo associated with the NFL team, violated trademark laws’ prohibition against scandalous or immoral subject matter at the time the mark was registered.

It should be noted that this isn’t the first time the USPTO has come to such a conclusion with respect to the football team. The courts reversed the previous determination on a procedural issue regarding whether or not the individual that brought the cancellation action had standing to sue. It was interesting to see some of the initial commentary regarding the decision and the lack of knowledge about trademark law and the nature of trademark rights.

No matter your particular view of the underlying case, the situation with the Redskins is a good example of the public’s misperception of trademarks, how trademark rights are accrued, and why trademark registrations can carry more benefits in the eyes of the public than those actually conveyed under the law.

The most interesting aspect of the discussion is the mistaken belief that trademark rights are granted by the government. In fact, at the most basic base level, trademark rights are created by an individual or company’s use of a trademark to identify their goods or services in commerce. By naming your product “XYZ” and selling it in the marketplace you accrue what are called, “common law rights.” The longer you use it and more geographic areas your goods and services are sold, the strong your rights become.  These rights are not contingent on any government approval or certificate.

However, while the federal registration does not create trademark rights per se, it does grant you certain extra add advantages. First and foremost, for smaller businesses the benefits of the federal registration definitely make sense as they will protect your mark nationwide, even if you haven’t sold product or provided your services in all 50 dates. This can be important if a company has plans to start regionally and slowly expand operations or a larger geographic region or even nationwide.

Without a federal registration, a business could find itself in the position of looking to enter into a new market where another common law user has already established rights in that geographic area. Therefore you will either be barred from entering that area or, if you do work in that area, you will have to do so under a different name. This can severely hamper and make more costly marketing and brand awareness campaigns. Larger companies (e.g. Microsoft) don’t necessarily have this problem due to the fact that they can launch products and services nationwide. Therefore, they create common law rights in all geographic areas from the get-go. While federal registration is still important to larger companies, they will still have powerful rights even if they just rely on common law trademark rights.

As the 2014-2015 football season starts up, think twice about producing Redskins merchandise to line your pockets. Though the USPTO did cancel the Redskins federal trademark registrations, you are out of luck for cashing in on the brand.

The law still recognizes strong common law rights in the Redskins name and logo, and you will more likely find yourself on the other side of a lawsuit for trademark infringement and counterfeiting if you endeavor on that path. Furthermore, the team has vowed to appeal the USPTO’s ruling to the federal courts. Given the history of the case and the seemingly thin factual support for the USPTO’s decision, there stands a high likelihood that the Redskins would prevail on an appeal.

The K-cup story

Many years ago, John Sylvan had an idea: provide a hermetically-sealed, compact cartridge containing a filter and enough ground coffee to brew a single serving in a specially designed brewer. After the freshly brewed coffee was delivered, the remaining carcass would simply be discarded without fuss or muss. Sylvan’s brilliant idea came to him in the mid-80s. He did not begin working on the idea in earnest until the 90s. John and the company he formed had the forethought to apply for patents on his innovation.

Keurig, named after the Danish word for excellence, toiled through the 90s funded almost exclusively by investors perfecting the cartridge, which came to be known as the K-cup, and its associated brewer. John and his fellow founders were able to convince the investors that the benefits of the K-cup system far outweighed the simple fact that a cup brewed with it cost five-to-10 times as much as a traditionally brewed cup. Truth be told, the otherwise visionary investors really only saw a play for the corporate/office market where convenience outweighed cost: a niche market in the multibillion dollar coffee industry but one with potential sales at least in the tens of millions annually.

Around 1998, when Keurig finally started selling brewers and K-cups in earnest, it registered trademarks for the brand names. When the system took off, the competition was left scratching their heads. A new product segment had been created, one with terrific margins and one in which purchasers of Keurig coffee makers were forced to buy consumables from Keurig itself. The strong patents coupled with Keurig’s aggressive enforcement stance contrasted with the time, cost and uncertainty in developing a suitable non-infringing alternative, left potential competitors with no other alternative than to figuratively beg Keurig for a license to make their own versions of the K-cup.

Keurig and its successor in interest Green Mountain Roasters, who bought the company out in 2002, were under no compulsion to grant patent licenses, but wisely realized it was better to derive revenue from its competitors than to back them into a corner and force them to try and develop a K-cup alternative. If successful, the competitors would have jeopardized the company’s future. Keep your friends close and your enemies closer: The maxim rings true in business as well.

The Keurig system found a place not only in the office and commercial markets but in homes as well. The K-cup system has proven to be the biggest thing to hit the industry since Mr. Coffee killed percolators in the 70s.

One might figure Sylvan became a wealthy man. Sadly, inventors and innovators often do not make great businessmen. He had trouble getting along with the investors and was forced out for a mere $50,000 shortly before the company’s first production commercial brewer was released. In hindsight, perhaps he should have demanded a percentage. Suffice it to say, the sharks freely roaming the ocean of commerce aren’t as tame as those kept in primetime tanks.

As the product grew, Keurig continued to innovate and protect the improvements to the brewers and the K-cups. Even though the seminal patents were strong, they realized it would expire someday. Hopefully, however, improvements to the K-cup would mean competitors’ post patent cartridges would remain a step behind the K-cup in terms of cost, functionality and quality. To date Keurig has been issued 44 patents in the United States and has more pending all related to their K-cup cartridges and the associated brewers.

Patents weren’t the only intellectual property trick up Keurig’s sleeve: they also had trademarks, and trademarks don’t have expiration dates as long as you keep using them. Currently Keurig has 15 registered United States trademarks and about 35 more pending.

When the company’s initial patents expired in 2012, many articles predicted Keurig’s decline. Keurig’s competitors still face major obstacles. Any systems and cartridges they may develop might not infringe the expired patents but they have to be very careful not to infringe the remaining 40-plus patents. While the remaining patents are much more narrow, they do lay a minefield that competitors must navigate in developing their non-infringing alternatives, greatly increasing the cost of development. Stepping on a mine can mean an expensive lawsuit.

Even if successful in developing a suitable K-cup alternative, competitors don’t have a word or phrase to describe their coffee cartridges. If a competitor strays and improperly insinuates some connection with K-cups or Keurig, the company, which is now the 500-pound gorilla in the coffee industry, releases its pack of lawyers to shut things down.
If a competitor stays clear of the Keurig marks, it faces the monumental and uncertain task of educating the public about a new single serving cartridge without reference to the original – all at great expense and huge risk of failure. Ultimately, most of the industry players have or will decide to go the certain and predicable route of licensing Keurig’s technology and trademarks adding even more money to its $4 billion-a-year revenues.

Would there be a Keurig or even a single-serving coffee cartridge today if they had not pursued intellectual property protection? Its seminal patents helped garner investors in the 1990’s permitting the system’s development. The patents kept competitors at bay during its growth years of the 2000s.

Today, as the industry leader, its trademarks and patent portfolio continue to thwart competitors and allow it to maintain its position as the market leader. Sometimes my start-up clients ask me whether it is worthwhile to pursue patent protection on their idea. All I need to do is look over my shoulder and point to the coffee machine on the credenza and say, “Yes, it is.”

Hazy times for Colorado’s marijuana businesses

Many businesses are dealing with the impacts of Colorado’s foray into recreational marijuana. Often, this uncertainty is focused on how the new laws and regulations will be implemented. While compliance with the Colorado regulatory framework is often the first priority of companies associated with the marijuana industry, another important legal issue is lurking below the surface, and unfortunately how it is resolved remains to be seen. The issue concerns an area of intellectual property law that all businesses have – trademarks.

Trademarks protect identifiers of the source of goods in commerce – essentially they protect brands. Trademarks can be any non-functional aspect of a product or service that identify its source. They can be business or product names, logos, or even things such as product packaging or design (e.g., the shape of an I-Phone or a Coke bottle).
The law protecting trademarks has two main purposes. The first is to protect the goodwill built up by business owners with the consuming public.

Basically, we don’t want a company to spend 20-plus years building a good reputation only to have another company come in and adopt a mark that is intended to ride on the coattails of the first company. The second purpose is to protect the consuming public. Essentially, when you go and buy a Coke, you do so because you have certain expectations about the product including quality, price etc. Therefore, the law recognizes that it is in the public’s best interest to not allow dish water to be bottled and sold to the unsuspecting consumer as a Coke or for a fly-by-night company to sell shoddy knock off shoes as a pair of Nikes.

There are basically two types of trademarks – registered and unregistered. Unregistered trademarks (also called common law trademarks) arise from the business’ use of the terms to identify its goods. The scope of protection for common law trademarks is generally narrow. Fights about the geographic scope of common law trademark rights often get down to the zip code level. Because of these limitations it is not preferable to just rely on common law rights.

Registered marks are those in which the trademark owner has sought registration of the trademark with a state or with the federal government. Each state’s laws are different and can range from highly complex systems to Colorado’s system, which basically just defaults back to common law protection. Most trademarks are protected under the federal Lanham Act. Trademarks registered under the Lanham Act are enforceable in all 50 states even if the business hasn’t had sales nationwide.

The problem facing Colorado companies that are involved in or sell goods or services related to the marijuana industry is that, generally speaking, the law doesn’t allow for trademarks rights in goods or services that are illegal. On a broad level this makes sense; if you are conducting an illicit activity, you shouldn’t be able to sue someone else for doing the same illicit activity under a similar name. Doing so would tend to legitimize the illegal activity. But what happens when something is legal under state law but illegal under federal law?

Usually the answer would be that the state law is invalid due to the Supremacy Clause of the United States Constitution. However, this inconvenient fact is essentially the third rail in the marijuana debate. Even though the last two administrations have looked the other way, marijuana is still illegal federally. The federal controlled substances act prohibits among other things the manufacturing, distributing, dispensing or possession of certain controlled substances including marijuana and marijuana-based substances.

Additionally the CSA makes it illegal to sell, or offer for sale any drug paraphernalia (“any product, equipment or material which is primarily intended or designed for use in manufacturing, compounding, producing, preparing, injecting, ingesting, inhaling or otherwise introducing into the human body a controlled substance”) 21 U.S.C. §863. Because of this a company will not be granted federal trademark registration for marijuana or marijuana paraphernalia. Therefore a business owner cannot get a federal trademark for the name of their dispensary or their own brand they might assign to a particular strain of marijuana. Additionally a business owner would also be denied federal common law protection for any such mark under the Lanham Act.

Things most likely don’t fare much better under a state common law analysis. While there isn’t any case law out on this yet, but strictly going by the law, a court would have to deny state common law protection as well, due to the Supremacy Clause. This causes a huge conundrum – how are marijuana business owners supposed to protect their goodwill?  How do we protect consumers that rely on brand names to make purchasing decisions regarding, quality, strength and safety?

Most ironically, a grower could produce a new strain, protect it with a plant patent, and give it a new name. If someone infringed the patent the grower could sue and obtain an award for damages. However, if the same individual sold an existing (non-patented) stain under the same brand name as the patented strain, the grower might not have any recourse.

So does this mean that marijuana-related businesses should just ignore trademarks? I would say that is not a wise choice. There are still many strategies that a business can use to get the most protection possible under both state and federal law, which while might not be ideal, it is definitely better than nothing. Additionally, sophisticated legal counsel can also employ other areas of intellectual property may also prove helpful in protecting brand identity.

Lastly, we really are in a situation of wait and see. Until either the federal law is changed, or some cases concerning these companies move their way through the courts, it’s all a bit hazy.

Internet marketing and trademark trouble: Somebody else might be using your biz name

n the not so distant past, marketing and advertising a business was a particularly challenging and daunting task. Local businesses relied heavily on Yellow Pages advertising, radio and television. They had to decide how large a listing, under what categories to be listed, and/or how comprehensive a broadcast campaign they could afford.

The cost could be substantial and no matter how large the listing, the amount of information conveyed was relatively small. Depending on the product and services, the businesses might also have to print brochures to be handed out or mailed to prospective consumers. If a mistake were made, the businesses would have to wait an entire year to make corrections.

Businesses with a national or international scope didn’t fare much better. They had to choose from a dizzying array of options to promote their products and services from magazines, trade shows and listing directories. The mailing of brochures and other comprehensive information to inquirers was a necessity even when the majority would never purchase anything. Small businesses could rarely afford to saturate all possible avenues, so deciding where and how to spend marketing dollars was of crucial importance. Pick the wrong advertising mix and a business might not be able to survive long enough to stumble onto the correct formula.

The Internet changed all this. In a relatively short period, a company’s Website replaced the Yellow Pages listing, the magazine ad, brochures and informational material. SEO specialists tailored Web pages to provide companies with prominent listings on Google and other search engines.

Websites replaced the Yellow Pages and industry specific directories for consumers looking to find providers to meet their needs, wants and desires. Many companies now pay Google and the others to provide links to their websites. More and more prospective customers use Google in place of phone and other industry specific directories. Whether it’s a local search or nationwide, search engines can provide the answer.

There are some drawbacks, however, to this brave new world of marketing. Most obvious is the enhanced competition and the increased amount of time and money spent on optimizing a website. The less obvious disadvantage is the risk of being accused of trademark infringement. Before the Web, it was not uncommon for businesses with similar names and similar products and services to co-exist, each plying its trade in different parts of the country blissfully unaware of the other.

Twenty years ago, a fictitious restaurant named Lights On Broadway could have co-existed in numerous locales across the country, but since local customers expect that they can look up information about a restaurant online, a website is a necessity. Sooner or later owners with businesses with the same name stumble upon each other over the Internet. Often one sends a letter to the other accusing the other of trademark infringement.

The scope of this column does not permit a discussion of all the legal complexities that ensue. Suffice it to say, the costs of resolving the matter can be substantial not only in legal bills but also in the loss of goodwill and name recognition if one of the businesses has to rebrand.

Recognizing the potential risks, there are a few things businesses can do. Initially, in choosing a business, product or service name, a business would be advised to conduct a national trademark search to identify whether there are other businesses using a similar name that could prove to be problematic down the line. Choosing names and trademarks that are more arbitrary and fanciful opposed to those that are descriptive or suggestive makes good sense: think Xerox (a made-up word) to Duplicators for copiers, for instance. Avoid names that are plays on common clichés: they may be clever, but the probability is often high someone else will be similarly clever.

If the business is already a going concern and especially if its trademark is one that might be shared by other businesses around the country, plan for an eventual dispute. Sadly, prevailing in a trademark dispute often comes down to who has the most money to defend or advance its position and not who is the senior user of a particular name.  Being in the right is cold comfort if your business does not have the capital to defend your rights.

At Leyendecker & Lemire, we regularly counsel clients to create a legal rainy day fund. We know very few ever do, but if and when a trademark dispute arises, it is much easier and even axiomatically often less expensive to resolve a case to a client’s satisfaction if the business can afford to assert its position. Some of the money saved canceling or downsizing the large Yellow Pages ad might be best socked away for future legal expenses.

While marketing and advertising in the 21st Century may seem simpler than it was in the last century, in reality, old challenges have been replaced by new ones. The key to success is often anticipating and adapting to these new challenges just a little bit better than the competition, and one of the biggest of these new challenges is that something as simple as choosing a business or brand name has become much more complex in consequence.

By | March 20th, 2014|TRADEMARKS|0 Comments

A fool’s bargain: Part 2 – Think before you sue

In the first part of this article, I discussed what trademarks are, what they protect and what factors courts generally use to determine if a trademark has been infringed.  In this installment I will be discussing how courts have dealt with the rise of keyword advertising and the use of trademarks in keyword advertising.

In the early days of the keyword advertising cases, the courts struggled with some threshold concepts, such as whether bidding on someone else’s trademark was a use in commerce. Some courts said yes, and some said no. After many years, everyone seems to agree that even though the consumer never sees the keyword bidding process, that the act of bidding on another’s trademark as a keyword is a use in commerce.

The next question is whether the company’s actions cause a likelihood of confusion. The situation in which the ad text doesn’t mention the trademark is almost universally accepted as not causing a likelihood of confusion. But what about ads that do mention the trademark?  This situation is a little less cut-and-dry and this is where society’s use and understanding of technology starts to play a role.

Whenever courts are dealing with novel legal questions, they often try to look back to something that is known to compare the current situation to. The legal arguments start to become a battle of analogies. Sometimes they can get quite humorous. In the key word advertising context, several competing analogies have evolved. One is of a driver driving down a desolate highway (picture something on Route 66 in New Mexico) that sees billboard advertising that a store sells a certain product – for example, Coca-Cola.

The driver exits the highway and drives a few miles to the store. When they get to the store, the driver finds out that the store does not sell Coke, but instead sells their own house brand cola.  Tired, dejected and thirsty, the driver buys the house brand cola, turns around and drives back to the highway.

Early courts advocating this analogy often found trademark infringement for use of a trademark in the ad text. The rationale was that just as the driver was duped to exit the highway and drive to the store expecting to buy a Coke, so to are Internet users who type search queries into a search engine expecting to find a certain product and upon landing on a website; they too are so tired, dejected and thirsty that they buy the “house cola” instead of the cold refreshing Coke that they were originally seeking.

While the above analogy works well for misleading billboards and weary interstate travelers, it doesn’t necessarily represent the realities of the Internet world and online advertising, at least not in its current state. It is conceivable that in the early days of the Internet, people just shopped at the first site they came across. But as time has gone on, consumers searching habits have evolved and become more savvy.

As this has happened, the transaction costs of searching on-line have dropped and the billboard example has become less and less appropriate.  In the billboard example the consumer purchases the house brand cola because the transactions costs are too high – they would have to drive back to the highway, go down to another exit and try a different store.

It is much easier to buy the house brand cola, even though it was not what they were looking for. One of the great benefits of the Internet is that it vastly reduces transactions costs. Almost an infinite amount of information is available to users at the click of a button. If someone does a search click on a result and doesn’t get what they are looking for, the remedy is as simple as clicking the back button on their browser.

Consequently, the analogies used by courts have also changed. One of the more prominent ones is that of a consumer at a drug store where the brand name medication sits right next to the generic store brand with its packaging that says “same active ingredient as ____”.  In these cases, the courts rationalize that the use of the competing trademark benefits society in that it gives consumers more options to choose from. Since the consumer is not confused by the presence of the generic medication and understands that it is an alternative to the branded medication, the use of the trademark on the packaging is not considered a trademark infringement.

Our analogy in arguing the General Steel case is that search engine results and keyword advertising are more like a menu, where the possible choices are presented before a consumer and that the consumer can pick or choose the ones that fit their needs. If they click an ad that they think is for the product they want and it leads to a different product, they can easily hit the back button, chose another item off the menu and see if that takes them where they need to be. Courts have come around to this reality and the changing direction in trademark law reflects it.

So what is a company to do?  If you are a trademark owner, it’s best to get used to other companies using your trademark as a keyword. That’s just life in the digital age. As for mentioning the trademark in the ad text, we will have to wait and see. Things seem to indicate that those types of activities will be allowed as well. However, one thing can be guaranteed – trademark owners will not like that sort of activity and will more likely take issue with it and potentially even continue to sue on it. However, the odds are that those trademark holders will continue to lose.

For trademark holders, it is probably wiser to develop other strategies to deal with keyword advertising than to spend massive amounts on litigation and enter into a fool’s bargain. As with any sort of trademark matter, it is always important for business owners to seek out the advice of qualified trademark counsel before embarking on any keyword advertising or other marketing strategy. Failure to do so could end up costing a company in the future.

By | September 25th, 2013|BLOGGING, CYBER LAW, TRADEMARKS|0 Comments

Hey, that’s mine! The ins and outs of grey markets and the law

At some time or another, anyone who produces a product or commercializes a copyrightable work will inevitably run into the situation where you see your products being resold by someone that is not you or one of your direct distributors.

Oftentimes, this becomes an issue for a business because of the price at which the items are being sold (usually lower than the business would like) or possibly because of the bad reputation of the seller in question. Other times, it is a grey market situation where goods that were originally produced and sold in overseas markets make their way back to the United States.

The question my clients have is almost universally, “How do I stop this?” Generally speaking, the answer is that in the United States, it is either extremely difficult to stop it or you flat out cannot stop it at all, due to a theory of law called the Right of First Sale.

The Right of First Sale doctrine is recognized in both trademark and copyright law. Trademark law protects source identifiers of goods and services – basically brand names and logos. Copyright, on the other hand, protects creative works of authorship – books, movies, music, etc. While slightly different in the technical application, in copyright and trademark law the underlying theory is essentially that the owner of a branded item or creative work is entitled to control and receive compensation for the first sale of the product.

The first sale is just that, the first sale of the product – regardless if it is to a retail consumer or to a distributor/wholesaler. Therefore, authors are entitled to royalties only on the first sale of their book and not any subsequent resale of the book. On the basic level this makes sense and allows for a robust secondary market of used goods. Think of the pain it would be if you had to pay a royalty to J.K Rowling for selling a used copy of Harry Potter on Amazon, or if you sold your Specialized Shiv time trial bike on eBay.

However, the questions can get a bit more sticky when the seller isn’t unloading unwanted items, but is instead engaged in a commercial enterprise and the goods might be new instead of used. For example, what happens if due to market conditions a product is sold at a lower price in a foreign country than it is in the United States?

Depending on the price differential, there may be an arbitrage situation where a foreign purchaser can purchase the product in the foreign country and then turn around and sell it to American consumers for less than the domestic retail prices at a guaranteed profit. This very scenario came before the Supreme Court in the case of Kirstaeng v. John Wiley & Sons. In the case, a student named Kirstaeng from Thailand came to the United States to study at Cornell and U.S.C.

Since college is not cheap, the entrepreneurial student sought ways to defer his expenses. One thing he noticed was that textbooks were a lot cheaper in Thailand than they are in the United States, so Kirstaeng arranged to buy legal copies of popular textbooks in Thailand, import them here and resell them at a large profit – somewhere in the ballpark of $100,000.

The publisher, not liking this, sued and originally obtained a $600,000 judgment against Kirstaeng. The Supreme Court in a 6-3 decision overwhelmingly overturned the lower court decision. The Court also did something that it normally doesn’t do in copyright cases – it drew a clear line in the sand.

As long as the copyrighted works that were made overseas were done legitimately (not counterfeited), then the first sale doctrine applied and the copyright holder cannot ban their importation and sale in the United States. Similarly under trademark law, as long as a party is merely stocking and reselling the goods (no modification to the goods), then the first sale doctrine applies.

So what is a business owner to do? There are a few different things to try to minimize the impact. The first would be to take a look at your pricing structure. Are there any markets in which you might be at risk for an arbitrage situation? In theory, exchange rates should equal out prices, but sometimes distortions do occur.

Don’t just look at foreign markets, because these situations can happen in domestic markets as well. An example would be a pricing decision concerning a large clearance sale. Could a savvy party buy a large amount of clearance items and then resell them on eBay? Careful pricing and quantity limit strategies can help eliminate this risk.

Additionally, if you sell your products through authorized distributors that you have contractual agreements with, you can add language that prevents the distributor from selling the products back into the United States, or allows you to revoke their distributorship if they violate lot size restrictions or if they knowingly sell to customers that intend to export the products back into the United States. While these strategies are not foolproof, they are the best tools that companies have to combat these sorts of situations.

By | April 15th, 2013|BUSINESS LAW, COPYRIGHTS, TRADEMARKS|0 Comments

Revenge of the prom dress: Fashion Wars episode 100,001

Over the years, our firm has represented numerous apparel companies with regard to intellectual property matters, and we have observed many of the difficulties these companies face in protecting the value of their designs. The interesting aspect facing apparel companies is that often times the “low brow” fashion of graphic T-shirts and sneakers are more protectable than the “high brow,” haute-couture fashions of world-famous designers.

Apparel companies are a good example of where two different theories of intellectual property protection come together and, to some extent, overlap. When applied to an apparel company, the two main forms of protection we are talking about are trademarks and copyrights.

While design patents may be applicable, the practical considerations of time and cost usually rule them out for fashion-oriented clothing; they cost too much and take too long to gain the protection. In the case of the graphic T-shirt, the graphical design that is applied to the T-shirt is protectable under copyright law as two-dimensional artwork. Therefore, another T-shirt company cannot copy the graphical design or, with knowledge of someone else’s design, create something that is substantially similar.

On the other hand, decorative elements such as the three stripes that appear on Adidas shoes are protectable trade dress and as in the Payless case, shoes with two or four similar stripes are considered to infringe Adidas’s trademark rights. In each of these instances, it is important to note that the design of the clothes themselves is not protectable, only the aesthetic design elements that are added to the clothing.

Producers of high-end designer clothing have a bit more of a challenge when it comes to protecting their products. In these sorts of situations, the actual design of the clothes is most often the desired aspect of the product. The tough thing for the designers is that these features are not currently protectable under any theory of law in the United States.

This is why you can go to your local discount clothing retailer and buy designer “knock offs.” In the recent case of Jovani Fashion, Ltd. v. Fiesta Fashions, the 2nd Circuit Court of Appeals upheld this concept by stating the it is well settled that articles of clothing are considered “useful articles” and are not protected by the copyright act and that design elements may have protection under copyright law only in the situation where the elements are 1) physically severable or 2) conceptually severable from the clothing itself.

The case involved a fight surrounding the design of prom dresses. Specifically, Jovani claimed that Fiesta illegally copied Jovani’s design for a prom gown that had an “arrangement of decorative sequins and crystals on the dress bodice; horizontal satin ruching at the dress waist ,and layers of tulle on the skirt.”

While I am not exactly sure what ruching or tulle are, they don’t seem to be a stand-alone product that you can remove and sell by themselves. Furthermore the adornment of the clothing with these features doesn’t seem to transform the concept of the gown into something altogether different; it’s still a gown, now it just has ruching and tulle.

So what would satisfy the courts requirements? In the case, the court cites Halloween costumes for one, although I would probably guess that most of Cee Lo Green’s outfits would also qualify.

So what does all of this mean for clothing and apparel companies out there? If you make Halloween costumes you should be pretty pleased with the decision because you can copyright your costume designs and sue infringers to your heart’s content.  Likewise, manufactures of articles such as T-shirts, hoodies and other clothes that incorporate printed graphical designs – those graphical designs are copyrightable and you would be wise to get registrations on all of your designs.

If you make clothing that won’t change over time and isn’t really based on yearly trends (think Levi Jeans), then design patents may be an interesting route to protect the aesthetic look of your clothes. To those that are looking to get into high fashion, some thoughtful planning on how you are going to insulate yourself from the knock-off issue is probably in order.

One solution might be to have a business operation that isn’t directly affiliated with your high-end line that sells lower priced knock-offs. That will allow you to capture both market segments and hopefully avoid the issue of someone else profiting off of your hard work.

Of course, there are always calls to amend the copyright laws to allow for the protection of clothing designs and legislation to do that is introduced every year. Ultimately, these bills fail because when you start to get into it these issues, they are complex. For example, could a company copyright something like the butterfly collar and essentially have a monopoly on it for 95 years?

Although the chance of getting something through Congress is probably pretty small, apparel companies would be wise to keep a watchful eye on what is going on in Washington. It could change the nature of your business overnight.

By | December 11th, 2012|COPYRIGHTS, TRADEMARKS|0 Comments