The Line Between Trademark Infringement and Parody

 

The Second Circuit Court of Appeals affirms that a canvas tote bag with a graphic image of Louis Vuitton’s trademark is parody, not trademark infringement.

Louis Vuitton Malletier, S.A. v. My Other Bag, Inc., 16-241-cv, 2d Circuit Court of Appeals, Dec. 22, 2016.

Trademarks facilitate purchasing decisions by consumers by signaling that behind certain goods or services stands a particular source. Of course, trademarks can also be used as decoration on t-shirts and other goods; but sometimes, the decoration itself is the trademark — that is, it uniquely identifies the source. Like the red soles of Christian Louboutin, Louis Vuitton’s configuration of the interlocking letters, “LV,” surrounded by flower-like symbols (the “Toile Monogram” design) serves as both decoration and trademark.

Trademark law exists to prevent competitors from copying trademarks for two reasons: first, to protect the consumer’s decision-making process; and, second (in the words of Supreme Court Justice Breyer) to help “assure a producer that it (and not an imitating competitor) will reap the financial, reputation-related rewards associated with a desirable product. The law thereby encourages the production of quality products and simultaneously discourages those who hope to sell inferior products by capitalizing on a consumer’s inability quickly to evaluate the quality of an item offered for sale.” Qualitex Co. v. Jacobson Products Co., Inc., 514 U.S. 159, 163-4 (1995).

In May 2014, Louis Vuitton Malletier, S.A. (“LVM”) sued My Other Bag, Inc. (“MOB”), for reproducing graphics of LVM leather bags on one side of MOB’s canvas tote bag. The other side of the MOB bags read “My Other Bag…” — a reference to the long-standing joke occasionally seen on bumper stickers on unglamorous cars, e.g., “My other car is a Porsche.” MOB used graphics of two different LVM bags, shown here, one with the Toile Monogram design trademark, and the other with the checkerboard “Damier” design, but instead of an interlocking “LV,” MOB used its own initials. Picturing an LVM bag on the side of a canvas tote bag was a joke, but LVM didn’t find it funny.[1] In fact, LVM’s case against MOB is the latest in a series of failed litigation brought by LVM against parodies.

In 2006, LVM went after Haute Diggity Dog, LLC, a small business that manufactured and sold pet products, many of them parodying famous marks, including “Chewy Vuiton” dog toys, which took the form of little plush “handbags” suggesting (but not mimicking) LVM’s Toile Monogram design. (Among other differences, Haute Diggity used an interlocking “CV” instead of “LV”.) LVM claimed trademark infringement and “trademark dilution,” a cause of action granted to famous marks to punish “blurring” (i.e., misappropriating a mark for use on a dissimilar product) and “tarnishment” (misappropriating a mark for use on low quality or unsavory products). LVM also claimed copyright infringement, since the Toile Monogram, as a design existing apart from handbags, is protected by copyright. In addition to objecting to the use of the Toile Monogram mark on dog toys, LVM claimed that the toys were also likely to tarnish LVM’s marks because they “pose a choking hazard for some dogs.”

The District Court slapped down LVM’s claims, and the Fourth Circuit Court of Appeals agreed: “Chewy Vuiton” dog toys were successful parodies,[2] and the distinctiveness of LVM’s marks was not threatened by “Chewy Vuiton.” Parody, a form of fair use, is a complete statutory defense to a charge of trademark dilution, but not against trademark infringement (e.g., passing off a product under a third party’s trademark, thereby leading consumers to believe that the product came from the trademark owner).

In 2007, LVM sent a cease and desist letter to Danish artist Nadia Plesner, for selling t-shirts and posters to raise money for the charity “Divest for Darfur.” The artwork showed a malnourished child holding a chihuahua dressed in pink in one arm, and carrying on the other arm a bag that resembled Louis Vuitton’s “Audra” bag, with an altered Toile Monogram design. (Here, the interlocking “LV” was replaced by an interlocking “SL” for the name of the artist’s campaign, “Simple Living.”) Plesner was living in Holland at the time.

Unable to afford to go to fight a court case, Plesner stopped selling the t-shirts and posters. In 2010, however, she repainted the Darfur child in a painting that she titled “Darfurica,” which was exhibited for the first time in the Odd Fellow Palace in Copenhagen in January 2011. By the end of the exhibit, she received an injunction, obtained (unbeknowst to Plesner) by LVM from a court in The Hague. Plesner was ordered to stop showing the painting in the gallery and online, and to pay 5,000 Euros per day until she complied. In May, she went to The Hague and made her case. A month later the court reversed the injunction and ordered LVM to pay part of her legal costs.

Louis Vuitton’s attack on Plesner’s artwork is a real head-scratcher, given that Mattel tried a similar thing in 1999 when it sued artist Tom Forsythe, who produced a series of photographs of a nude and provocatively posed Barbie in or around various household appliances. (She ends up in a blender.) Mattel lost and was ordered to pay the artist $1.8 million in legal fees.

Unlike LVM`s case against Plesner, the case against MOB involved not a work of art, but a commercial product. MOB’s purpose was parody, but to LVM, MOB was merely trading on the strength of the Toile Monogram mark. As in LVM`s failed litigation against Haute Diggity Dog, LVM also claimed both “trademark dilution” and copyright infringement claim.

In order to prove trademark infringement, LVM needed to prevail on a host of factors used to analyze whether the use amounts to an infringement. In the Second Circuit, courts use the “Polaroid Factors,” a set of criteria first mentioned by Judge Friendly in the 1961 case, Polaroid Corp. v. Polarad Electronics Corp., 287 F.2d 492 (2d Cir., 1961). “The problem of determining how far a valid trademark shall be protected with respect to goods other than those to which its owner has applied it,” Judge Friendly wrote, “has long been vexing…”

Where the products are different, the prior owner’s chance of success is a function of many variables: the strength of his mark, the degree of similarity between the two marks, the proximity of the products, the likelihood that the prior owner will bridge the gap [i.e., begin selling directly competing products], actual confusion, and the reciprocal of defendant’s good faith in adopting its own mark, the quality of defendant’s product, and the sophistication of the buyers. Even this extensive catalogue does not exhaust the possibilities — the court may have to take still other variables into account.

Polaroid Corp. v. Polarad Electronics Corp., supra, 287 F.2d at 496.

LVM failed to prevail on any of the Polaroid Factors. Although LVM`s handbags and MOB’s canvas tote bags could theoretically be purchased by the same consumers, there is an enormous gulf between the quality of the products, their prices, and the venues in which they are sold. LVM was unable to come up with any convincing evidence of consumer confusion – and consumers were considered sophisticated enough to know that LVM, whose handbags run upwards of one or two thousand dollars, was not the source of an inexpensive canvas tote bag prominently marked “My Other Bag.” The court also found that there was no likelihood that MOB would be entering the luxury handbag market (i.e., “bridge the gap”).

Unsurprisingly, given the Haute Diggity Dog decision, LVM lost both in the District Court and on appeal to the Second Circuit. LVM attempted to argue that the District Court erred by finding that MOB’s use of the Toile Monogram design was parody, but the Second Circuit would have none of it. “At the same time that they mimic LV’s designs and handbags in a way that is recognizable,” the Second Circuit wrote,

they do so as a [graphic image] on a product that is such a conscious departure from LV’s image of luxury—in combination with the slogan “My other bag”—as to convey that MOB’s tote bags are not LV handbags. The fact that the joke on LV’s luxury image is gentle, and possibly even complimentary to LV, does not preclude it from being a parody.

In any event, the nature of MOB’s business—it sells quite ordinary tote bags with [graphic images] of various luxury-brand handbags, not just LVM’s, printed thereon—and the presence of “My other bag,” an undisputed designation of source, on one side of each bag,  independently support summary judgment for MOB on this designation-of-source issue.

LVM fared no better on its copyright claim: “MOB’s parodic use of LVM’s designs,” the Court held, produces a “new expression and message that constitutes transformative use.”

Parodists should probably thank LVM for losing cases involving trademark parody in two federal jurisdictions. In 1994, the Supreme Court ruled in Campbell v. Acuff-Rose Music, Inc. that rap group 2 Live Crew’s appropriation of Roy Orbison’s song, “Pretty Woman,” was not copyright infringement, but parody. (As with trademark dilution, parody is a statutory defense against claims of copyright infringement.) Since that decision, the courts have come to embrace the idea that parody should also be permitted (at least under some circumstances) as a defense to trademark infringement. Despite this trend, it has been the practice of many major trademark owners to make overbroad claims and excessive threats, sometimes commencing litigation knowing that the parodist can’t afford to fight, and will quickly give in to their demands. Hopefully, this most recent decision, which has received ample publicity, will make companies like LVM think twice before engaging in such tactics.

Endnotes

[1] The Toile Monogram was first registered with the United States Patent and Trademark Office in 1932. While LVM’s case against MOB was pending in New York, the General Court of the E.U. invalidated the Damier Trademark because it was “a basic and banal feature composed of very simple elements” and lacked any brand-specific features. It is also likely unprotectable in the United States.

[2] For trademark purposes, “[a] ‘parody’ is defined as a simple form of entertainment conveyed by juxtaposing the irreverent representation of the trademark with the idealized image created by the mark’s owner … A parody must convey two simultaneous — and contradictory — messages: that it is the original, but also that it is not the original and is instead a parody. People for the Ethical Treatment of Animals v. Doughney, 263 F.3d 359, 366 (4th Cir. 2001). This second message must not only differentiate the alleged parody from the original but must also communicate some articulable element of satire, ridicule, joking, or amusement. Thus, [a] parody relies upon a difference from the original mark, presumably a humorous difference, in order to produce its desired effect. Jordache Enterprises, Inc. v. Hogg Wyld, Ltd., 828 F.2d 1482, 1486 (10th Cir.1987) (finding the use of “Lardashe” jeans for larger women to be a successful and permissible parody of “Jordache” jeans).” Louis Vuitton Malletier S.A v. Haute Diggity Dog LLC, 507 F. 3d 252 (4th Cir. 2007). (Internal quotes omitted.)

USPTO Changes in Requirements for Declarations of Use

We previously reported the Declarations of Use pilot program by the USPTO. Examiners could request additional evidence when they questioned the evidence filed. These requests applied to both national and international registrations. As a result of the pilot program, the goods and services listed in the vast majority of the registrations questioned were limited to those in actual use. The USPTO is now proceeding to make the pilot program procedures part of the official rules. The objective is to have a more precise register of trademarks. Although the entire rulemaking process is not complete, these new regulations are likely to be implemented swiftly.

The key provision is:

The Office may require the owner [or holder of an International Registration] to furnish such information, exhibits, affidavits or declarations, and such additional specimens as may be reasonably necessary to the proper examination of the affidavit or declaration under section 8 [section 71] of the Act or for the Office to assess and promote the accuracy and integrity of the register.

See Federal Register – 6/22/2016 amending TMEP Sections 2.161 and 7.37

This rule gives the USPTO great latitude. Examiners can request additional information from a registrant to determine that the affidavit of use is accurate, and in particular that the mark is in use for all of the goods and services listed in the registration. United States law requires that an application filed on the basis of intent-to-use and converted to use, or based on use, must be in use for all of the goods and services. This is also true for the filing of Declarations of Use.

This new rule will be particularly problematic to foreign registrants where there is a tendency to include items in the list of goods and services that are beyond the scope of the business of the trademark owner. This common practice is because foreign trademark rights are more specifically limited to the actual goods and services listed in the registration. Rather under US law rights are evaluated under a likelihood of confusion analysis which can extend beyond the specific goods and services listed in the registration.

This rule further supports our regular recommendation to trademark owners to list those goods and services that are in actual use for the mark in order to minimize problems with the registration in the future. A likelihood of confusion determination is made on a variety of factors. Importantly, when pursuing an infringement, a trademark owner should not have to defend the registration from attack on the basis of non-use or fraud in the procurement or maintenance of the registration. The mark must be in use for all of the goods and services listed.

USPTO will suspend examination – Section 2(a)’s Scandalousness and Disparagement Provisions

Among the many reasons available to the USPTO to reject trademark applications is Section 2(a) of the Lanham Act, 15 U.S.C. § 2(a). This provision bars registration of marks that consist of or comprise immoral or scandalous matter, or matter which may disparage persons, institutions, beliefs, or national symbols, or bring them into contempt or disrepute.  The constitutionality of provisions of Section 2(a) are the subject of active court litigation and the outcome of these actions is relevant to the issue of registrability of marks in the United States.

In re Brunetti, Case No. 15-1109, (Fed. Cir. filed November 6, 2015) a Federal Circuit appeal denying registration of the mark “FUCT” where the Applicant argued that prohibition of the registration of scandalous marks under Section 2(a) of the Lanham Act is unconstitutional.

Pro-Football v. Blackhorse (No. 15 1874, Fourth Circuit). This is an appeal from the (TTAB) petition granting cancellation of six registrations for word and design marks containing the word, REDSKINS for entertainment services. See our June 20, 2014 blog post for a case analysis.

In re Tam, 808 F.3d 1321, 1358, 117 USPQ2d 1001, 1025 (Fed. Cir. 2015) (en banc), as corrected (Feb. 11, 2016) where the Federal Circuit determined that Section 2(a) barring registration of disparaging marks was unconstitutional.  See our December 24, 2015 blog post for a case analysis. On March 9, 2016, the USPTO filed a request to extend the time to file a Petition for a Writ of Certiorari (Supreme Court No.15A925).

Consistent with USPTO procedures, on March 10, 2016, the USPTO issued guidance to the examiners to suspend action on pending applications involving marks subject to refusal under these provisions in Section 2(a), provided that all other issues raised by the examiner have been resolved. Clearly, the USPTO is waiting for a Supreme Court determination of the constitutionality of Section 2(a) of the trademark statute, namely, can the USPTO deny registration of marks that are scandalous, immoral or disparaging.

Changes to European Trademarks

Update to our December 1, 2015 post Changes to the European Trademark System are Imminent, as of March 23, 2016, the Office of Harmonization in the Internal Market (OHIM) will have a new name. It will be known as the European Union Intellectual Property Office (EUIPO). The Community trade mark will be renamed the European Union trade mark.

A summary of noteworthy changes are as follows:

  • An application covers a single class, but additional classes can be added upon payment of additional per class fees. (The pay for one, get two extra classes for free no longer applies.)
  • Non-displayable signs such as smells and sounds may be registered. (Previously only graphically displayable marks were permitted.)
  • Applicant must clearly and accurately describe the goods and services in the classes in question. (Class headings are no longer permitted.)
  • Certification marks can now be registered.
  • Grounds for Refusal have been expanded. Namely adding, designations of origin, geographical indications, protected traditional terms for wine and traditional specialities. (Previously, there were limited substantive grounds that OHIM could assert to deny registration of a mark. )
  • Opposition Grounds have been expanded. Importantly, a revision of the relevant five year period for proof of use of the earlier mark in opposition proceedings to be the date of filing or the date of priority of the EU trade mark application, not the date of publication of the opposed mark.
  • National offices must implement within seven years procedures for revocation and nullification of national trademarks. (Presently, many EU member countries do not provide an administrative way to cancel a national trademark registration requiring all such proceedings to be in the court.)
  • “Goods-in-transit” procedures to prevent the EU from being used as a transit hub for counterfeit goods. These are new provisions that will require each of the EU member countries to implement in their customs regulations.
  • New prohibitions on the use of signs (marks) in comparative advertising where that advertising is misleading. Comparative advertising is permitted, but is more restrictive.

Again, we note that there are many companies out there fraudulently soliciting for payments. The EUIPO has restated its concern about these Fraudulent Solicitations in light of the potential confusion while the OHIM office changes its name to EUIPO and the CTM trade mark registration is renamed the EU trade mark. See our Fraudulent Solicitations link for additional information about the many entities soliciting misleading payments for services.

The full text of the new directive is available. 

New Life for Outdated Trademark Registrations

On September 1, 2015, the USPTO announced a Pilot Program to Allow Amendments to Identifications of Goods and Services in Trademark Registrations Due to Technology Evolution. The intent of the program is to permit “amendments to identifications of goods/services in trademark registrations that would otherwise be beyond the scope of the current identification” with the “goal of preserving trademark registrations in situations where technology in an industry has evolved in such a way that amendment of the goods/services in question would not generate a public-notice problem.” That is to say, where a trademark registration claims a manner or means or medium of distribution that has changed due to changes in technology, it may be possible to amend the identification of goods and services reflecting the current manner or means or medium of distribution. This is what is being termed an “evolved designation.”

Since commencing the program, the USPTO has published examples of permissible evolved designation amendments. Examples are:

Registration ID Proposed ID Change
Prerecorded audio and video tapes featuring religious topics Prerecorded CDs and DVDs featuring religious topics
Pre-recorded audio cassettes Audio recordings featuring religious content
Pre-recorded audio/video cassettes for use in the field of pre-school and primary education Sound and video recordings for use in the field of preschool and primary education
House mark for use with type face fonts recorded on magnetic and optical media House mark for use with type face fonts on electronic storage media and downloaded provided by means of electronic transmission
Retail store services and on-line retail store services featuring musical instruments, bows, strings, instrument cases, sheet music, books pre-recorded video tapes and pre-recorded CDs featuring musical performances or musical instruction Retail store services and on-line retail store services featuring musical instruments, bows, strings, instrument cases, sheet music, books, video recordings and pre-recorded CDs featuring musical performances or musical instruction
DOS-based application software to manage and forecast inventory for the direct marketing industry Application software to manage and forecast inventory for the direct marketing industry
Videotapes, videocassettes, all on the subjects of ancient peoples and cultures around the world Video recordings on the subjects of ancient peoples and cultures around the world

It may even be possible to change the class coverage of the registration when the proper current description of the goods or services are in a different class from what was originally registered (e.g.: printed publication are class 16 while downloadable publications are class 9).

At the end of the process the USPTO will issue a new registration certificate, maintaining the priority of the original registration.

Requirements:

  • Amendments are made via the post-registration petition to the Director provisions and the certificate of registration amendment provisions with a government fee of $200.00.
  • Amendments cannot be made that would expand the scope of the registration. If the registration is limited to a specific subject matter, then the amendment would continue with the same subject matter, merely altering the distribution mechanism.
  • The registrant must have discontinued the prior technology and the designation is removed from the description in the registration. Otherwise, the registrant would be compelled to file a new application.
  • The amendments must conform to the current USPTO practice requirements for proper descriptions of goods and services.
  • A US registration based on an International Registration (Madrid Protocol), must conform with the underlying IR during the first five years of registration. However, US registrations based on national foreign registrations are not similarly limited.
  • There are a number of technical requirements, including:
    •     A request for a waiver of what is known as the “scope rule” which essentially permits only restrictions to identifications that would not require republication;
    •     A declaration that that the registrant will not file (or re-file) an incontestability affidavit for at least five years from the amendment acceptance date for the evolved designation;
    •     Submission of a specimen showing current use of the mark in commerce, along with the dates of first use of the evolved designation along with a declaration in support. (Note: the original first use dates would continue in the registration); and
    •     The request for the amendment must be filed electronically.

Once accepted by the USPTO, the amended registration will be published in the Official Gazette along with other Section 7 amendments.

The USPTO has considered third party harm considerations, and in the amendment examination process will:

  •     Conduct a search for possible conflicting marks;
  •     Require that the incontestability status applicable to any evolved designation will not apply for five years;
  •     Provide a mechanism for interested parties to comment about proposed amendments prior to acceptance, and
  •     Publish the proposed amendments on its website allowing interested parties to comment for thirty days.

What does this mean for trademark owners?

    Depending upon the specific circumstances, it may be more prudent to file a new application claiming not only the new delivery mechanism, as an example, but additional goods and services that may be of interest to the registrant. Often, business changes over time, and trademark owners typically expand their product offerings.

    When filing either a Section 8 (use) or 9 (renewal), it may be more prudent to delete the goods and services that are no longer of interest.

    Ultimately, it really depends on the exact wording in the registration, and on what goods and services the trademark owner is using the mark that will determine the best procedure to deal with changes in technology.

Depending upon how many trademark owners take advantage of the pilot program will determine if the trademark office will continue with this special procedure. So, if you have any trademark registrations that claim outdated technology (or need to claim new technology), and could benefit from this program, feel free to contact us for a consultation.

Federal Circuit Approves Disparaging Marks for Registration

On December 22, 2015, the Lanham Act’s prohibition on the registration of disparaging trademarks was held unconstitutional by the Federal Circuit, paving the way for federal registrations for REDSKINS, HEEB, N.I.G.G.A. and other marks previously denied federal trademark status.

In re Simon Shiao Tam, Case No. 14-1203 (Decision filed on December 22, 2015)

The United States Court of Appeals for the Federal Circuit declared Section 2(a) of the Lanham Act (15 U.S.C. § 1052(a)) unconstitutional. Section 2(a) bars the US Patent and Trademark Office (“USPTO”) from registering scandalous, immoral or disparaging marks.[1]

The case came to the Federal Circuit by way of appeal from a decision by the Trademark Trial and Appeal Board (“TTAB”) in In Re Simon Shiao Tam. The TTAB upheld the USPTO’s refusal to register the name of Mr. Tam’s Asian-American dance-rock band, the SLANTS. Mr. Tam purposely named his band with a pejorative term in order to make a statement about racial and cultural issues. A panel of the Federal Circuit upheld the TTAB decision earlier this year, but shortly thereafter, the Court granted, sua sponte, a rehearing en banc on the issue of constitutionality. Oral argument was held on October 2, 2015.

The Federal Circuit decision was resolute: “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.” Thus, the court concluded,

[t]he government cannot refuse to register disparaging marks because it disapproves of the expressive messages conveyed by the marks… 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. Because the government has offered no legitimate interests justifying § 2(a), we conclude that it would also be unconstitutional under the intermediate scrutiny traditionally applied to regulation of the commercial aspects of speech.

Actually, in this case, it isn’t clear that the government disapproved of the expressive message conveyed by the mark. In his application, Mr. Tam stated that the band “feel[s] strongly that Asians should be proud of their cultural heri[ta]ge and not be offended by stereotypical descriptions,” and that their aim was to “reclaim” and “take ownership” of stereotypes.

Despite the message that Mr. Tam intended to convey, the TTAB found that the applied for mark was disparaging to a substantial component of people of Asian descent because “dictionary definitions, reference works and all other evidence unanimously categorize the word ‘slant,’ when meaning a person of Asian descent, as disparaging,” and because there was record evidence of individuals and groups in the Asian community objecting to Mr. Tam’s use of the word.”

The USPTO has refused to register numerous marks on the ground of disparagement — most notoriously REDSKINS for the Washington football team. Other rejected marks include STOP THE ISLAMISATION OF AMERICA, THE CHRISTIAN PROSTITUTE, MORMON WHISKEY, KHORAN (for wine), HAVE YOU HEARD THAT SATAN IS A REPUBLICAN?, RIDE HARD RETARD, ABORT THE REPUBLICANS, HEEB, SEX ROD, MARRIAGE IS FOR FAGS, DEMOCRATS SHOULDN’T BREED, REPUBLICANS SHOULDN’T BREED, 2 DYKE MINIMUM, WET BAC, URBAN INJUN, SQUAW, DON’T BE A WET BACK, FAGDOG, and N.I.G.G.A. NATURALLY INTELLIGENT GOD GIFTED AFRICANS. As with SLANTS, applications for some of these intended marks (e.g., HEEB and N.I.G.G.A.) were filed by people from the very communities that the marks were held to disparage. The application for HEEB, for instance, was filed by a progressive Jewish organization. In that case, the TTAB rejected the applicant’s argument that the Examining Attorney “ignored the context and manner in which applicant’s mark is used when determining whether the likely meaning of applicant’s mark is disparaging to the Jewish community” and that “many of this country’s most established Jewish philanthropies and cultural organizations have openly and actively supported Applicant’s magazine and events through their continued funding and sponsorship.” The Board ruled that “[w]hether a proposed mark is disparaging must be determined from the standpoint of a substantial composite of the referenced group (although not necessarily a majority) in the context of contemporary attitudes.” In re Heeb Media, LLC, 89 USPQ2d 1071 (TTAB 2008) [precedential]. In other words, the particular viewpoint of the applicant was irrelevant to whether the mark was “disparaging.” Given prior decisions, the USPTO’s and TTAB’s rejection of Mr. Tam’s application for SLANTS came as no surprise.

A disparaging mark is defined as one which “dishonors by comparison with what is inferior, slights, deprecates, degrades, or affects or injures by unjust comparison.” In order to determine whether a mark is disparaging, the USPTO considers the following:

(1) What is the likely meaning of the matter in question, taking into account not only dictionary definitions, but also the relationship of the matter to the other elements in the mark, the nature of the goods or services, and the manner in which the mark is used in the marketplace in connection with the goods or services; and

(2) If that meaning is found to refer to identifiable persons, institutions, beliefs or national symbols, whether that meaning may be disparaging to a substantial composite of the referenced group.

Trademark Manual of Examining Procedure, § 1203.03(b)(i) (Jan. 2015 ed.)

Viewpoint Discrimination

The Federal Circuit found that since the test for disparagement is determined by whether “a substantial composite of the referenced group would find the mark disparaging,” it is “clear that it is the nature of the message conveyed by the speech which is being regulated. If the mark is found disparaging by the referenced group, it is denied registration.” Under principles of constitutional law, regulations that are not content neutral, i.e, that target speech based on its communicative content, are upheld only if the government proves they are narrowly tailored to serve compelling state interests. Viewpoint discrimination, which targets the substance of the particular viewpoint being expressed, is subject to even greater scrutiny. The Federal Circuit found that Section 2(a) “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.”

The Court’s decision is ultimately hinged on its finding that the effect, if not the very purpose, of Section 2(a) is to disfavor certain viewpoints. According to the government, Section 2(a) is important because the government disagrees with the message that disparaging marks convey, based on how the message is received by an identifiable community or portion thereof. Although the government claimed that the USPTO doesn’t reject marks based on their viewpoints, this appears to be true only with respect to the narrow category of racial, religious and sexual epithets.

The Court cited several examples that it claimed were examples of viewpoint discrimination: the refusal to register 2 DYKE MINIMUM and registration of DYKES ON BIKES; the refusal to register SLANT and the registration of CELEBRASIANS and ASIAN EFFICIENCY, and the refusal to register STOP THE ISLAMISATION OF AMERICA and the registration of THINK ISLAM. However, DYKES ON BIKES was registered (after refusal by the USPTO and reconsideration in the TTAB) because the applicant was able to present evidence that the lesbian community did not consider DYKES to be disparaging, and also because the USPTO’s own evidence merely suggested that it “might” be disparaging. The comparison between SLANT and CELEBRASIONS or ASIAN EFFICIENCY also falls short: this is a comparison between a mark consisting of a pejorative term and two marks that contain no pejorative terms. Viewpoint discrimination, however, was apparently determinative in refusing to register STOP THE ISLAMISATION OF AMERICA. In refusing to register the latter mark, the TTAB “explained that the ‘mark’s admonition to ‘STOP’ Islamisation in America ‘sets a negative tone and signals that Islamization is undesirable and is something that must be brought to an end in America.’” That decision, the Court found, was a moral judgment “based solely and indisputably on the mark’s expressive content.”

Common Law Trademark Rights are Insufficient and Discourage Free Expression

The government attempted to counter this argument on three grounds. First, that Section 2(a) doesn’t prohibit free speech, “but leaves Mr. Tam free to name his band as he wishes and use this name in commerce;” second, that trademark registration constitutes a kind of government speech; and third, that trademark registration is a government subsidy, which (if true) the government may have the right to withhold.

With respect to the first argument, while it is true that Mr. Tam can continue to use his band name, it is not true that he can do so “as he wishes.” As the Court rightly found, Section 2(a) registration “bestows truly significant and financially valuable benefits upon markholders,” citing B&B Hardware, Inc. v. Hargis Industries, Inc., 135 S. Ct. 1293, 1300 (2015); Park ’N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 199–200 (1985) (valuable new rights were created by the Lanham Act); and McCarthy on Trademarks at § 19:9, :11 (“Registration of a mark on the federal Principal Register confers a number of procedural and substantive legal advantages over reliance on common law rights.”)

As examples of the rights that registration bestows upon the registrant, the Court cited the exclusive nationwide right to use the mark anywhere there is not already a prior user that precedes registration. (15 U.S.C. §§ 1072, 1115). By contrast, marks protected by common law rights are “limited to the territory in which the mark is known and recognized by those in the defined group of potential customers,” citing McCarthy on Trademarks at § 26:2. Without a federal trademark registration, a competitor can swoop in and adopt the same mark for the same goods in a different location. Non-registrants also have no prima facie evidence of their trademark’s validity, ownership and exclusive use. (See 15 U.S.C. § 1057(b)). Federal marks become incontestable after five years; common law trademarks never become incontestable. Finally, a common law trademark owner cannot stop importation of goods bearing its mark, or recover treble damages for willful infringement. (See 15 U.S.C. §§ 1117, 1124.) Nor can the common law trademark owner prevent “cybersquatters” from misappropriating its mark in a domain name. (See 15 U.S.C. § 1125(d).)

Given the limited protection that common law marks receive, if a group fears that a mark might be deemed offensive or disparaging by the USPTO, it will be less likely to adopt the mark, at least in part because the group may not be able to establish exclusive nationwide ownership. There is also a disincentive to choose a mark that might be deemed offensive or disparaging because litigating to obtain registration can be expensive and futile. (The USPTO does not give refunds for applications that are refused.)[2]

Furthermore, the Court pointed out, “the disincentive does not stop there, because the disparagement determination is not a onetime matter. Even if an applicant obtains a registration initially, the mark may be challenged in a cancellation proceeding years later. Thus, after years of investment in promoting a registered mark and coming to be known by it, a mark’s owner may have to (re)litigate its character under § 2(a) and might lose the registration.”

Although the Court didn’t squarely address the subject, common law rights in a band name offers the band no real protection at all. It is fairly commonplace in the music industry for start-up bands inadvertently to adopt the same or a similar name as another band in some other city. Consider two bands with the same name, one popular in and around New York City, the other hailing from Austin, Texas, and popular in the Southwest. Each band is able to co-exist within its respective geographic area. But if one signs with a nationally distributed record company, or even begins releasing records that receive national distribution, it can be hit by a trademark infringement claim from the other. Typically what happens is that the more successful band ends up changing its name. (To give a famous example, one of two bands called Hybrid Theory was forced to change its name in order to avoid a trademark dispute. The band members chose Linkin Park as their new name, probably a fortuitous result.) The problem can also have international implications. The U.S. applicant who is refused registration in the USPTO will face registration difficulties, resulting in many thousands of dollars in legal fees, where it also filed trademark applications internationally, either under the Madrid Protocol or via direct country filings, using the U.S. application as the filing basis, as is ordinarily the case.

In short, a denial of registration is tantamount to punishment, with an added effect of inhibiting people from engaging in potentially disparaging speech in the first place.

Trademark Registration is Not Government Speech

The government’s second argument — that trademark registration is government speech — is specious. As the Court pointed out, trademark registration is, like copyright registration, a regulatory activity that does not involve either approval or endorsement by the U.S. government. One cannot distinguish between trademark from copyright registration on the basis that trademark is “commercial speech” (and thus subject to greater regulation) because advertising and other utterances by businesses are protectable by copyright regardless of their viewpoint. As the Court pointed out,

[T]he logical extension of the government’s argument is that these indicia of registration convert the underlying speech into government speech unprotected by the First Amendment. Thus, the government would be free, under this logic, to prohibit the copyright registration of any work deemed immoral, scandalous, or disparaging to others.

The government cited Walker v. Texas Division, Sons of Confederate Veterans, 135 S. Ct. 2239 (2015) to support its contention that trademark registration is government speech, but the facts of that case are easily distinguishable. There, the Supreme Court found specialty license plates to be government speech, even though state law permitted individuals and organizations to request their own expressions, because “[t]he history of license plates shows that, insofar as license plates have conveyed more than state names and vehicle identification numbers, they long have communicated messages from the States.” (Examples include “Live Free or Die,” “The Show Me State,” and “Land of Opportunity.”) Furthermore, the Supreme Court observed that the State of Texas “places the name ‘TEXAS’ in large letters at the top of every plate,” designs the license plates, and requires vehicle owners to display them. As a consequence, the Supreme Court reasoned, “Texas license plate designs ‘are often closely identified in the public mind with the State.’” In addition, the Supreme Court found that “a person who displays a message on a Texas license plate likely intends to convey to the public that the State has endorsed that message.”

No one seriously views trademark registration as speech by the government endorsing or approving the mark or the goods and services thereunder. Anyone who did would have to explain why the government was endorsing these registered marks: RADICALLY FOLLOWING CHRIST IN MISSION TOGETHER (4759522); THINK ISLAM (4719002); GANJA UNIVERSITY (4070160); CAPITALISM SUCKS DONKEY BALLS (4744351); TAKE YO PANTIES OFF (4824028); and MURDER 4 HIRE (3605862). (The Federal Circuit named just a few but examples are legion.) Furthermore, as the government stated in its brief, “the USPTO does not endorse any particular product, service, mark, or registrant” when it registers a mark, and “just as the issuance of a trademark registration by this Office does not amount to government endorsement of the quality of the goods to which the mark is applied, the act of registration is not a government imprimatur or pronouncement that the mark is a ‘good’ one in an aesthetic, or any analogous, sense.”

Trademark Registration is not a Government Subsidy

The government contended that “trademark registration is a form of government subsidy that the government may refuse where it disapproves of the message a mark conveys.” However, the benefits of trademark registration are not monetary: trademark registration does not involve government funding or a concession to use or benefit from government property. That the USPTO is partially funded by appropriations does not make it a subsidy. Moreover, since 1991, all of the USPTO’s operating expenses associated with registering marks “have been funded entirely by registration fees, not the taxpayer.” The fact that some federal funds are spent on PTO employee benefits such as pensions, health insurance, and life insurance, is not enough to make it a subsidy. Nor is the benefit of being able to seek enforcement of a trademark by the U.S. Customs and Border Patrol. The analogy, the Court persuasively argued, is again copyright:

Under the logic of the government’s approach, it follows that the government could refuse to register copyrights without the oversight of the First Amendment. Congress could pass a law prohibiting the copyrighting of works containing “racial slurs,” “religious insults,” “ethnic caricatures,” and “misogynistic images.”

As a Regulation Aimed at Commercial Speech, Section 2(a) is Unconstitutional

The government’s main objection to the Court’s trademark-copyright analogy is that § 2(a) is intended to regulate commercial speech. However, the regulation of commercial speech is only permissible where the government has some compelling interest (e.g., to prevent misleading claims about a product or service) and the statute has been “narrowly tailored to achieve that objective.” Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 555–56 (2001). “Under a commercial speech inquiry, it is the State’s burden to justify its content-based law as consistent with the First Amendment,” said the Federal Circuit, citing Sorrell v. IMS Health Inc., 131 S. Ct. 2653, 2667 (2011).

On its face, the Court found, Section 2(a) “does not address misleading, deceptive, or unlawful marks. There is nothing illegal or misleading about a disparaging trademark like Mr. Tam’s mark.” Indeed, the government’s entire interest in § 2(a) appears to be the denial of registration to trademarks whose messages the government disapproves.

Conclusion

Whether or not the Supreme Court lets the Federal Circuit’s decision stand, the Federal Circuit’s view that Mr. Tam was unjustly refused registration is compelling:

[I]t seems clear that the result as to Mr. Tam this case exemplifies how marks often have an expressive aspect over and above their commercial-speech aspect. Mr. Tam explicitly selected his mark to create a dialogue on controversial political and social issues. With his band name, Mr. Tam makes a statement about racial and ethnic identity. He seeks to shift the meaning of, and thereby reclaim, an emotionally charged word. He advocates for social change and challenges perceptions of people of Asian descent. His band name pushes people. It offends. Despite this—indeed, because of it—Mr. Tam’s band name is expressive speech.

On the other hand, if Mr. Tam can now register SLANTS for a salutary purpose, there is no constitutional justification that would prohibit an organization to register the same word for a racist purpose, for example, “No Slants Allowed.” Nor would there be a constitutional justification for preventing registration of REDSKINS for a football team. (The owner of the REDSKINS trademark certainly claims not to have disparaging intent.) It seems to us that Congress could narrowly prohibit the registration of racial, religious and gender-based epithets that disparage “a substantial composite of the referenced group” on a viewpoint-neutral basis (i.e., regardless of the trademark applicant’s purpose in using the epithet), but Section 2(a) reaches too far when it prohibits disparaging messages whose words, standing alone, are not inherently disparaging. Of course, whether Congress should pass a law prohibiting the registration of epithets is another matter. The marketplace of ideas may be the best way to determine the worth of any mark.

The fight over Section 2(a) is far from over. The case is expected to be appealed to the Supreme Court and, of course, Congress may look for a legislative solution, leading to further litigation. In addition, the Federal Circuit limited its holding to the disparagement provision of Section 2(a), “[r]ecognizing, however, that other portions of § 2 may likewise constitute government regulation of expression based on message, such as the exclusions of immoral or scandalous marks…”

FOOTNOTES

[1] Section 2(a) provides in full as follows:
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; or a geographical indication which, when used on or in connection with wines or spirits, identifies a place other than the origin of the goods and is first used on or in connection with wines or spirits by the applicant on or after one year after the date on which the WTO Agreement (as defined in section 3501(9) of title 19) enters into force with respect to the United States.
[2] At WebTM, our basic registration fee covers office actions, but not appeals to the TTAB or interventions by third parties. Buyer beware: some registration services charge high fees for office actions, which are issued in a majority of trademark applications. What looks like a cheap deal could turn into disaster.

 

Who Stole the Milano Cookie from the Cookie Jar?

On December 2, 2015, Pepperidge Farm filed suit against Trader Joe’s in Connecticut federal district court, alleging that Trader Joe’s Crispy Cookies infringe on Pepperidge Farm’s Milano cookie configuration trademark and causes “dilution by blurring,” a term of art in trademark law that indicates “an association arising from the similarity between a mark and a famous mark that impairs the distinctiveness of the famous mark.” Trademark Dilution Revision Act of 2006 (“TDRA”), Section 43(c), Lanham Act, 15 U.S.C. § 1125(c)(2)(B) (2006). Some might call the TDRA a license to bully, but in this case Pepperidge Farm has hardly picked on a small fry.

Pepperidge Farm’s trademark, which registered on September 28, 2010, but was first used (and first used in commerce) on December 31, 1977, is described in the registration as follows:

The mark consists of a configuration of a cookie comprised of a filling sandwiched between two oval-shaped cookies. The notch depicted near the upper portion of one of the cookies represents a small portion of the cookie that bumps out of the otherwise flat contoured surface.

Both the mark (the “Milano Configuration”) and a specimen cookie are pictured below. Pepperidge Farm Milano TMcontends that its Milano Configuration is famous, and it may well be: a well-regarded treatise on trademark law, McCarthy on Trademarks, argues that a mark is famous if “it is known to more than fifty percent of the defendant’s potential customers.” Marks that have been determined to be famous include VICTORIA’S SECRET, BEANIE BABIES, WAWA, COCA-COLA, THE GREATEST SHOW ON EARTH, 7-ELEVEN, NIKE, BUICK, DUPONT and KODAK.

Famous marks are generally afforded a greater scope of protection than non-famous marks. Indeed, if Pepperidge Farm is able to show that the Milano Configuration is famous, then in order to win on its claim of “dilution by blurring,” at least in the Second Circuit where this case has been brought, Pepperidge Farms will not need to prove that Crispy Cookies are visually substantially similar to Milano cookies.* Rather, it will only need to prove that they are similar enough, along with other factors weighed in Pepperidge Farm’s favor, including:

  • the degree of inherent or acquired distinctiveness of the Milano Configuration;
  • the extent to which Pepperidge Farm is engaging in substantially exclusive use of its Milano Configuration;
  • the degree of recognition of the the Milano Configuration;
  • whether Trader Joe’s use of the Milano Configuration is intended to create an association with the Milano Configuration; and
  • any actual association between the Crispy Cookie and the Milano Configuration.

(*Note: Some circuits still require substantial similarity as a threshold test for trademark dilution.)

crispy cookiesWhether Crispy Cookies are similar enough to the Milano Configuration is a judgment call. In the complaint, Pepperidge Farm describes the Crispy Cookie as “a chocolate filling sandwiched between two rounded rectangular cookies, mimicking an overall oval shape.” The use of of the word “oval” is somewhat misleading, as the Crispy Cookie is more rectangular than oval, and it doesn’t contain the Milano’s famous notch, as can be seen in the image below. How a jury comes out on that question is anyone’s guess.

To bolster its infringement and dilution claims, Pepperidge Farm also contends that Trader Joe’s mimics Pepperidge Farm’s packaging. Displayed on the package of Crispy Cookies (see below) are three cookies upright in a fluted (apricot-hued) paper cup, but there are no fluted paper cups in Trader Joe’s packaging: the cookies sit in a plastic tray. Pepperidge Farm uses fluted (white) cups inside the package, but has not shown fluted cups on its packaging since the 1990s. Pepperidge Farm further claims that Trader Joe’s upright bag is intended to mimic that of the Milano, when most cookie packs are oriented horizontally.

Current packagingPepperidge Farm’s argument that Trader Joe’s use of an image of Crispy Cookies sitting in a fluted (albeit apricot-hued) paper cup to create an association in consumers’ minds is not a bad one, given that the actual Crispy Cookies packaging includes no fluted paper cups inside. However, claiming that the image on Trader Joe’s packaging is mimicking the image on Pepperidge Farm’s packaging from twenty years ago seems to be a stretch.

As a separate claim, Pepperidge Farm alleges that Trader Joe’s product is “likely to cause confusion, mistake, and/or deceive purchasers, potential purchasers, and the relevant public and trade at the time of purchase, as well as post purchase as to the source or sponsorship or approval of the Infringing Product, and/or as to its affiliation with Pepperidge Farm.” Pepperidge Farm will have a very difficult time convincing a judge or jury that any significant consumer confusion could arise at the time of purchase, given the sophistication of consumers of Milano cookies, few people shopping at Trader Joe’s will think that Milano cookies were inside the Crispy Cookies bag or that Pepperidge Farm was affiliated with Trader Joe’s. Most people will recognize Crispy Cookies as a merely competing product, with biscuits of similar texture and color, and chocolate filling — configurations not owned by Pepperidge Farm. However, if the Milano Configuration is famous, the question won’t be consumer confusion at the time of purchase, but consumer association. Regardless of whether the Milano Configuration is famous, Trader Joe’s will surely have its greatest difficulty in a post-purchase context, where consumers may not see the associated packaging. As with many trademark infringement suits involving claims of fame and similarity, the case will likely be determined by consumer surveys.

The TDRA poses the greatest risk of liability to Trader Joe’s because Pepperidge Farm’s burden of proof regarding the similarity of the two products will be so much lower. Moreover, in most instances, the statute provides only for an injunction against further dilution; but if Pepperidge Farm can show that Trader Joe’s sought willfully to trade on Pepperidge Farm’s reputation or to cause dilution, then Pepperidge Farm may be able to recover Trader Joe’s profits and, if the facts revealed in the case are egregious enough, legal fees. Recovery of profits and an award of legal fees is also possible if the jury finds that the Milano Configuration is not famous, but the configuration of Crispy Cookies is substantially similar to the Milano Configuration, and Trader Joe’s acted intentionally and egregiously. It wouldn’t be a surprise to see Trader Joe’s withdraw its Crispy Cookies from the marketplace in the near future, at least in their present form.

 

Trademark Trolls & Trademark Bullies

Trademark Trolls

You have to expect it. There are domain name trolls who register domain names in an attempt to extract money from its rightful owner; and there are patent trolls, who attempt to enforce patent rights far beyond their patent’s actual value or contribution to prior art. Enter the trademark troll and trademark bully.

Trademark trolls attempt to (or actually do) register a mark with the intent of demanding payment from companies that have adopted the same or similar marks, often in another country. This is common in China. For example, as reported by Peter Mendelson in the International Trademark Association (INTA) Bulletin on December 1, 2015, Li Dao Zhi (Li), a Shanghai company, registered the mark Ka Si Te (a transliteration of “Castel”) in China in 2002, a year after French winemaker Castel Frères SAS began selling wine under the mark, Zhang Yu Ka Si Te. It wasn’t until 2005 that Castel Frères was aware of Li’s registration. Castel filed a request to cancel based on Li’s non-use, but while the request was pending, Li initiated use and sued Castel for infringement. The Court ruled in favor of Li and ordered Castel to pay over USD $5 million, but the Chinese high court suspended the decision and fine and ordered the case retried.

Similar situations in China, few with happy endings, have affected such companies as Tesla Motors and New Balance Athletic Shoes.

As this problem is not necessarily limited to China, but can happen in any country (particularly those in which a trademark belongs to the party who is “first to file”), the lesson is that whenever a company is contemplating doing business in a country, that company should apply to register its marks well in advance of entering the marketplace. (Winemaker Castel actually entered the Chinese market in 1998, possibly tipping off Li that there was a trademark up for grabs.) WebTM files and prosecutes trademark applications in the United States and worldwide directly through the Madrid Protocol and National applications through local counsel. (“Prosecutes” in this context means doing the necessary work to see that a mark is registered.) A description of our services and a listing of our fees are provided elsewhere on this website.

 

Trademark Bullies

Trademark bullies are a bit different from trolls. The trademark bully is the company that sends cease and desist letters to, or actually sues, other companies, claiming infringement on their trademarks beyond what is really justified. Most trademark bullies are big companies with well-known or “famous” trademarks, and big budgets to go after smaller companies. While the law recognizes that “famous” marks (a term of art in trademark law) are entitled to a wider scope of protection than regular trademarks, many companies use their power to go beyond what the law really provides, knowing full well that the smaller company won’t have the resources or economic interest to fight.

arcuateSometimes, of course, these companies send cease and desist letters or initiate actions with good cause. In other cases, there is clear overreaching. Levi Strauss is a good example of a trademark bully when it comes to their back-pocket “Arcuate” trademark, shown at left. Levi Strauss has, over the years, gone after dozens of companies (including our clients) for allegedly mimicking the Arcuate mark, and has been successful (mainly by settlement) in the pretrial phases of most of those cases. The resolve of Levi Strauss to create a wide scope of protection around its Arcuate mark can be seen in a litigation it brought against Abercrombie & Fitch Trading Co. in 2007. In that case, Levi Strauss alleged that Abercrombie’s back pocket design (below right) was confusingly similar to the Arcuate mark, and therefore infringing. Levi Strauss also alleged that Abercrombie’s mark would dilute the distinctiveness of the Arcuate mark, which is “famous.” (Whether a mark is “famous” is determined by looking at such factors as general public recognition, duration of use, amount of advertising and promotion, and the economic value of the mark. The term applies only to widely recognized trademarks.)

Having the resources to fight, Abercrombie took the case to trial, where the jury ruled in favor of Abercrombie, finding that although the Arcuate mark is famous, the two marks were not confusingly similar. However, that still left the question of trademark dilution, which is decided by courts, not juries, under a special statute designed to protect famous trademarks, the Trademark Dilution Revision Act of 2006 (the “TDRA”), Section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c). To that end, the jury gave an advisory (non-binding) opinion that the two marks were not so similar that they were essentially the same mark, and the District Court found in Abercrombie’s favor. Levi Strauss appealed to the Ninth Circuit, arguing that the District Court’s requirement for applying the TDRA (i.e., that the two marks be so similar so as to be essentially the same mark) was in error. The Ninth Circuit agreed, ruling that neither a finding that the two marks were essentially the same, nor even a finding of confusing similarity, was required before Abercrombie could be found guilty of violating the TDRA. Abercrombie’s mark only needed to be similar enough in the court’s eyes, based on such criteria as the degree of fame and distinctiveness of the mark. Levi Strauss ultimately won the case, but had the Arcuate mark not been famous, the lower court decision would have stood. (The back-pocket design for which Levi Strauss went after our client wasn’t even a tenth as close to the Arcuate mark as Abercrombie’s mark was.)

a&fThe United States Department of Commerce looked at the issue of trademark bullying in 2010-2011, but concluded that if there was any overreach, it was better dealt with by Rule 11 sanctions (for bringing a frivolous lawsuit) or awarding of attorneys’ fees to prevailing parties. Three factors make this suggestion rather unhelpful. First, courts are reluctant to decide what is frivolous when a claim is “colorable” (i.e., not stark raving mad). Second, the “American rule” provides that legal fees are not awarded to a prevailing party unless expressly authorized by statute, this wasn’t the most helpful of suggestions. Section 35(a)(3) of the Lanham Act provides that courts “may award reasonable attorney fees to the prevailing party” in exceptional cases, but courts rarely find that a case is “exceptional,” and many require evidence of fraud or bad faith (e.g., evidence that the plaintiff knew that it had no case and brought it anyway for malicious reasons).

The issue of trademark bullying is still alive, however, and there is probably greater awareness today of the problem of trademark bullying with websites such as www.lumendatabase.org, dedicated to exposing overreaching practices of (mostly) economically powerful trademark holders. In 2014, the Supreme Court visited the issue of when legal fees should be awarded to a defendant in a patent case, involving a statute with the exact same discretionary language as in the Lanham Act. In Octane Fitness, LLC v. Icon Health and Fitness, Inc., 134 S.Ct. 1749 (2014), the Supreme Court reversed the Federal Circuit’s definition of the “exceptional case” as one which was, by clear and convincing evidence, “objectively baseless” and brought in “subjective bad faith.” (In support of its decision, the Supreme Court pointed to the Federal Circuit’s decision Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant, 771 F.2d 521 (D.C. Cir. 1985), a trademark case that defined “exceptional” under the Lanham Act as “uncommon” or “not run-of-the-mill.” Oddly enough, the Federal Circuit didn’t even discuss Noxell in its decision in Octane Fitness.)

While the reasoning in Octane Fitness has found its way into a few Lanham Act cases in which attorneys’ fees have been granted to defendants (see, e.g., Fair Wind Sailing, Inc. v. Dempster, 764 F. 3d 303 (3d Cir. 2014) (where the complaint failed to allege sufficient facts to establish trade dress infringement); and Renna v. County of Union N.J., 2015 WL 93800, (D.N.J. 2015) (awarding legal fees to party who displayed the un-registrable seal of Union County, NJ, during a public access TV exposé regarding government shenanigans — but that really was an egregious case), in the Second Circuit (covering New York, Connecticut and Vermont) the prevailing test for awarding legal fees in trademark cases still appears to be the presence of smoking-gun evidence of fraud or bad faith. This is an almost impossible standard to meet except in the worst of circumstances.

If you receive a cease and desist letter and think you are being bullied, don’t simply roll over and sign any document that is demanded by the aggrieved trademark owner. Rather, contact an attorney experienced in handling these matters. (You can contact us. We regularly handle trademark claims of all kinds in addition to bringing trademark infringement lawsuits.) Many times, with a little pushback, satisfactory settlements can be reached or, at any rate, damage can be contained.

Changes to the European Trademark System are Imminent

A major revision to the European Union trademark system that will affect both Community trademarks (CTM) and individual country trademarks (of EU member states) is imminent. Some of the changes are administrative and some legal, while others directly affect trademark filings and renewals. A summary of the changes is as follows:

Administrative:

  • The Community Trademark will be renamed European Union Trade Mark
  • OHIM (the name of the trademark office as of the date of this post) will be renamed to European Union Intellectual Property Office

Changes Affecting Trademark Filing and Renewal:

  • Goods and services will have to be specifically described. Filing for class headings &/or listing all of the goods in a class will no longer be permitted.
  • There will be separate fees for each class in which trademark registration is sought, as is already the case in the United States. (As of the date of this posting, a single trademark application could include up to three classes for no additional fee.)

Legal:

  • All National offices will be required to implement administrative procedures for trademark cancellation. (Until now, trademark cancellation has only been possible in some countries via court proceedings.)
  • Some of the changes will require EU member states to harmonize their laws regarding trademark infringement and remedies, as well as make it somewhat easier for trademark holders to stop infringing goods from coming into the EU or being distributed thereafter. Also in the package, which can be viewed online, are directives aimed at protecting the public from overzealous and overreaching trademark owners.

Although still proposed, the new regulations, as my recent trip to Europe made clear, are destined to be implemented quickly — possibly as early as Q2-2016, although EU member states will have three years in which to implement them. This is the first significant change to the European trademark system in more than 20 years.

From my perspective, these are all welcome changes, with the possible exception of additional fees for filing in multiple classes. However, the goal of the fee change is laudable. By modestly reducing the cost of trademark registration, while adding fees where more than one class is claimed in an application or renewal, the European Union Intellectual Property Office hopes to discourage overbroad trademark claims — a typical problem in the EU. Our clients have often faced the situation where they wish to clear their marks for use in the EU, but are blocked by a substantially similar mark covering a class that isn’t even in use. Hopefully the new regulations will clear out a lot of this “dead wood.”

European Union Trademarks Goods and Services Examined

International Registrations designating the European Union (CTM/OHIM) previously relied upon the International Bureau (WIPO) for compliance with proper goods and services classification. There are differences between what is acceptable by WIPO, and would be acceptable by OHIM for directly filed applications. For all International Registrations designating the European Union after October 1, 2014, OHIM will now examine all goods and services listed in the international registration for compliance with OHIM requirements. In particular, this addresses the issue of vague and uncertain terms and requiring designations of goods and services that are clear and precise. Should OHIM determine that the goods and services lack clarity or precision, it will issue a notification of provisional refusal with respect to said registration.

We refer our readers to information about goods and services as well as the pitfalls of using class headings in the United States.

There is a clear trend amongst trademark offices to require clear and precise descriptions of goods and services. The USPTO has been more particular in this respect than many other trademark offices. As the world keeps getting “smaller” with more and more opportunities to engage in business throughout the world, it is important to establish a trademark protection program that properly focuses the registrations on precisely what products and services the brand owner is using its mark on.

REDSKINS Marks Cancelled, Found to Disparage Native Americans

REDSKINS

On June 18th, the United States Trademark Trial and Appeal Board (TTAB) granted a petition to cancel six registrations for word and design marks containing the word, REDSKINS for entertainment services. The action, Amanda Blackhorse, Marcus Briggs-Cloud, Philip Gover, Jillian Pappan, and Courtney Tsotigh v. Pro-Football, Inc., Cancellation No. 92046185 (June 18, 2014) (“Blackhorse”), was brought by six Native Americans (later narrowed to five), who argued that the word “Redskin” was disparaging to Native Americans. Two of the three judges on the TTAB panel agreed and one dissented.

This was the second cancellation action brought by Native Americans against trademarks owned by the Washington Redskins. In the first, Harjo v. Pro Football, Inc., brought in 1992, the TTAB granted the petition for cancellation, but the federal courts ruled that the petitioners were barred by the doctrine of laches — i.e., they had waited too long after reaching the age of majority to file their action.

The registrations sought to be cancelled in Blackhorse were registered between 1974 and 1990. When the petition was filed in 2006 (shortly after the federal courts dismissed the Harjo petition), each of the petitioners had only recently reached the age of majority. Laches was no longer at issue.

Under 15 USC § 1052 of the Lanham Act, marks that “may disparage” persons or institutions “or bring them into into contempt or disrepute” are forbidden from being registered. Moreover, while the Lanham Act requires many cancellation petitions to be brought within five years of registration of the disputed mark, it provides no statute of limitation for cancellation petitions based on disparagement. Under 15 U.S.C. § 1064(3), such petitions may be brought “[a]t any time.” In the final Harjo appeal, Pro-Football, Inc. v. Harjo, 415 F.3d 44 (2005),the Court speculated that Congress “may well have denied companies the benefit of a statute of limitations for potentially disparaging trademarks for the very purpose of discouraging the use of such marks,” citing In re Riverbank Canning Co., 25 C.C.P.A. 1028, 95 F.2d 327, 329 (1938), which noted that the “field is almost limitless from which to select words for use as trademarks, and one who uses debatable marks does so at the peril that his mark may not be entitled to registration.”

Nevertheless, there was no fixed test for determining whether a mark is disparaging until Harjo. As re-stated in Blackhorse, the test is two-fold:

  1. What is the meaning of the matter in question, as it appears in the marks and as those marks are used in connection with the goods and services identified in the registrations?
  2. Is the meaning of the marks one that may disparage Native Americans?

In answer to the first question, the TTAB found that REDSKINS, even when used in connection with the presentation of football games, clearly refers to Native Americans. This is demonstrated by the design marks (visible on Washington Redskins helmets and elsewhere) and by the use of Native American garb and headdresses by the Washington Redskins’ band and cheerleaders (called “Redskinettes”).

In answering the second question, the TTAB noted that in addition to other evidence, it must take into account the views of a “substantial composite,” but not necessarily a majority, of the group which the mark is claimed to disparage. In addition, it had to find that REDSKINS was disparaging in connection with entertainment services (i.e., the presentation of football games) at the time the marks were registered.

Petitioners submitted two types of evidence to prove their case. General evidence as to the meaning of the word REDSKINS consisted of dictionary definitions, reference books and testimony from experts in linquistics. Specific evidence as to the views of Native Americans consisted of personal testimony and letters, newspaper articles and official records, including a 1993 Resolution of the National Congress of American Indians declaring that the REDSKINS trademarks were “offensive and disparaging.” The evidence left no doubt in the minds of the majority that REDSKINS was disparaging at the time the marks were filed. The respondent’s argument, that REDSKINS had acquired a separate meaning as the name of a football team, thereby neutralizing any disparaging effect, was rejected.

The dissent, on the other hand, believed that the petitioners failed to prove that the term was disparaging at the time of registration when used in connection with football. Furthermore, he said, dictionary definitions that labelled REDSKIN as “usually offensive” left open the possibility that it might not be in certain contexts, one of which could be football.

The TTAB ruling does not affect the ability of the Washington Redskins owner to continue using its REDSKINS trademarks. The only issue at stake in the case was whether federal law permitted registration of the mark in the US Patent and Trademark Office, thereby invoking the additional protections that registration provides. There is no question but that the USPTO made the right decision. Indeed, no federal agency should put a stamp of approval on conduct (or a trademark) that plainly disparages a segment of the population on the basis of race, religion, ethnicity, gender or sexual orientation.

Registering Product Configurations as Trademarks

What you need to know if you want to “trademark” a product configuration.

by Lawrence Stanley and Gordon Troy

In an era of fierce competition, brand owners are constantly looking for ways to foster brand identity, distinguish their products from those of competitors, and build and protect their marketing space. One method of doing that is by creating and promoting unique product configurations. Product features that have successfully registered as trademarks in the United States include shapes, designs, colors and smells. The possibilities are wide-ranging.

Furniture manufacturer Knoll has registrations for configurations of a couch, a table, two different chairs and a stool. Chocolate-maker Lindt and Sprungli registered a mark for chocolate in the three-dimensional shape of a closed umbrella. Guitar manufacturers have obtained registered marks for guitar body shapes, pearl fret board inlays and designs encircling the guitar’s sound hole. After taking its case to the Trademark Trial and Appeal Board (TTAB), confectioner Hershey’s succeeded in registering the manner in which squares of its chocolate bars are scored. The TTAB also permitted registration of a fragrance (Plumeria blossoms) for thread and yarn; and allowed Bottega Veneta’s “intrecciato” leather weave design to be published for opposition, potentially paving the way for registration.

One of the attractions of making a key aspect of a product function as a trademark is that it eliminates the need to stamp the brand owner’s logo all over the product in order for it to be recognizable. The most compelling attraction, however, is that it closes off competitors from imitating a brand owner’s  non-functional designs. It is the question of fair competition that leads the United States Patent & Trademark Office (USPTO) and the TTAB to disfavor registration in all but the most compelling instances. As one TTAB judge has observed:

[W]hen one is faced with a putative source indicator such as the configuration of a product or its packaging or any product feature that enhances the attractiveness of the product, it is logical to ask as a first question whether the public interest is best served by refusing to permit a particular feature to be taken from the “public domain.” This is, at root, a public policy question, and turns on whether the non-traditional indicator should remain permanently available for competitors to freely use.

Determining registrability

While product features are almost never inherently distinctive, they can acquire distinctiveness – and hence, trademark status in the US – through exclusive use if they also satisfy certain criteria. A brief explanation of the analytical framework employed by the USPTO to determine the registrability of product configuration trademarks is helpful.

For a trademark to be registrable, it must be “distinctive.” A mark is “inherently distinctive” if its very nature serves to identify a particular source. Yves Saint Laurent’s interlocking “YSL” is inherently distinctive, but the shape of a product, a type of weave or a color must acquire distinctiveness by accruing what is referred to as “secondary meaning” in the mind of the consumer. A bit of a misnomer, “secondary meaning” occurs when the primary significance of the product feature is its association with the brand owner. Section 2(f) of the Trademark Act, 15 U.S.C. 1052(f), permits the registration of a mark “which has become distinctive of the applicant’s goods in commerce,” and provides that the USPTO may accept as prima facie proof of distinctiveness “substantially exclusive and continuous use” of the mark during the five years prior to “the date on which the claim of distinctiveness is made.”

In practice, however, the degree of proof of distinctiveness required by the USPTO will depend upon the particular product configuration. The umbrella-shaped chocolate mentioned above was accepted for registration without the submission of any proof of distinctiveness. But generally speaking, such proof will include declarations showing that the product has been in the marketplace for at least five years; the feature for which registration is sought has been promoted as the applicant’s trademark (as shown by the nature and extent of the applicant’s advertising); and the geographic distribution of the product has been widespread. The USPTO may also require declarations from distributors, shop owners and/or customers who claim to recognize the product feature as originating with the applicant.

A brand owner who can show that the feature for which it seeks registration has acquired distinctiveness may still need to defend against a claim that the mark is “functional.” There are two types of functionality: utilitarian and aesthetic. A product feature is said to have utilitarian functionality when the feature is essential to the use or purpose of the product, is dictated by the functions to be performed, or has a direct bearing on the product’s cost or quality. A
leather strap on a handbag is an example of utilitarian functionality: no brand owner could prevent another from using a leather strap. However, the particular way that the strap is attached to the bag, if non-essential, is capable of acquiring distinctiveness by identifying the brand owner as the bag’s source.

Brand owners who advertise a product feature as making their product more effective or superior to competing products are unlikely to overcome this hurdle. Bose, the company that manufactures “901” speakers, was denied registration of the unique shape of its cabinets despite the fact that it had clearly acquired distinctiveness among consumers in the 27 years that the speakers had been on the market. In upholding the Examining Attorney’s refusal to register, the TTAB found that Bose’s two expired utility patents “repeatedly disclose the utilitarian advantages of this particular configuration” and that its advertisements “tout the utilitarian advantages of the product design.” Aesthetic functionality is more difficult to parse. In general terms, a feature is aesthetically functional if the brand owner’s right of exclusive use would put competitors at a significant non-reputational disadvantage. In other words, trademark protection does not extend to ornamental features of a product that would significantly limit the range of competitive designs available. At the same time, however, “competitors are not guaranteed the greatest range for their creations, but only the ability to compete ‘fairly’ within a given market.” Consequently, the test for aesthetic functionality is both fact-specific and subjective.

In 2013, the TTAB refused registration by Florists’ Transworld Delivery of the color black as applied to packaging for flowers. Colors, the TTAB found, serve an aesthetic function because they carry particular meanings when it comes to flowers. The color black may convey elegance or may be used “on somber occasions, such as the context of death” and there is thus a “competitive need” to use the color black to communicate the appropriate or desired message from the purchaser to the recipient of flowers.

A case in point

When Bottega Veneta (BV) sought US registration of its well-known leather weave in 2007, it must have been confident that its application would sail through the USPTO. BV had been using the intrecciato weave (the term used by the company in its advertising) since 1975. It appeared on over 80% of BV’s leather goods. Sales in the six years prior to the application were US $275 million. Advertising expenditures in the same period totaled US $18 million and many advertisements publicized the uniqueness of the design. Fashion reviewers referred to the intrecciato as BV’s “signature.” In addition, companies selling imitations or near-imitations made reference to BV – a de facto recognition that the weave is a source identifier. As one seller wrote:

Don’t let the woven leather fool you — this is not a Bottega Veneta bag … To the ladies and gentlemen who buy the intrecciato Bottega Veneta bags … everyone knows you’re spending the dough because the intrecciato is “exclusive” at the moment.

Despite the fact that the intrecciato had become distinctive, the mark would not be published for opposition until December 2013. BV’s application and the Office Actions that followed provide a textbook case of what not to do when filing an application to register a product feature and what can go wrong.

BV’s application was filed under Section 44(e) of the Lanham Act, which permits registration under the Paris Convention based on a prior foreign registration, in this case, in Italy. While a 44(e) registration normally grants the applicant certain advantages, BV still had to satisfy the requirements of Section 2(f) that its mark was both distinctive and non-functional.

BV started out on the wrong footing. First, it failed to provide an adequate description of the goods in Class 18. Instead, it recited nearly the entire description of products in the Italian registration (consisting of the full Nice classification heading), thus running afoul of basic USPTO procedure which requires applicants to list in ordinary commercial terms only those goods or services for which the applicant actually uses or has a bona fide intent to use the mark. Second, the description of the mark was inadequate because it failed to describe the mark accurately. The application’s description read: “The mark consists of Interlaced woven strips of leather arranged in a distinctive repeating pattern that is used over all or substantially all of the goods.”

It was this overbroad description, potentially encompassing a wide range of designs of interwoven strips of leather, which led the Examining Attorney to look at BV’s weave generically rather than focusing on the specific nature of the intrecciato and how it differed from the weaves of nearly all of BV’s competitors. His objections to registration set out in five Office Actions attacked BV on every technical and substantive ground available. He argued that the
intrecciato design lacked distinctiveness, could not function as a trademark because it was solely ornamental, and was functional from both a utilitarian and aesthetic perspective. Combing the internet, he found thousands of products with leather weave designs to support his contentions.

In the face of this opposition, BV began amending the description of the mark and the delineation of goods, and gathered evidence that the weave was non-functional and widely recognized as unique in the fashion world. BV easily demonstrated that the intrecciato wasn’t stronger than other weaves and that it provided no economic advantage to BV because it was actually more expensive. The Examining Attorney, however, was unmoved. A weave is a weave is a weave, he found, eventually issuing a Final Refusal.

When the matter reached the TTAB, BV was describing its mark narrowly and precisely: “a configuration of slim, uniformly-sized strips of leather, ranging from 8 to 12 millimeters in width, interlaced to form a repeating plain or basket weave pattern placed at a 45-degree angle over all or substantially all of the goods.” The TTAB criticized the Examining Attorney for failing to distinguish the intrecciato from other weaves: “After carefully reviewing all of the evidence showing weave designs on handbags, there are a very small number that can be considered to have the very same features as those described in applicant’s mark,” the TTAB observed.

By giving a “very narrow reading of the proposed mark,” the TTAB was able to find that the intrecciato was not aesthetically functional because BV’s competitors would be able to use any weave other than the specifically described BV configuration. As for manufacturers and sellers of similar bags uncovered by the Examining Attorney, the TTAB held that if they were not intentionally imitating the intrecciato because their bags have “the look of applicant’s bags” and “it is the association with applicant that consumers want to obtain,” then the best place for them to be heard would be in an opposition following publication of the mark. Following that decision, the mark was published. As of this writing, the mark has been opposed for footwear (Class 25) and BV filed a request to divide the application so that registration may issue for goods in Class 18.

Conclusion

The practitioner applying to register product configuration trademarks must be aware of the hurdles that clients may face and begin to address them in the initial trademark application. While it is always difficult to predict how an Examining Attorney will respond to an application, the client should be advised long in advance what evidence it may need to gather to demonstrate that its unique product configuration functions as a trademark and is registrable as one.

(Initially published in The Trademark Lawyer, March/April 2014. You can download the printed article here: 2014 Trademark Lawyer)

Register your trademarks in emerging export countries

As China’s high-growth, low-wage era wanes, our clients in a range of industries, from clothing and fashion to electronics, are looking for alternatives to source their products. The emerging leaders in low-cost exports include Bangladesh, Cambodia, the Dominican Republic, Ethiopia, Indonesia, Kenya, Laos, Mexico (in that country’s southern-most states), Myanmar, Nicaragua, Peru, the Philippines, Sri Lanka, Tanzania, Uganda, Vietnam. Only four of those countries, Kenya, Mexico, the Philippines and Vietman, can be covered under an International Registration. Nevertheless, we have successfully registered our clients’ trademarks in all of these countries (as well as most others) and strongly recommend that our clients obtain trademark protection in these countries long in advance of conducting any business there. We do so for a variety of reasons, including preventing a third party from blocking a foreign trademark holder’s sourcing in that country, the slowness of the registration process in some jurisdictions, and avoiding legal battles with future contract manufacturers.

A strong trademark in the global market means taking a proactive approach and investing in registration before it’s too late. Many people fail to realize that a trademark registration in a particular territory covers only that territory and that their trademark may well be up for grabs anywhere else. With more than 25 years of experience in filing international trademarks, we can provide you with the advice and services that you need in your business, whether a start-up or well-established.

 

How can Gail Zappa Even Apply for a Trademark in “CAPTAIN BEEFHEART”?

Some of our readers have asked how Gail Zappa can even apply for a trademark of Don van Vliet’s moniker, CAPTAIN BEEFHEART, and want to know whether something can be done now to prevent the mark from registering.

The Trademark office (PTO) doesn’t require an applicant to show that s/he has the right to register the mark where the name/mark is not a living person. (In the case of a living person, the applicant needs written consent from that person consenting to registration.) Instead, the PTO relies on the applicant’s sworn declarations. Fraudulent or misleading claims are a basis to cancel a trademark registration.

Since the CAPTAIN BEEFHEART mark was already “published for opposition” on April 23rd and no one opposed it within the requisite 30-day period, there is little that can be done until the mark is registered. During the application process, “adversarial” arguments — for example, that the opposer has a signed contract from Don van Vliet that allows the opposer to use the name “Captain Beefheart” in perpetuity in connection with the sale and exploitation of Mr. van Vliet’s sound recordings — are ignored by the PTO and the Commissioner of Trademarks. What impedes registration are more technical matters related to trademarks: a likelihood of confusion between the applied-for mark and a prior federally registered trademark; a right of priority asserted by party who filed for the same or similar trademark after the applicant filed for it; pending litigation against the applicant for trademark infringement related to the applied-for mark; and claims that the applied-for mark is generic or merely descriptive of the goods and services for which trademark registration is sought.

Once the trademark is registered, however, it’s open season until the mark is incontestable, essentially 5 years after the registration issues.”. Affected parties — including the Estate of Don van Vliet, record companies and film companies that have produced Captain Beefheart sound and audiovisual recordings — should, if they have just cause, bring a cancellation action either in federal court or the Trademark Trial and Appeal Board (TTAB) as expeditiously as possible. The fact that no one opposed registration during the review period is not fatal to a later cancellation action by any means. (The lack of opposition only indicates that no one was watching the PTO publications, undoubtedly because no one expected that anyone would apply for a CAPTAIN BEEFHEART registration.) Affected parties may also contemplate putting Ms. Zappa on notice now that they will seek cancellation if she goes ahead with the registration. Whether the mark will be cancelled, of course, depends upon the extent and source of Ms. Zappa’s rights over the actual rights of those seeking cancellation and their legal and financial ability to assert those rights.

Can Gail Zappa Stop Anyone from Using the Name “Captain Beefheart”?

On June 18th, the United States Patent and Trademark Office (PTO) issued a “Notice of Allowance” to Gail Zappa, permitting her to file a statement of use within the next three years demonstrating that she is using CAPTAIN BEEFHEART as a trademark. It has been widely misreported in the music media that Gail Zappa already “trademarked” the name, but the Notice of Allowance only paves the way for registration, which may or may not happen down the road. Moreover, even if the Trademark Office registers the mark, she may not be entitled to it lawfully. Captain Beefheart, for the uninitiated, is the moniker used by composer, performer and artist Don van Vliet beginning in 1964, long before he ever met Frank or Gail Zappa. Mr. van Vliet died in 2010. [Correction: van Vliet knew Frank Zappa in High School. But he didn’t record for Zappa until long after he recorded for other record labels.]

Let’s take a look at what Gail Zappa did to get this far.

On August 3, 2012, Ms. Zappa filed a sworn Declaration with the PTO stating that

she believes she is entitled to use [CAPTAIN BEEFHEART] in commerce; to the best of her knowledge and belief, no other person, firm, corporation or association has the right to use said mark in commerce either in identical form or in such near resemblance thereto as may be likely, when applied to the goods or services of such other person, to cause confusion, or to cause mistake, or to deceive….

In other words, Ms. Zappa told the PTO that she is the only person with the right to use Mr. van Vliet’s moniker in commerce — to the exclusion of EMI, Virgin International, Buddha Records (acquired by Bertelsmann Music Group, which released a remastered Safe as Milk and The Mirror Man Sessions) and any other record company that recorded and released “Captain Beefheart” recordings. In fact, Ms. Zappa’s registration is not just for records, but identifies a wide range of products to which she intends to claim exclusive rights:

International Class 009

  • Audio and video recordings featuring music and concerts;
  • musical sound recordings;
  • musical video recordings;
  • phonograph records featuring music;
  • pre-recorded CDs, DVDs, audio tapes, video tapes, audio discs, video discs, audio cartridges, and video cartridges featuring music and concerts;
  • downloadable audio recordings, downloadable video recordings, and downloadable MP3 files all featuring music and concerts;
  • downloadable motion picture films, downloadable television shows and downloadable radio shows all featuring music and concerts;
  • downloadable multimedia files featuring music and concerts;
  • electronic publications, namely, books, magazines, manuals, journals, catalogs, brochures, newsletters, featuring music and concerts recorded on computer media;
  • interactive multimedia computer game programs;
  • music-composition software;
  • software for creating music;
  • software featuring musical sound recordings and musical video recordings;
  • multimedia software recorded on CD-ROM featuring music and concerts;
  • electronic game software;
  • downloadable ring tones for mobile phones;
  • downloadable graphics for mobile phones;
  • sunglasses.

Granted, Ms. Zappa’s application is an “intent to use” application — meaning that she hasn’t necessarily used CAPTAIN BEEFHEART as a “source identifier” (see below) on any of these products yet — but it’s hard to imagine that in the coming months she’ll be placing the mark on goods in all these categories. Nonetheless, she has 4 options:

(1) She can file a statement of use for the specified goods. If she goes this route, she must already have used the mark in commerce on all of them. Trademark Manual of Examining Procedure (TMEP) §1109.03. For instance, it’s not enough to release a CAPTAIN BEEFHEART DVD but not CAPTAIN BEEFHEART electronic game software or CAPTAIN BEEFHEART sunglasses. Registrants who try to fool the PTO by filing a statement of use without actually using the trademark for all the specified goods risk having their trademark canceled at a later date.

(2) She can ask the PTO for up to five additional 6-month extensions to file the statement of use in anticipation of releasing goods in all the specified categories;

(3) She can “divide” her application, allowing the trademark to be registered for the categories she’s actually using, while retaining an active intent-to-use application for the remaining goods; or

(4) She can allow the mark to be registered for the categories she’s actually using and relinquish the remaining categories.

There are a number of pitfalls to a broad trademark application of this type. Living performers who attempt to register their names as trademarks in Class 9 are generally surprised to find out that the PTO will reject their applications on the basis that the proposed mark only identifies a featured performer on a sound recording and doesn’t function as a trademark to identify and distinguish the applicant’s goods from those of others and to indicate the source of applicant’s goods.

Section 1202.09(a)(ii) (“Evidence that a Performer’s Name is a Source Identifier”) of the TMEP tells trademark examiners that

The use of the author’s or performer’s name on a series of works does not, in itself, establish that the name functions as a mark. The record must also show that the name serves as more than a designation of the writer or performer, i.e., that it also serves to identify the source of the series. See In re First Draft, 76 USPQ2d 1183, 1191 (TTAB 2005) (holding pseudonym FERN MICHAELS identified only the author and did not function as a mark to identify and distinguish a series of fictional books because the “evidence of promotion” was “indirect and rather scant,” despite applicant’s showing that the name had been used as an author’s name for 30 years; that 67 separate books had been published under the name, and approximately 6 million copies had been sold; that the book jackets listed the titles of other works by Fern Michaels and promoted her as a bestselling author; that the author had been inducted into the New Jersey Literary Hall of Fame; and that there was a www.fernmichaels.com website); In re Chicago Reader Inc., 12 USPQ2d 1079, 1080 (TTAB 1989) (holding CECIL ADAMS, used on the specimen as a byline and as part of the author’s address appearing at the end of a column, merely identifies the author and does not function as a trademark for a newspaper column).

The PTO will make an exception, however, where the performer’s name is used on a series of sound recordings and where the applicant states (truthfully) that s/he controls the quality of the recordings and the use of the name, such that the name has come to represent an assurance of quality to the public. TMEP §1202.09(a)-(a)(ii), (a)(ii)(B); see In re Polar Music, 714 F.2d at 1572, 221 USPQ at 318; In re First Draft, 76 USPQ2d at 1189-90.

This would seem difficult, if not impossible, to demonstrate in the case of an artist like Captain Beefheart, who recorded for various record labels both before and after he met the Zappas. Without exception, recording agreements grant the labels the right to use a performer’s name, real and fictitious, for as long as their rights last (and generally in perpetuity). Thus, if called to account, Ms. Zappa may not be able to show her entitlement to exclusive use of the Captain Beefheart name. It would be interesting to know whether Ms. Zappa has purchased all extant Captain Beefheart recordings, or acquired posthumous rights of publicity for Mr. van Vliet under Cal. Civ Code § 3344.1. That right lasts for 70 years after death and is freely transferable, licensable, or descendible. Although federal trademark law supersedes state law, it only does so if there is a legitimate claim to a federal trademark in the first place. Unfortunately, the PTO is not obliged to ask these questions or investigate the veracity of any statements made by Ms. Zappa in her application, but may simply rely on the fact that her declarations are made under penalty of fine or imprisonment.

Finally, even if Ms. Zappa obtains a registration on any of the goods specified in her application, she may not be able to enforce those rights against prior users, particularly those who acquired rights to use Mr. Van Vliet’s moniker in connection with sound and audiovisual recordings. Ms. Zappa’s claim over the CAPTAIN BEEFHEART trademark, even if it registers, is far from assured.

Trademark Holding Companies: Speculative Benefits, Certain Pitfalls

From time to time clients ask us whether they should “protect” their trademarks from their company’s liabilities by setting up a separate trademark holding company. Often they have heard about tax savings or read something online suggesting that any company with substantial trademark assets to protect ought to be segregating them into a separate corporate entity. Except in exceptional circumstances, however, the trademark holding company is a bad idea.

Trademark holding companies were originally devised by lawyers as tax-saving devices — specifically to reduce an operating company’s corporate franchise tax liabilities in the state or states of operation. (Corporate franchise taxes are the taxes a corporation pays to a state for the privilege of doing business there.) Theoretically, the savings could be substantial. The holding company is typically set up in Delaware or Nevada, where there is no corporate income tax on intangibles (like trademarks). The parent company transfers its trademarks to the holding company, which then licenses them back in return for a royalty. The royalty is then treated as an expense to the operating company and tax-free income for the holding company. This sleight of hand may still work in some jurisdictions, but in many places, the courts have already caught on.

No Tax Savings in New York.

Under New York law, trademark holding companies have been consistently disregarded as a means of reducing taxes. The lead case regarding tax liability is Sherwin-Williams Co. v. Tax Appeals Tribunal, 2004 NY Slip Op 07737 [12 AD3d 112] October 28, 2004. There, the New York Court of Appeals (New York State’s highest court) upheld a determination that Sherwin-Williams (an Ohio corporation) was required to report the income earned by its trademark holding company (a Delaware corporation) formed for the purpose of holding some 500 Sherwin-Williams domestic trademarks. The establishment of the holding company and the licenses back to the parent company, the court said, lacked any valid business purpose apart from tax avoidance.

Sherwin-Williams argued that it formed the holding company to: (1) improve quality control oversight with regard to its many licensees and franchisees; (2) enhance its ability to enter into third-party licensing arrangements at advantageous royalty rates; (3) insulate its  trademarks from the parent company’s liabilities; and (4) have flexibility in preventing a hostile takeover. To accomplish those purposes, the holding company established separate office space in Delaware and named as President an individual who had no previous association with the parent company. The tax tribunal and New York courts found these reasons unpersuasive. Not only did the parent company call the shots on management of the trademarks, but the President of the trademark holding company was a person who had no prior experience as a trademark manager. Thus the deduction for royalties that Sherwin-Williams’ operating company paid to its subsidiary holding company was disallowed and the combined income of both entities — the operating company and the holding company — was found subject to New York state corporate franchise tax.

The Sherwin-Williams case is only the most recent New York case to reach this conclusion regarding the reduction of tax liability via trademark holding companies. How would Sherwin-Williams have fared in a lawsuit in which it was sued for trademark infringement or in which the operating company was sued for breach of contact by a licensee or by a consumer for product liability?

Limitations on Liability.

Sherwin-Williams argued to the New York courts that it formed its trademark holding company in part to “insulate the trademarks from the parent’s liabilities,” but the court found ample reason to find the two companies were simply alter egos — at least from the standpoint of tax liability – including the fact that control over the quality of the Sherwin-Williams’ goods came from the parent company, rather than its subsidiary. That finding would not bode well for other types of claims. Automobile Insurance Co. of Hartford v. Murray, Inc., 04-CV-770A (LGF), a 2008 decision from the U.S. District Court, Western District of New York, bears this out. In that case, a lawnmower manufacturer that was sued for product liability attempted to defend itself on the basis that its trademark holding company was the actual owner and licensor of the trademark and therefore the wrong party had been sued. The court examined the organization and function of the holding company, however, and determined that it was formed “with no other business purpose … except to hold and license” the operating company’s trademarks. Consequently, the operating company was found to be the “de facto” or “actual” licensor.

Indeed, in most situations it is doubtful that a trademark holding company would be effective at protecting anything. The operating company/”licensee” will not be able to insulate itself from trademark infringement claims of its subsidiary holding company / “licensor.” Any such lawsuit would almost of necessity be brought against both companies, since both would have played a part in the alleged infringement. Nor is the trademark holding company/”licensor” likely to get away with pointing to its “licensee” (which is usually the licensor’s parent company!) as the sole party liable for breaches of contract or product liability. As one of the leading experts on trademark law has said, “in general, it is accurate to conclude that there is a very substantial risk that a trademark licensor … will be held liable for the torts of licensees…” McCarthy § 18:74 under the theory that the the licensee is a related company. This is especially true where the two companies share board members, management and/or office space. Notwithstanding Murray, where only the operating company was sued, it is the customary practice for attorneys when filing suit to include as many different entities and individuals as could be liable or capable of paying a judgment. In short, whether the claim is asserted against the operating company or its holding company, piercing the corporate veil would not be difficult.

The only possible protection that a holding company might afford to the trademark is an instance in which the operating company is sued for reasons unrelated to its licensing and business activities — for example, if the operating company defaulted on a mortgage or lease, or was sued for some kind of tortious (non-product-related) conduct — but even there, if the operating company’s assets were insufficient to satisfy the judgment, the trademarks might still be reachable as assets of the operating company.

Legal Pitfalls of Licensing through Trademark Holding Companies

In deciding whether to pierce the corporate veil of a trademark holding company, the courts will consider a number of factors, including whether the two companies have common directors or officers; whether the parent corporation owns all or most of the stock in the subsidiary; whether the parent finances the subsidiary; whether the subsidiary has any business with any entities other than the parent; whether the subsidiary has any assets other than those conveyed to it by the parent; and whether employees, officers and directors of the parent (and not the holding company) are the ones controlling the quality of the goods sold under the marks owned by the holding company. In principal, setting up a holding company is easy. But forming and operating one that will be recognized by the courts as an independent entity is time-consuming and expensive. And there is no bulletproof formula for success. In the cases cited above, the holding companies had different management, their own offices, and multiple licensees (i.e., various sources of income), but still failed in their purported objectives. A trademark holding company owned by a parent operating company is by its very nature suspect, but an “independent” holding company owned personally by the owners of a parent operating company is no better. In addition to these problems, there is the legal risk that a trademark holding company just might put a company’s trademarks at risk.

Although trademark holding companies are common, not only have they not been fully endorsed by the courts, but they have also caused damage to trademark owners. Not long ago, one of our clients sued two trademark infringers. The client’s trademarks are owned by a holding company (established by predecessor counsel, not us). One of the defenses mounted by the other side in a countersuit for invalidity is that the licensor holding company doesn’t exercise sufficient control over its licensees. Rather, they argued, control is exercised by the holding company’s parent corporation and the holding company has therefore made a “naked license.” The remedy for a naked license is for the court to declare that the trademark in question was abandoned by the trademark owner. In CNA Financial Corp. v. Brown, 922 F. Supp. 567 (M.D. Fla. 1996), reconsideration den. by 930 F. Supp. 1502 (M.D. Fla. 1996), aff’d, 162 F.3d 1334 (11th Cir. 1998), a court did just that. CNA lost its trademark because the court found that it did not actually control the quality of the services offered by its licensees, but only controlled how the marks themselves were used. (The issue in our client’s case was never addressed by the court, as the case was subsequently settled in our client’s favor.)

This is not the only risk. A holding by a court that an operating company is the de facto or actual licensor of the trademark, as in the Murray case cited above, opens the door to the corollary conclusion that the holding company’s trademark applications and maintenance filings in the PTO were fraudulent, since the holding company may not be the true owner of the trademark. That would be an additional ground for cancellation of trademark registration.

There are still other complications, including how a court or the PTO will view a transfer of a trademark to a holding company, without a transfer of the accompanying “goodwill.” Under U.S. law, trademarks cannot be assigned “in gross” but must be assigned together with the business (i.e., the goods and services) represented by the trademarks. In other words, because the “goodwill” is created by the business, a trademark cannot exist independently of it. A transfer of a trademark to a holding company may thus be considered an assignment in gross, which is voidable and subjects the trademark to cancellation. Indeed, if the holding company does no business other than licensing, it may be very difficult to claim that any goodwill at all is associated with the legal owner of the mark.

These latter issues have not been directly addressed either by the courts or the PTO. However, the risk of losing one’s trademarks by transferring them to a U.S. holding company, when weighed against some very speculative benefits, hardly seems worth it.

(In a future posting, I will deal with a slightly different scenario: where the trademark holding company is located outside the United States.)

New Top Level Domains: Implications for Trademark Owners

ICANN (the Internet Corporation for Assigned Names and Numbers has announced that it will accept applications for new general Top Level Domain names (gTLDs) from January 11, 2012 through April 11, 2012. Now, in addition to .com, .net. .org and .xxx, new domain names may be established for brands (e.g., .nike), product categories (e.g., .skincare or .computers), geographic locations (e.g., .newyorkers), media (e.g., .music) or anything else an applicant might think of.

Becoming a Top Level Domain Owner

During the first application period, ICANN will accept only 500 applications, while subsequent periods (yet to be established) will be limited to 400 applications. Overall, ICANN has ruled that no more than 1000 new gTLDs may be established per year.

The bar to entry, however, is high.

First, becoming a general Top Level Domain means having the business structure and technical capability for being a registry — that is, a company which (a) establishes policies for domain name allocation, (b) maintains a database of all the domain names registered in the new top-level domain, and (c) generates the zone files necessary to convert second-level domain names to IP addresses. (A relatively simple definition of domain name registry is available here. A second-level domain is the one immediately preceding the final dot. Thus, in “www.webtm.com,” the gTLD is “.com” and the second-level domain is “webtm”.) This won’t be something that companies can simply subcontract. Owners of the new gTLDs will be required to play an active role in managing the website addresses under its domain.

Second, becoming a Top Level Domain is expensive, time-consuming and complicated. The initial application fee is US$185,000 and further fees may be imposed during the application process as determined by ICANN. (For instance, disputes may arise between applicants who attempt to register two strings that ICANN determines are “confusingly simliar” and resolution of such disputes costs money.) Among other requirements, applicants will have to submit audited financial statements and principals will be subject to background screening to confirm eligibility based on “(1) General business diligence and criminal history; and (2) History of cybersquatting behavior.” The criteria used for criminal history evaluation are the same ones used in the banking and finance industry. Following acceptance, new TLD owners will have to sign the “New gTLD Agreement” with ICANN. They will also have to pay a fixed fee of US$6,250 per calendar quarter and transaction fees of twenty-five cents per domain names registered over 50,000.

Meeting the Concerns of Trademark Owners

ICANN estimates that the first gTLDs will come online in 2013. This raises particular concerns for trademark holders, insofar as it potentially opens new doors for cybersquatters and increases the possibility for some trademark owners, for example those whose marks are registered in a single territory, to be pre-empted by a foreign competitor using the same name. Ostensibly, applicants seeking to register gTLDs for actual registered trademarks will not be able to do so without ownership or license from the trademark owners. However, if a trademark owner does not apply for domain name protection in the first round and some applicant obtains a gTLD which is deemed to be “confusingly similar” to the registered mark, the owner of the registered mark may be prevented from later establishing a gTDL using its brand name. The problem is perhaps even more serious for trademarks with limited scopes. For example, the word “Delta” is used a trademark by many companies to designate different types of goods and services. Registration of .delta by any one of them would preclude all others from registering under that trademark.

In the hopes of minimizing the risks faced by trademark owners, ICANN plans to implement objection procedures to give trademark owners an opportunity to object to new gTLDs which are the same or confusingly simlar to the objector’s registered trademark. After the first application period closes in April 2012, ICANN will verify all applications for completeness and will release on its website the list of strings, applicant names, and other application data. At that point it will be up to trademark owners to file a “Legal Rights Objection” with the Arbitration and Mediation Center of the World Intellectual Property Organization (WIPO), a proceeding which will cost up to several thousand dollars in filing fees alone.

Preventing trademark misappropriation in second-level domain registrations inside a gTLD will be somewhat simpler, at least in the initial 60-day “sunrise” period of a new gTLD. When a new gTLDs is launched, it will be required, during that sunrise period, to search the Trademark Clearinghouse being set up by ICANN and if an intended website name matches an entry in the Clearinghouse, send a notice to both the intended website owner and the trademark holder. In addition, the new gTLD will be required to offer dispute resolution for owners of registered trademarks who object to the intended name. (The burden on the new gTLD may be substantial. In the first fifteen minutes of the “.co” gTLD, there were 100,000 applications for new websites.)

A note on the Trademark Clearinghouse: As of this date, ICANN has still not determined who the Trademark Clearinghouse service provider will be or how information will be registered with the Clearinghouse, but at the Trademark Clearinghouse Implementation-Planning Workshop held in Singapore on June 22, 2011, various participants believed that trademark information should be provided by individual trademark owners rather than obtained from national trademark registries, like the Patent & Trademark Office. For more details on these procedures, still in the planning stages, see, the “Module 3 – Objection Procedures” and “Trademark Clearinghouse” in the current version of the Applicant guidebook available here.

.xxx Domains – Sunrise, Landrush and General Registration

Every business with an Internet presence knows the importance of registering its URLs across multiple domains to be sure that customers and clients find them and not a competitor. For the same reason, companies often (wisely) register URLs that might be associated with them in the minds of consumers, e.g., variations on their web addresses and registered trademarks, as well as URLs incorporating their unregistered trademarks, trade names and product names. While “cybersquatting” — the practice of registering and sitting on a URL that uses a trademark belonging to another for the purpose of selling it back to the trademark owner for profit — is unlawful, the remedy is expensive and not without risk. (The arbitration procedure under ICANN’s Uniform Domain Name Dispute Resolution Policy costs thousands of dollars; suing in federal court under the Anticybersquatting Consumer Protection Act (ACPA), tens of thousands.)  The only commercially viable way for a business to protect the widest range of its trademarks, trade names and product names from being used in the web addresses of others is to register preemptively. [See ICANN]

With the launching of the new .xxx domain next year for adult entertainment businesses, many non-adult businesses will also want to prevent triple-x associations with their registered trademarks, trade names and product names. They can do so during two periods.

Sunrise A & B:

From September 7, 2011 through 12:00pm ET on October 28, 2011, registered trademarks owners may register URLs identical to their trademarks either for the purpose of opening live adult websites under those names (the “Sunrise A” program) or for the purpose of blocking their trademarks from future registration in the .xxx domain (the “Sunrise B” program). (Sunrise B is also open to adult businesses that don’t support the creation of the .xxx domain.) URLs registered under Sunrise B will resolve to a standard page indicating that the domain is reserved from use through ICM’s Rights Protection Program and the publicly available WHOIS information will reflect the ICM Registry information and not the applicant’s personal information. This way the public will have no reason to think the registrant has moved into the adult entertainment market or availed itself of a .xxx domain.

However, there are two catches. First, the URL to be registered must correspond exactly to the  registered trademark. Businesses cannot, at this stage, block variations, even confusingly similar ones. (For example, Electronic Arts, Inc. the owner of registered trademarks for “EA” and “EA Sports,” would be able to register both ea.xxx and easports.xxx, but not eagames.com.) Second, if a non-adult and an adult business share the same trademark but for different classes of products or services, and both apply during the Sunrise period, the adult business (under Sunrise A) will be notified of the Sunrise B blocking attempt, but will be awarded the .xxx URL. The intent of this procedure, according to ICANN, is to put the Sunrise A registrant on notice that there is a claim. In the event that the Sunrise B business later sues the Sunrise A registrant to block use of the trademark, the latter cannot claim it was an innocent user.

At Network Solutions, Sunrise B registration costs $329.99 with no future fees. Sunrise A registration costs $200.00 for the application, $129.99 per year. Comparative prices may be found at Go Daddy, Enom, and Name.com.

Landrush and General Registration:

Anyone wishing to register URLs that are variations on their registered marks, or URLs of unregistered trademarks, trade names, personal names or product names, must wait until December 6, 2011, at 11:00 am, when general registration begins. Between the close of the Sunrise programs and the beginning of the general registration is a “Landrush” period open only to those who plan on hosting actual adult websites. General registration, however, is open to anyone and will be on a first come, first serve basis. Registration should be done as early as possible, since there will be plenty businesses and individuals worldwide who will grab up as many URLs as they can, as quickly as they can, hoping to sell them later at high prices.

By law, one may not register a URL utilizing a trademark (or confusingly similar variations thereof) belonging to another, whether or not that trademark is registered. Going after a registrant, however, is not always easy. Plaintiffs bear the burden of proving that the URL in question, if not identical, is “confusingly similar” and that the URL was registered and is being used in bad faith. For unregistered marks, the Plaintiff may have to prove that it was the first to use it in the marketplace. Spending a few hundred dollars (or in the case of multiple URL registrations, a few thousand dollars) may be worth it to avoid the prohibitive cost and uncertainty of litigation. It may also be worth it to avoid being associated with a domain reserved for the adult entertainment industry.

Key Dates:

  • Sunrise A – September 7, 2011 through 16:00 UTC on October 28, 2011
  • Sunrise B – September 7, 2011 through 16:00 UTC on October 28, 2011
  • Landrush – November 8, 2011 at 16:00 UTC thru November 25, 2011 at 16:00 UTC
  • General Availability – December 6, 2011 at 16:00 UTC

 

Netherlands Antilles Dissolved

On October 10, 2010, the Netherlands Antilles ceased to exist as a political entity. Of the five Caribbean islands that formed the Netherlands Antilles, Curaçao and Saint Maarten have become autonomous states within the Kingdom of the Netherlands. The islands of Bonaire, Saint Eustatius and Saba are now part of the Netherlands as special municipalities (the BES Countries).

Benelux Trademark Law will not be in force in the BES Countries. A new Trademark Law for the BES countries has been approved and the Benelux Office for Intellectual Property, has been appointed to manage the Trademark Register for the these countries. We await further information as to the processing of trademark applications.

Owners of Netherland Antillean trademark registrations have one year to file maintenance applications (i.e.: until October 10, 2011) for the BES Countries.

At present, International trademark registrations are not affected by this change as it is anticipated that the current international trademark rights in the Netherlands Antilles will be converted into national registrations for the BES Countries, Curaçao and St. Maarten.

Curaçao and St Maarten will also have their own Trademark Law and maintain their own Trademark Registers. The present timetable is unknown, but we shall provide updates as they are available.

The new country of Curaçao is known as Korsou in Papiamentu. St Maarten shares an island with the French oversees territory of St. Martin.

Aruba, which left the Netherlands Antilles in 1986, remains independent and continues as an autonomous state within the Kingdom of the Netherlands.