I Pitty the Fool Who Infringes My Trademark

One person we would never mess with is Mr. T who was the muscle for the A-Team. Leafly – a website that is an online marketplace and information source for cannabis companies – didn’t flinch when it received a demand letter from Mr. T saying its MRT listing infringes his trademark rights. In this case, Leafly may have a basis for not flinching.

Mr. T ultimately sued Leafly for trademark infringement because it lists a cannabis strain called MRT which is the acronym for Mr. Tusk on its website. The MRT flower is sold by third parties, not Leafly. Mr. T is seeking injunctive relief only because he claims any misassociation of his Mr. T mark with a cannabis company will damage his ability to license his mark to other companies.

Online retailers have consistently avoided liability for trademark infringement over the years. This trend started in 2007 when the Second Circuit Court of Appeals ruled in favor of eBay that it did not directly infringe Tiffany’s trademark rights by including listings for Tiffany products (some genuine and some counterfeit) on its website. It continued in 2010 when the Second Circuit Court of Appeals again ruled in favor of eBay that it did not contribute to the direct infringement of Tiffany branded goods. In 2014, Amazon avoided a trademark infringement lawsuit because the Court found that the third-party sellers retain full title to and ownership of the inventory sold by the third party. Based solely on the fact that Leafly is an online marketplace appears to strongly cut against Mr. T’s likelihood of success in this case.

But Mr. T faces another uphill battle when it comes to his lack of enforcement. There are several MR. T marks registered on the USPTO’s Principal Register for a variety of goods including automobile parts, restaurant services, rifle scopes, scrubber device, and handyman services. Notably absent from the list of registered MR. T marks is a registration owned by the man himself, Mr. T.

Trademark owners are not required to take on all potentially infringing uses of a mark. In fact, trademark owners need to be thoughtful when constructing an enforcement strategy. But the more identical marks a trademark owner co-exists with, the more difficult enforcement actions can become. In the case of Mr. T, Leafly should be asking why Mr. T can co-exist with these other identifying marks but not the MRT mark on its website.

Insurance Company Win Makes Coverage More Difficult

2019 is shaping up to be a pretty unfriendly year for trademark infringement plaintiffs. A pending Supreme Court decision and case involving insurance for advertising injury could make trademark infringement costs prohibitive for millions of small businesses leaving them without a realistic avenue for recourse when their trademarks are being infringed. When small businesses cannot receive assistance with the cost of litigation, then defendants are incentivized to make branding decisions based on their perceptions of a plaintiff’s ability to pay for litigation. In the end, a market filled with more confusingly similar marks may exist, which ultimately harms consumers.

The First Circuit Court of Appeals recently decided a case involving insurance coverage for advertising injury. Small businesses pay for policies that include this type of coverage, but these policies generally make an exception for trademark infringement. Meaning if the advertising injury involves a trademark infringement claim, then the insurance is not obligated to cover the claim.

The argument over this advertising injury clause always centers around whether the infringing trademark plead in the complaint also functions as an “advertising idea” or “slogan.” If this dual functionality exists, then Courts have been more receptive to find that coverage exists. Unfortunately, the First Circuit Court of Appeals recently slammed the door on there ever being coverage for an infringing trademark that also functions as an “advertising idea.” The Court held that even if a trademark can qualify as an advertising idea, the exclusion nevertheless avoids coverage for a resulting infringement claim. Consequently, there will never be coverage for a trademark infringement claim in the First Circuit because plaintiffs do not bring claims for “advertising idea infringement” they bring claims for “trademark infringement.”

Additionally, the Supreme Court will decide whether a plaintiff must prove intent before being allowed to recover the defendant’s profits from its infringing act. Assuming the Supreme Court decide this issue in favor of requiring evidence of bad faith intent, the small market there is for contingent trademark infringement cases or third-party financing for trademark infringement litigation will dry up. The reason lawyers take contingent fee cases or there is third-party litigation is the possibility for a plaintiff to recover a large monetary damage award. Sometimes these fee arrangements result in frivolous litigation, but frivolous litigation is the minority of cases.

Where are small businesses to go if insurance coverage is more difficult or impossible to obtain and no attorney will take the plaintiff’s case on a contingency? The Trademark Trial and Appeal Board is not an option because the TTAB does not have the authority to issue injunctions. Small businesses will have to turn to legal aid clinics, but there are not enough of them to adequately service the number of small businesses in the U.S. The legal system needs a small business favorable option for markets to function fairly.

Trademark Dispute Driven By Emotions Not Necessarily Fact

"Trademark dispute over Bittman's Medium publication"

About a month ago, Mark Bittman – a cookbook author and former New York Times columnist – announced the launch of his new online food publication called SALTY. His publication would cover the world of food with an eye for politics and inequality, in addition to recipes and personal essays. Unfortunately for Mr. Bittman, another publication was already using the SALTY name and took issue with Mr. Bittman’s choice of name.

The focus of the other SALTY publication was a sex, dating, and relationships newsletter for women, transgender, and non-binary people. The founder said SALTY was chosen because “it’s visceral. Sex is salty, sweat is salty, sweat is salty, tears are salty.” This publication has not been around for a long time having been launched in March 2018.

When the founder learned of Mr. Bittman’s publication she reportedly was “really angry.” This reaction is not uncommon in trademark disputes. Unlike copyrights and patents, trademarks are supposed to embody all the good things about a good or service and help tell the story. That’s why from the beginning founders in particular are closely tied to their trademarks.

When a trademark dispute rears its ugly head, it can be difficult for trademark owners to look past the emotion and make decisions based on the facts of the case. But getting to the facts is key to making smart decisions. With every trademark dispute, the question must be asked “Is this other use harming me” or “could this use realistically harm me in the future”?

The word “salty” has multiple meanings and conveys different impressions depending on the context of the use. This means that – assuming no famous mark for dilution purposes exists – identical marks may be capable of peacefully co-existing in the marketplace. Not all publications are same for likelihood of confusion purposes.

This was the case with the SALTY publications. First, the two marks – while visually and phonetically identical – conveyed very different meanings because they were exploiting different meanings of the “salty” term. Second, their target audiences are very different because the subject matters of the publications are very different.

It is unlikely that any consumer would mistakenly believe that Mr. Bittman’s publication is associated with the first SALTY publication such that Mr. Bittman will unjustly benefit from more visitors, subscribers, or readers. Because the subject matters are so different, there is no way the first SALTY publication will lose readers or visitors because of Mr. Bittman’s publication. Mr. Bittman was a former New York Times columnist, so the likelihood that his publication would be so poor that it would negatively reflect on the first SALTY publication is highly unlikely. Finally, the publications both are new, so there is no potential loss of control of a reputation because Mr. Bittman’s publication is so large.

By getting through the emotion and looking at the facts, this isn’t a case that the first SALTY publication should spend the time pursuing. And hopefully, first SALTY does not pursue it because Mr. Bittman voluntarily rebranded his publication to MEDIUM X BITTMAN. However, the name change wasn’t enough, first SALTY is looking for a payday.

North Carolina Jury not Kind to Walmart in BACKYARD Lawsuit

"Woman counting money as jury orders Walmart to pay $95.5M"

About a month ago we talked about the trademark infringement loss Walmart suffered over its use of the BACKYARD GRILL mark. We reported that in the first case, Walmart was ordered to pay Variety Stores $32.5M. Walmart successfully appealed this decision and the case was retried before a jury. The jury found in favor of Variety Stores and the case entered the second phase where the jury would decide how much Walmart is obligated to pay Variety Stores.

The jury has spoken and has ordered Walmart to pay Variety Stores $95.5M. This is a little less than three times the $32.5M a judge ordered Walmart to pay Variety Stores in 2016. This is one of the larger damage awards involving trademark infringement, but million dollar and multimillion dollar damage awards are not uncommon in trademark infringement cases.

On August 22, 2018, DatabaseUSA.com, L.L.C. was ordered to pay Infogroup, Inc. $4M for the trademark infringement claim and $43.6M for the unfair competition claim. On July 31, 2017, iShow.com was ordered to pay Lennar Corp. $5.5M for its trademark infringement. On October 5, 2016, Costco Wholesale Corporation was ordered to pay Tiffany and Company $15.8M for trademark infringement.

Walmart made the decision to adopt a mark with known words and that shared the dominant term BACKYARD with another trademark owner. From a trademark searching perspective, marks comprised of known words generally exist to a certain degree in a crowded field. If you layer in international markets on top of it, the probability of finding a mark that is 100% in the clear in every jurisdiction is extremely low. When a trademark owner decides to adopt a mark with known words, the owner needs to accept some amount of risk and work to put himself and herself in the best defensible position should an issue arise.

Electric Bicycles and Bicycle Apparel Confusable as to Source

"Luna Cycle electric bicycle related to women's bicycle apparel"

Luna Cycle filed a trademark application to register the mark LUNACYCLE in standard character form for electric bicycles and replacement parts for electric bikes. The United States Patent and Trademark Office refused registration of Luna Cycle’s mark on the ground that it was likely to cause confusion with the prior registered mark LUNA & Design for women’s bicycle apparel and accessories.

When it comes to assessing the relatedness of the goods, the issue is not whether purchasers would confuse the goods, but rather whether there is a likelihood of confusion as to the source of these goods. Electric bicycles are human-powered bicycles with integrated electric motors to provide a cyclist with additional power and speed. They are marketed towards recreational cyclists.

The Trademark Office offered evidence from brick-and-morter and online retail bicycle stores offering for sale electric bicycles and women’s bicycle apparel. These retailers are not big box retailers but speciality bicycles stores, which the Board found persuasive evidence to conclude that the goods at issue were complimentary.

With respect to the similarity of the marks, Luna Cycle argued that its mark is a telescoped word LUNACYCLE composed of LUNACY and CYCLE. The Trademark Manual of Examining Procedure defines a telescoped word as one that comprises two or more words that share letters (e.g., SUPERINSE or HAMERICAN). And while the Board found that the LUNACYCLE mark is likely to be perceived as a telescoped form it nonetheless found that consumers would treat it like compound word comprising LUNA and CYCLE. The Board hypothesized a scenario where Luna Cycle emphasized the letter “L” in Luna and letter “C” in Cycle because standard character drawing was claimed, and then backed it up with Luna Cycle’s own specimen of use that showed very emphasis the Board assumed could happen. Because the dominant portion of the marks was LUNA, the Board found the marks created overall similar commercial impressions.

Maybe, Luna Cycle would be able to salvage a win by demonstrating the prior registered LUNA & Design mark was weak; thus, entitled to a narrow scope of protection because of the numerous third-party registrations for LUNA. Luna Cycle submitted 100 third-party registrations for marks displaying the LUNA term in International Class 25 for some form of apparel. Several of these third-party registration were for women’s clothing. But because none of these registrations were for women’s bicycle apparel, the Board discounted all of the 100 third-party registrations, which seems like a harsh result.

A Deeper Dive on Trademark Infringement Damages

"Judge banging a gavel awarding trademark infringement damages"

The phrase “trademark infringement” is nothing anyone wants to hear because it is often followed by the phrase “trademark infringement damages.” In other words, how much are you going to have to pay.

A big problem with any litigation including trademark infringement cases is how damages are calculated and what damages are available is generally a misunderstood concept. And when two parties have drastically different views on their respective potential liabilities, a big roadblock to settlement is created and a final court decision is often necessary to decide the issue. Parties do themselves so much good by early in a case honestly assessing their trademark infringement damages exposure. Only then can you make intelligent and sensible moves in settlement negotiations to resolve a dispute.

Monetary damages under the Trademark Act primarily come in two flavors:  (1) actual damages; and (2) an accounting of the defendant’s profits. An award of actual damages is a legal remedy, whereas an accounting of the defendant’s profits is an equitable remedy. Equitable relief is available only when a plaintiff’s legal remedies are inadequate. In other words, is a plaintiff’s actual trademark infringement damages are $200, but the defendant earned $100,000 in profits, then the plaintiff would be entitled to an accounting fo the defendant’s profits because it would be inequitable to allow the defendant to retain $100,000 in profits at a $200 expense to the plaintiff. But it is important to note that a plaintiff cannot recover twice both actual damages and an accounting of profits. Therefore, the cap in our example would be $100,000 to the plaintiff.

Because an accounting of profits is an equitable remedy, it is not automatic. In some cases, if an injunction forbidding future infringing acts satisfies the equities in the case, then an accounting of profits will be denied. Although a denial of profits under these circumstances has occurred, it is in the minority of cases.

If the case warrants because of the intentional nature of the defendant’s actions, the disparity in the merits between the parties in the case, or the manner in which one party conducts its self in the litigation, any monetary damage award may be increased by 3 times and an award of attorneys’ fees may be made as well.

Branding Firms Should Never Indemnify for Trademark Infringement Claims

"Branding firm contract agreeing to indemnify for trademark infringement"

In a service agreement, it is common for clients to ask – nay insist – that branding firms indemnify them for a whole host of legal claims including trademark infringement claims. And sometimes the price tag associated with the new relationship is so great that branding firms will agree to indemnify their clients. We talked before about a customized naming project costing $20,000 or more. And while that fee is tempting, more often than not, branding firms need to think hard before opening themselves up to what could be significant liability.

Most people misunderstand what it means to indemnify. Moreover, the word indemnify is often paired with its two cousins:  defend and hold harmless. To “indemnify” means to compensate the other party for losses or damages flowing from the legal claims identified in the contract. In other words, to indemnify means to insure the other party against losses or damages. In a trademark infringement case, the most common form of damage is disgorgement of profits. So if the indemnification obligation in your contract survives the termination or expiration of the agreement, which is most likely will, and the trademark infringement claim you indemnified for does not arise for 5, 10, 20 years, the $20,000 fee you accepted may be a drop in the bucket to what your branding firm could be liable for.

To hold harmless the other party in a contract in most judicial districts is the same as agreeing to indemnify them. However, some courts have found that to hold harmless also requires protection against liability.

Finally, there is the duty to defend. This contractual term requires the obligating party to pay the legal costs of the other party to defend them in the lawsuit where they also have the obligation to indemnify the other party. Think of it as a double whammy. In most cases, when one party does not have to write a check every month to its lawyers, the incentive to settle a case early is also lowered. And as we discussed before, the cost to litigate a trademark infringement case can be $300,000 or more. Again, the $20,000 fee is a drop in the bucket.

The reason branding firms should never indemnify for trademark infringement claims is because there is no such thing as a perfect search. However, the real harm from a trademark infringement lawsuit generally comes from a federally registered mark. Most parties that do not federally register their trademarks tend to operate in a small geographic area, which can reduce the amount of a profits award significantly. If you are going to indemnify for trademark infringement claims, at least make sure the USPTO database is clear.