Sam’s Club Loses Motion to Dismiss David Yurman Trademark Lawsuit Based on First Sale Doctrine Defense

In September 2014, luxury jewelry designer David Yurman filed a trademark infringement lawsuit against Sam’s Club over the alleged unauthorized sales of David Yurman jewelry at Sam’s Club stores.  See David Yurman Enterprises LLC and David Yurman IP LLC v. Sam’s East, Inc. and Sam’s West Inc., Case No. 14-cv-02553 (S.D. Tex. Filed September 4, 2014).  Click here for a news article on the complaint.

In the complaint, Yurman alleged that Sam’s Club, through its purchase and resale of genuine David Yurman jewelry from authorized David Yurman retailers, infringed on Yurman’s trademark rights to the DAVID YURMAN mark as well as intentionally interfered with Yurman’s contractual relations with its authorized retailers. 

Sam’s Club filed a motion to dismiss Yurman’s complaint for failure to state a claim, primarily on the basis that its sale of Yurman’s genuine jewelry was protected by the “first sale doctrine.”  On April 9, 2015, the Court denied Sam’s Club’s motion to dismiss finding that Yurman’s complaint had sufficiently pled causes of actions for trademark infringement (sufficient to overcome Sam’s Club assertion of the “first sale doctrine” defense) as well as for tortious interference with contractual relations.  See David Yurman Enterprises LLC et al v. Sam’s East, Inc., Case No. 14-cv-02553 (S.D. Tex. April 9, 2015) (court order here)

As part of Yurman’s complaint, Yurman asserted that it only sells its jewelry through its own boutiques and authorized retailers who sign an Authorized Retailer Agreement that “expressly prohibits the transshipment, diversion, or transfer of any Yurman products to any other party.”  Yurman further asserted that Yurman’s Authorized Retailer Agreement and the prohibition against selling its jewelry to any other parties were well known in the retail industry, especially retailers of jewelry products.  As such, Sam’s Club was well aware of the prohibition (or certainly became aware after Sam’s Club was notified by Yurman to stop such purchasing), and yet intentionally sought out and purchased Yurman jewelry from one or more of Yurman’s authorized retailers despite knowing that such retailers were prohibited from selling the jewelry to Sam’s Club.  There was no dispute that Sam’s Club was selling authentic Yurman jewelry products at its stores and that Sam’s Club is not a Yurman-authorized retailer of its jewelry. 

Most importantly, Yurman alleged that “Sam’s Club prominently advertised and promoted the jewelry in its stores and on its website, in an effort to drive traffic to its stores” and that in its stores, Sam’s Club was “displaying Yurman products, placards and packaging displaying the Yurman trademark” and supposedly even Yurman-issued certificates of authenticity.  Yurman alleged that Sam’s Club’s actions created “the false impression that Sam’s Club is among Yurman’s network of authorized retailers, and has caused consumer confusion and disappointment.” (e.g., unlike an authorized Yurman retailer, Sam’s Club, at the point of purchase, was not being able to service customers purchasing or attempting to purchase DAVID YURMAN jewelry products sold in its stores).

In support of its trademark infringement claims, Yurman basically argued that Sam’s Club’s “display of the jewelry and its packaging; the prominent placement of placards, certificates, and other Yurman materials; and the prominent advertisement of Yurman products in its stores and on its website to create foot traffic to the stores, all create the false impression that Sam’s Club is authorized to sell Yurman products and that its products have been sourced directly from Yurman.”  In response, Sam’s Club maintained that Yurman’s trademark infringement claims were barred by the “first sale doctrine” (i.e., because Sam’s Club was selling genuine Yurman jewelry identified by the David Yurman trademark, there is no potential for consumer confusion regarding the source of the goods).

The Court stated the following regarding the “first sale doctrine” defense:

Under the rule “a distributor who resells trademarked goods without change is not liable for trademark infringement.” Mary Kay, Inc. v. Weber, 301F. Supp. 2d 839, 852 (N.D. Tex. 2009) (internal quotations omitted). However, there are two exceptions to the rule: 1) “[t]he doctrine does not protect alleged infringers who sell trademarked goods that are ‘materially’ different from those sold by the trademark owner;” and 2) the doctrine will not protected alleged infringers “if they have given off the false impression that they are affiliated with or sponsored by” the trademark owner. Id. The second exception is relevant to this case. Under this rule, an unauthorized dealer may use a mark to advertise or promote truthfully that it sells a certain trademarked product, so long as the advertisement or promotion does not suggest affiliation or endorsement by the mark holder. Id. (quoting Fetzer, 381 F.3d at 484).

In analyzing whether Yurman had pled sufficient facts to show that the use of the Yurman trademark creates a likelihood of confusion as to an affiliation between Sam’s Club and Yurman, the Court noted that “Yurman has pled that the stores had Yurman products and materials prominently displayed, which suggests the Yurman products were highlighted more than other products. . .[and] that Sam’s Club had prominent advertisements of the Yurman products on its website in an effort to drive foot traffic to its stores, which suggests the Yurman jewelry was featured in a way that other jewelry was not. The context of the use was that Sam’s Club was featuring Yurman products more aggressively and prominently than other products to gain more traffic to its stores.”  Because the “[p]rominent and pervasive use of a mark will suggest affiliation,” the Court found Yurman had pled sufficient facts to state claim for likelihood of confusion.

As for Sam’s Club reliance on the “first sale doctrine” defense, “the defense must be apparent on the face of the claim, and the rule does not apply if Sam’s Club has given off the false impression that it is affiliated with Yurman.”  Sam’s Club relied heavily upon another case, Matrix Essentials, Inc. v. Emporium Drug Mart, Inc., of Lafayette, 988 F.2d 587, 593 (5th Cir.1993), which held that “the mere unauthorized stocking and sale of trademarked products is not a trademark violation.”  However, the Court distinguished that case from the instant case because Yurman “alleges more than the mere unauthorized stocking and sale is occurring here. Yurman also alleges prominent and aggressive advertising, including on the Sam’s Club’s website, and a prominent display of Yurman materials and jewelry within its stores. Matrix Essentials anticipates that if more action is taken beyond mere unauthorized stocking and sale of a trademarked product, a claim might survive summary judgment.”  Accordingly, the Court denied Sam’s Club motion to dismiss Yurman’s trademark infringement claim (as well as Yurman’s other claims for false designation of origin and unfair competition, for similar reasons).

As for Yurman’s claim for tortious interference with a contract, Yurman argued that despite Sam’s Club knowledge of Yurman’s Authorized Retailer Agreement with every authorized retailers of its products prohibiting the transshipment, diversion or transfer of its products to any other party,”Sam’s Club obtained significant inventories of Yurman products to sell in Sam’s Club stores throughout the United States. . . .” And if Sam’s Club did not know about the prohibition in the Authorized Retailer Agreement initially, Sam’s Club was certainly put on notice when Yurman demanded that Sam’s Club stop inducing Yurman’s retailers into breaching their agreement (a demand that Sam’s Club refused).  Yurman further alleged that Sam’s Club could not have acquired such large inventories of Yurman products without having intentionally induced one of Yurman’s retailers to breach its Agreement with Yurman.  Based on these factual assertions, the Court found Yurman’s pleadings were sufficient to make out a claim for tortious interference with a contract

Accordingly, the Court denied Sam’s Club’s motion to dismiss.

Marc Lurie/AirFX.com Wins Reverse Domain Name Hijacking Claim Against AirFX, LLC on Summary Judgment

AirFX,LLC (“Defendant”), the owner of the trademark AirFX, suffered a defeat last week in its attempt to “acquire” (or as some might say “hijack”) the domain name www.airfx.com from its current registrant, Marc Lurie (“Lurie” or “Plaintiff” ).   [Note: There were many articles about this dispute last year when the court denied Defendant’s Motion to Dismiss – see here,  here, here, and here for a small sampling].

The airfx.com domain name was originally registered by Bestinfo on March 21, 2003.  In June 2005, Air Systems Engineering, Inc. ("ASE") filed a trademark registration application for the mark AirFX for “motorcycles, vehicle parts, namely, shock absorbers, and suspension systems for motorcycles, bicycles, automobiles, and powered vehicles.”  The mark registered in March 2007.  In April 2011, ASE assigned its trademark rights to a wholly owned subsidiary, Defendant AirFX,LLC.

Lurie originally was involved in operating skydiving wind tunnel businesses under the name "SkyVenture," but later decided to use the name AIRFX in connection with a new line of wind tunnels (despite having found ASE’s application to register AIRFX after conducting a trademark search).  Lurie acquired the airfx.com from Bestinfo for $2,100 on February 2, 2007, but never posted any content or created a website – and instead has a typical landing page (or “splash page” as defined in the opinion) put up by the registrar, GoDaddy.com.  While the landing page does have links to third party advertisements, Lurie maintained that he drived no revenue from such advertisements (and Defendant never provided any evidence to the contrary).  After leaving SkyVenture, Lurie was bound by a non-compete agreement prohibiting him from developing his own line of wind tunnels until 2010.  However, Lurie never sold any product under the brand AIRFX nor conducted any advertising, marketing, or manufacturing activities.  Lurie also never sold or offered to sell suspension systems for motorcycles, or any other motorcycle-related products.

Defendant contacted Lurie in 2008 regarding the purchase of airfx.com.  While the partie dispute the terms of the offer at that time, no agreement was reached.  In 2011, Defendant filed a domain dispute complaint before the National Arbitration Forum.  On May 16, 2011, the arbitration panel ruled in favor of Defendant and ordered that GoDaddy transfer airfx.com to Defendant.  See AirFX, LLC v. ATTN AIRFX.COM, Claim Number FA1104001384655 (NAF May 16, 2011)).

Lurie sought relief against the ordered transfer by filing a complaint which included a claim for reverse domain name hijacking under 15 U.S.C. § 1114(2)(D)(v).  Defendant counterclaimed with claims of cybersquatting and trademark infringement.  The parties filed cross motions for summary judgment.  On August 23, 2012, the U.S. District Court for the District of Arizona ruled in favor of Lurie by finding as a matter of law that Lurie was not liable for Defendant’s counterclaims of cybersquatting or  trademark infringement, and accordingly, Lurie’s Motion for Summary Judgment on its reverse domain name hijacking claim was granted.  See AIRFX.com et al. v. AirFX LLC, 2012 U.S. Dist. LEXIS 120285   (D. Ariz. August 23, 2012) (order here).

In deciding Defendant’s cybersquatting claim, the issue centered around the meaning of “registration” (ed.-an issue near and dear to my heart).  The court detailed the Ninth Circuit’s recent decision in GoPets Ltd. v. Hise, 657 F.3d 1024, 1030 (9th Cir. 2011) which clarified the meaning of "registration" and found that a party’s re-registration and continued ownership of a domain name that a party had registered long before a trademark owner registered its trademarks does not violate the cybersquatting statute (prior blog post here). 

Defendant attempted to distinguish GoPets because in that case, the original domain name registrant transferred the domain name to an entity that he co-owned.  In contrast, Lurie purchased airfx.com from an unrelated third party.  Defendant argued that the purpose of the ACPA would be undermined if a cybersquatter who purchases a domain name in bad faith is immune from liability simply because the domain name he purchased existed before a mark was  distinctive.

However, the court found otherwise: 

Nothing in the language of GoPets indicates that it should be read as narrowly as defendant suggests. GoPets did not distinguish between transfers of a domain name to related parties and other kinds of domain name transfers. To the contrary, GoPets broadly reasoned that if an original owner's rights associated with a domain name were lost upon transfer to "another owner," the rights to many domain names would become "effectively inalienable," a result the intention of which was not reflected in either the structure or the text of the ACPA.

In short, the court, following GoPets, found that it was undisputed that airfx.com was initially registered on March 21, 2003 by Bestinfo, ASE’s first use in commerce of the AirFX mark was June 2005, and Lurie purchased airfx.com on February 2, 2007 – and thus, Lurie’s registration of airfx.com in February 2007 "was not a registration within the meaning of § 1125(d)(1)” and because Bestinfo registered airfx.com long before ASE registered its mark, Lurie’s  registration and ownership of airfx.com does not violate the cybersquatting statute.  The court granted summary judgment on Defendant’s cybersquatting counterclaim in favor of Lurie. 

As for Defendant’s counterclaim for trademark infringement, the court focused on the fundamental issue of whether Lurie used the mark “in commerce” (noting that “If a person's use of a mark is noncommercial, it does not violate the Lanham Act.”).  Defendant’s sole argument of Lurie’s commercial use centered on particular allegations and admissions.  However, the court found no dispute that Lurie had never sold an AirFX product, have no advertising or marketing activities, have no manufacturing activities, never developed a website for airfx.com, and never sold any AirFX products or services on such website.  The court further found that Lurie’s limited activity of some pre-sales efforts and preliminary research, viewing such facts in the light most favorable to Defendant, was still insufficient to constitute commercial use of a mark.

Although plaintiffs have developed a brand name, registered a domain name, started  researching the design of their wind tunnels and approached potential investors and  customers, plaintiffs have not sold, manufactured, advertised, or marketed any product  bearing the AirFX mark. Defendant points to no other facts to establish plaintiffs'  commercial use of the AirFX mark.

As such, without raising any genuine issue  of material fact as to whether plaintiffs' use of the mark was commercial, the court found as a matter of law that no commercial use existed and therefore, there could be no trademark infringement as a matter of law and granted summary judgment on Defendant’s trademark infringement counterclaim in favor of Lurie. 

Finally, with respect to Lurie’s claim for reverse domain name hijacking, the only issue was whether Lurie’s registration of the airfx.com domain name was “not unlawful."

Because we have concluded that plaintiffs cannot be liable under the ACPA for cybersquatting as a matter of law, and because plaintiffs are entitled to summary judgment on the trademark infringement claim, we conclude that there is no genuine issue of fact as to whether plaintiffs' use of the domain name is lawful.

Defendant tried to argue that Lurie should not be entitled to such equitable relief because Lurie “conducted the litigation in unprecedented, and unprofessional ways.” [ed.—there are two sides to every story, and I’m sure Lurie has some stories about the actions of Defendant’s counsel as well].  However, the court noted the clear mandate of 15 U.S.C. § 1114(2)(D)(v), which allows the court to “grant injunctive relief to the domain name registrant, including the reactivation of the domain name or transfer of the domain name to the domain name registrant."  As such, the court ordered that the airfx.com remain registered with Lurie.

The court’s final words was to note that “[b]oth parties argue that this case is ‘exceptional’ under the Lanham Act, warranting an award of attorneys' fees. We will address a motion for attorneys' fees if and when one is before us.”   Stay tuned . . . 

Stephens Media Wins $200,000 Default Judgment Over Alleged Trademark Infringement of “Best of Las Vegas”

[After all these years, they still have do not have a category for “Best Las Vegas Trademark Attorney Blog” – or perhaps my dearth of blog posting in 2012 took me out of the running this year]

Back in 2009 (when I had much more time to blog on a more regular basis), I wrote about the three separate trademark infringement lawsuits filed by Stephens Media LLC (“Stephens Media”), the owner of the Las Vegas newspaper The Las Vegas Review Journal, against three separate companies over their alleged use of the term “BEST OF LAS VEGAS.”   See previous blog entry here.

In the case against one of the companies, CitiHealth LLC (“CitiHealth”), on August 6, 2012, U.S. District Court Judge Miranda Du issued a decision on a motion for default judgment filed by Stephens Media.  See Stephens Media LLC v. CitiHealth LLC, 2012 U.S. Dist. LEXIS 109431 (D. Nev. August 6, 2012).  What is interesting is how long it took for the case to get to this point.

The complaint against CitiHealth was originally filed on December 2, 2009, and related to the company’s publication of a magazine in December 2008 called “Healthy Living Las Vegas” that included the phrase on the cover “Best of Las Vegas.”  When CitiHealth failed to answer the complaint, a default was entered by the Clerk on March 24, 2010.  So why didn’t Stephens Media seek a default judgment at that time?  Well, the complaint was originally filed by Steve Gibson and his former firm Gibson Lowry and Burris.  Steve Gibson is also better known as the CEO of Righthaven LLC, the copyright enforcement company established by Gibson and Stephens Media to file lawsuits against websites that infringed on copyrights associated with Las Vegas Review Journal articles.  [I certainly don’t have the time or energy to go into all of the details of the Righthaven-saga in this post and will instead defer to those websites (here and here) that have tracked all things Righthaven and which will give any interested party the necessary background to understand what may have caused Mr. Gibson to be a little distracted during 2010 and 2011 as well as what may have caused  a rift between Mr. Gibson and Stephens Media].

Over a year went by without any follow-up after the entry of default against CitiHealth.  Finally, on May 24, 2012, the Court issued a Order to Show Cause, as to why the case should not be dismissed for failure to prosecute.  Six days later, Stephens Media filed a Motion to Substitute Attorney and subsequently informed the Court that that it had retained new counsel and intended to seek a preliminary injunction and default judgment.  On July 2, 2012, through new counsel Gordon Silver, Stephens Media filed the Motion for Default Judgment.  On July 13, 2012, Kenneth Shepherd, the co-owner of CitiHealth, notified both the Court and Stephens Media’s counsel that Healthy Living no longer exists and has not existed for the past 3 years and that CitiHealth had dissolved on May 9, 2012 and that the co-owners of the company had had filed for personal bankruptcy.

The Court nevertheless proceeded to analyze Stephens Media’s motion for default judgment under the Eitel factors established by the Ninth Circuit:

"The Ninth Circuit has identified the following factors as relevant to the exercise of the court's discretion in determining whether to grant default judgment: (1) the possibility of prejudice to the plaintiff; (2) the merits of the plaintiff's substantive claims; (3) the sufficiency of the complaint; (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to the excusable neglect; and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. Eitel v. McCool, 782 F.2d 1470, 1471--72 (9th Cir. 1986); see also Trustees of Elec. Workers Health and Welfare Trust v. Campbell, No. 07-724, 2009 WL 3255169 (D. Nev. Oct. 7, 2009)."

Despite CitiHealth's dissolution, the Court found that CitiHealth's failure to appear in this action and the likelihood that it will never respond to this action creates a high possibility of prejudice to Plaintiff in the absence of a default judgment.  The Court found that the Complaint did sufficiently state claims for relief (under the Rule 8 liberal pleading standards).

With respect to the amount of money at stake, Stephens Media sought $200,000 pursuant to 15 U.S.C. § 1117(c)(1) for non-willful trademark infringement of one mark (i.e., the Trademark Act’s statutory damages provision for use of “counterfeit” marks).  Without much discussion, the Court stated that “[b]ecause Stephens demonstrates a basis for its requested monetary relief, the fourth Eitel factor favors Stephens.”   [Comment:  counterfeit use, really?  And even so, court has discretion to award statutory damages ranging  from $1000 to $200,000—did the circumstances really merit the “maximum”?]

The Court found that the sufficiency of the Complaint was such that no genuine dispute of material facts would prejudice granting the motion.  The Court also found that CitiHealth had sufficient notice of the complaint and therefore it is unlikely that CitiHealth's failure to respond and subsequent default resulted from excusable neglect.  Finally, the Court, while recognizing the preference to have cases decided on the merits, found that CitiHealth's failure to answer Stephens Media's Complaint makes a decision on the merits impractical, if not impossible.

In the end, the Court entered a default judgment  awarding $200,000 against CitiHealth as well as a permanent injunction against CitiHealth and its officers against any further use of the “Best of Las Vegas” mark.  The Court also gave Stephens Media 30 days to file a motion for attorneys fees.

While its highly unlikely that Stephens Media will be able to collect on its $200,000 default judgment, one wonders if Stephens Media, should it be able to collect such funds, would be willing to pump that money into back into Righthaven LLC so that Righthaven can pay the money that it owes to its creditors (including multiple defendants that the Nevada District Court found were wrongly sued by Righthaven for copyright infringement).   That’s probably even more highly unlikely.     

A Real Dog of a Trademark Case

People take their pets very seriously . . . and apparently the same is true with respect to their pet store trademarks.

On January 13, 2012, Puparazzi Industries of America LLC (“PIA”) filed a trademark infringement lawsuit in the U.S. District Court of the District of Arizona against Puparazzi Pet Spa LLC (“PPS”).  See Puparazzi Industries of America LLC v. Puparazzi Pet Spa LLC, Case No. 12-cv-00084 (D. Ariz.).  A copy of the complaint can be downloaded here.

According to the complaint, PIA is a mobile pet grooming van that provides its pet grooming services throughout the Phoenix, Arizona area using the marks PUPARAZZI MOBILE PET SPAW and WHERE YOUR PET’S THE STAR (which it claims to have been using in the area since May 10, 2010) and with bright pink and purple colors on its grooming van. 

PIA only recently filed to register the mark PUPARAZZI MOBILE PET SPAW (which contains the odd concurrent use information “Regional and National).  [Sidenote: The application does not appear to have been filed by an attorney, but instead by the company’s managing member].    The same company had an application on file for PUPARAZZI INDUSTRIES OF AMERICA (filed March 2010), but when it came time to show use of the mark, all that it could muster up was its specimen showing the mark PUPARAZZI MOBILE PET SPAW.  The PTO rejected both the specimen of use (since it did not show the mark as applied in use) as well as the applicant’s attempt to alter the “drawing” of the mark from PUPARAZZI INDUSTRIES OF AMERICA to PUPARAZZI MOBILE PET SPAW (a material alteration). 

PIA claims that defendant PPS began operating a pet grooming store in Phoenix, Arizona, using the marks PUPARAZZI PET SPA and EVERY DOG IS A STAR! (and the color pink on its website and facebook account) around September 2011.  PIA’s causes of action are for federal trademark infringement and unfair competition. 

This looks more like an example of a local “pet grooming store” name battle between two local business competitors (not as uncommon as you might think), rather than a company beginning to exert trademark rights to the word PUPARAZZI.  I suspect that PIA’s “concurrent use” claim in its trademark application is a recognition by the owner of the company that there are other companies out there using the PUPARAZZI mark in connection with similar services including Puparazzi Dog Spa (in North Aurora, Illinois) and Puparazzi Pet Grooming (in Green Bay, Wisconsin).  There is also a pet photographer using the name Puparazzi Portraits.  And one man owns the registered trademark for PUPARAZZI in connection with pet clothing.  

And to the extent PIA is able to prove both that it is the prior user of the mark the Phoenix, Arizona area as well as the scope of its reputation in the Phoenix, Arizona area, then it may very well likely be able to get PPS to change its name.    

Recent Developments in Various Pending Trademark Cases

Back in the good ole days of 2009-2010 when I actually had time to blog, I posted about three particular lawsuits filed in the District of Nevada – each of which had significant developments this week (all reported on by VegasInc’s Steve Green).

Arrow Productions Ltd. v. V.C.X., Ltd. et al, Case No. 09-cv-00737 (D. Nev.) (previous blog post here)

The copyright and trademark dispute over “Deep Throat.” As reported by VegasInc., the parties reached a settlement whereby VCX agreed to stop selling “Deep Throat” (the copyright to which Arrow claimed) and Arrow agreed to stop selling “Debbie Does Dallas” (the copyright to which VCX claimed). As part of the court’s order and judgment (copy here), there are stipulated facts regarding the chain of title for the copyright to the film “Deep Throat” (including addressing the issue of how copies of the film were distributed without a copyright notice, and yet how that did not put the film in the public domain because the copyright owner technically leased the theaters when the film was shown (so-called “four walling”) and retained control over the prints – with any other copies being unauthorized prints).

Mine O'Mine, Inc. v. Michael Calmese, True Fan Logo, Inc. and Dan Mortense, Case No. 10-cv-00043 (D. Nev.) (previous blog post here)

The trademark lawsuit filed by Shaquille O’Neal over Defendants’ use of the mark SHAQTUS. As reported by VegasInc., the court issued a detailed summary judgment ruling earlier this year (copy here) that found the Defendants only started using the mark SHAQTUS after sportswriters gave O’Neal that name when he began playing for the Phoenix Suns and that there was a likelihood of consumer confusion arising between shirts sold by O’Neal’s company and SHAQTUS shirts sold by Defendants. This week, the court entered judgment against the Defendants (copy here) which terminated the litigation because of O’Neal’s willingness to drop the cybersquatting and dilution claims that remained following the court’s summary judgment order.

Caesars World, Inc. v. July et al, Case No. 11-cv-00536 (D. Nev.) (previous blog post here)

The cybersquatting action filed by Caesars Palace against Marcel July and his use of the mark OCTAVIUS TOWER. As reported by VegasInc., the court denied July’s motion for preliminary injunction (copy here) finding that July failed to meet the necessary burden to merit injunctive relief. July’s only argument was his PTO registration for the name OCTAVIUS TOWER for entertainment services (along with some state registrations). The court noted that while the registration served as prima facie evidence of July’s exclusive rights to use the mark for entertainment services, such evidence can be rebutted – and in this case, the court found that Caesars had made “strong arguments” against July’s use of the mark that “extinguishes” July’s prima facie case. July did not respond to Caesar’s arguments. Moreover, July also failed to demonstrate irreparable harm, balance of hardships favoring him, or that that injunction would be in the public interest.

Battle of the "Bays": Tradebay vs. eBay

[Post by Mark Borghese]

Does an intent-to-use trademark applicant, faced with a trademark office opposition proceeding, have the right to seek declaratory relief in federal court? Or, does the fact that the applicant has not yet used the mark in commerce prevent a federal court from exercising jurisdiction?

Those are the legal question a federal court in the District of Nevada will have to answer in Tradebay v. eBay, Case No. Case 2:11-cv-00702-ECR -PAL.

This dispute began almost two years ago when, on January 6, 2009, Tradebay filed a trademark application with the United States Patent and Trademark Office for the mark TRADEBAY for various services including "computerized online ordering" and "operating online marketplaces for seller and buyers of goods and/or services."

When Tradebay's trademark was approved by the trademark office and published for opposition, eBay immediately opposed the mark claiming that consumers would confuse Tradebay and eBay. In support of this opposition, eBay cites Perfumebay.com Inc. v. eBay Inc., 506 F3d 1165 (9th Cir., Nove. 5, 2007) where the Ninth Circuit Court of Appeals stated that the term "BAY" was the dominant portion of the eBay mark. From this ruling, eBay argues that any "generic" + BAY mark in the internet marketplace space is likely to cause confusion and dilute eBay's distinctive mark.

After the opposition was filed, on May 3, 2011, Tradebay filed a declaratory relief action in the United States District Court, District of Nevada. Tradebay wanted a federal court to make the determination as to whether its mark, Tradebay, was likely to be confused with the famous eBay mark. The Trademark Trial and Appeal Board proceeding was thereafter stayed in light of the District Court lawsuit.

On June 28, 2011, eBay filed a motion to dismiss Tradebay's District Court lawsuit alleging that no case or controversy existed for the court to decide. The motion argues that dismissal pursuant to Fed. R. Civ. P. 12(b)(6) is the appropriate remedy as no trademark infringement can exist when Tradebay has not yet used the Tradebay mark in commerce.

Courts enforcing Rule 12(b)(6) curtail this risk by weeding out complaints that fail to give rise to a plausible inference of harm to the plaintiff. Neither eBay nor the Court should be required to expend the resources necessary to litigate the merits of claims of trademark infringement and dilution and unfair competition based on nothing more than vague and conclusory allegations that fail to evince the specific and concrete steps to use the mark that might give rise to a controversy of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. Dismissal is the appropriate remedy here.

Tradebay filed an opposition to the motion on August 2, 2011, arguing that the "case or controversy" standard has been met and pointing out that as early as January 30, 2009 Tradebay received a cease and desist letter from eBay accusing it of infringing and diluting eBay's trademark rights.

Tradebay’s complaint presents an "actual controversy" within the meaning of the caselaw. Specifically, almost immediately after Tradebay filed its trademark application, eBay sent a cease and desist letter. If Tradebay refused eBay's demands, eBay threatened to "take whatever actions eBay deems necessary to protect its rights." Exhibit 2-A. eBay reaffirmed the identical threat a few days later. Exhibit 2-B. Once Tradebay’s application was accepted for publication, eBay opposed it in the USPTO. Exhibit 3-A.

In its reply brief filed August 25, 2011, eBay argues again that no case or controversy exists as Tradebay has not taken any concrete steps to actually use its Tradebay mark, such as developing a product line, conducting market research, or creating packaging and advertising.

Tradebay makes no attempt to show that it has alleged, let alone actually undertaken, any concrete steps to actually use the TRADEBAY mark in connection with any goods or services. At best, Tradebay has alleged nothing more than a vague and indefinite desire to use the TRADEBAY mark at some future date. That does not come close to showing a real and immediate controversy. Tradebay's utter failure to allege the requisite concrete steps can only lead to the conclusion that it has not engaged in any such activity. Under these circumstances, it would be a waste of the Court's (and eBay's) time and resources to render what would amount to an impermissible advisory opinion as to whether activities Tradebay may or may not undertake in the future would infringe or dilute eBay's trademarks.

Under the facts in this case, eBay argues that Tradebay is simply requesting that the court issue an improper advisory opinion rather than settle an actual trademark infringement dispute involving two competing marks being used in commerce.

The briefing on this issue is now closed and an order from the court is expected within the next ninety days. This ruling will be an interesting one to watch.

About the author
Mark Borghese is a Las Vegas internet attorney with the law firm of Borghese Legal, Ltd.

Mystic Lodge Loses Trademark Battle with Mystic Lake

Mystic Lake Casino Hotel in Minnesota

[Post by Mark Borghese]

As first reported by Steve Green, Mystic Lodge casino in Henderson ("Mystic Lodge") lost its trademark dispute with the Mystic Lake Casino Hotel in Minnesota ("Mystic Lake"). This case was first discussed on this blog here. In a July 25, 2011 order, U.S. District Judge James Mahan issued a Final Judgment and Permanent Injunction against Mystic Lodge ordering it to change its name.

Mystic Lodge Casino in Henderson, Nevada

The chips were stacked against Mystic Lodge from the beginning of this case. Not only are the two marks, Mystic Lodge and Mystic Lake substantially similar, but both marks are for the same services. Moreover, the senior user, Mystic Lake has been using its servicemark for almost twenty years and has multiple federal registrations.

Although a small Henderson, Nevada casino with no hotel and a large Minnesota Indian hotel casino resort may seem worlds apart, the Minnesota tribe which runs Mystic Lake argued in its Motion for Summary Judgment that both casinos operate on a national level and compete for the same customers.

[T]he undisputed evidence supports the conclusion that Mystic Lake Casino and Mystic Lodge Casino operate in a market that includes a nation-wide consumer base. First, more than 100 of the same individuals appear in both Mystic Lake Casino and Mystic Lodge Casino’s respective player databases… Mystic Lake and Mystic Lodge also have player databases that include residents of all 50 states… Both Mystic Lake and Mystic Lodge casino services expressly cater to travelers and tourists… In fact, both parties have thousands of customers in Nevada alone…. Simply put, [Mystic Lake] and [Mystic Lodge] compete for the same discretionary consumer dollar—Mystic Lodge is a competitor of Mystic Lake.

Mystic Lodge attempted to argue the Dawn Donut rule as a defense to the issuance of an injunction against it. That rule, first set out in the case Dawn Donut Co., Inc. v. Hart’s Food Stores, Inc., 267 F.2d 358 (2d Cir. 1959) provides a defense to the issuance of an injunction against a good faith junior user of a trademark which adopts the mark without knowledge of the federally registered mark and which operates in a geographically separate and distinct trading area to the senior user.

Judge Mahan however, ruled that the Dawn Donut defense was not applicable to the facts before the court because Mystic Lodge had actual knowledge of the federal registration for Mystic Lake, but decided to adopt the mark anyway.

The defendants argue under Dawn Donut that when two marks are confined to sufficiently distinct and geographically separate markets, without evidence that the registrant will expand to the defendant’s market, the plaintiff is not entitled to enjoin the junior user’s mark. See 267 F.2d at 364. Further, the “injunctive remedy does not ripen until the registrant shows a likelihood of entry into the disputed territory.” McCarthy, supra, at § 26:33. In the alternative, the defendants’ assert that there is a presumption of good faith since an opinion letter from counsel permitted the use of the mark. The court disagrees.

Here, the Dawn Donut defense does not apply to the plaintiff’s ability to receive injunctive relief due to the bad faith shown. The defendants received actual knowledge of the plaintiff’s registered mark through counsel, ignored requests for alternate names, and disobeyed express recommendations on how to limit the possibility of infringement. Although the final opinion letter by counsel timidly approved the use of the mark with certain limitations, the email from counsel advising that the mark was already registered and the senior user would aggressively protect it disallows the final opinion to serve as a rubber stamp for the defendants’ actions. “The Ninth Circuit does not . . . insulate the defendant from a finding of willful infringement based on advice of counsel of noninfringement.” Monster Cable Prods., Inc. v. Discovery Commn’s, Inc., No. C 03-03250, 2004 WL 2445348, *9 (N.D. Cal. Nov. 1, 2004) (citing Wolfe v. Nat’l Lead Co., 272 F.2d 867, 871 (9th Cir. 1959).

The lesson, of course, is to follow the recommendations of your attorney. Moreover, if you are willing to spend the money to get an attorney’s opinion about potential trademarks, use the advice to pick a name that (1) not federally registered and (2) is not the name used by a competitor in the United States for the same goods and services you want to sell.

The Final Judgment and Permanent Injunction prevents Mystic Lodge from,

(a) Distributing, displaying, marketing, promoting, offering for sale, and/or selling any goods or services using the mark Mystic Lodge Casino, or any other phrase, slogan, or business name that incorporates the word “Mystic” (a “Mystic Mark”);

(b) Affixing a Mystic Mark to any product, advertisement, point of sale material, interior/exterior signage or other promotional material;

(c) Disseminating any product, advertisement, point of sale material, signage or other promotional material containing or incorporating a Mystic Mark;

(d) Registering any domain name which includes the word “mystic” or any Mystic Mark; and

(e) Registering and/or applying for any trademark registration for a Mystic Mark.

The Judgment also gives Mystic Lake sixty (60) days to provide written confirmation that it is no longer using the Mystic Lodge mark and transfer all domain names which include the Mystic Lodge Mark to Minnesota casino.

Mystic Lodge has now filed an emergency motion to stay the ruling pending it’s appeal to the Ninth Circuit. In the motion, Mystic Lodge argues,

If a stay is not granted, Defendants face the risk of being put out of business complying with a permanent injunction before having been ultimately found by a jury not to have infringed upon Plaintiff's mark. Equally important, Plaintiff will not be harmed by a temporary stay of the permanent injunction pending appeal.

Of course Mystic Lodge can simply change its name and re-brand its business. While such a move may be expensive, so is an appeal to the Ninth Circuit Court of Appeals. This case once again highlights the importance of local Las Vegas businesses obtaining national trademark protection for their brands.

About the author
Mark Borghese is a Las Vegas business attorney with the law firm of Borghese Legal, Ltd.

Egg Works Loses 9th Circuit Appeal Despite No Opposition From Egg World

The owners of the Las Vegas breakfast restaurants The Egg & I and Egg Works got another dose of egg on their face when the Ninth Circuit Court of Appeals affirmed a lower court’s decision to deny the restaurant chain's motion for preliminary injunction that had been sought against a competing Las Vegas restaurant named Egg World (which did not even file any kind of brief in the appeal).

Last June, Bradley Burdsall, along with his two companies Egg Works, Inc. and Egg Works 2, LLC (collectively “Egg Works”), brought a trademark infringement lawsuit against Egg World, LLC, and two of its principals, Gabrijel Krstanovic, and Dejan Debeljak (collectively “Egg World”). See Egg Works, Inc. et al v. Egg World LLC et al, Case No. 10-cv-01013 (D. Nev.). On September 14, 2010, the lower court entered an order denying Egg Works’ Motion for Preliminary Injunction. (a copy of that order can be viewed here). For my previous blog post discussing the lower court’s decision, click here.

Because the counsel of record for Egg World in the lower court case withdrew from the case soon after the court’s decision (the basis for withdraw was a dispute over money – an unfortunate, all too common issue in litigations), Egg Works recognized that if it appealed the court’s denial of its motion for preliminary injunction, the Egg World defendants would probably not file any kind of brief in such an appeal. And so Egg Works filed an appeal to the Ninth Circuit Court of Appeals of the lower court's decision to deny Egg Works’ Motion for Preliminary Injunction. And if the defendants don’t file an any kind of brief in the appeal, Egg Works would easily win, right? Well as this case aptly demonstrates, that’s not necessarily true.

On September 27, 2011, the Ninth Circuit Court of Appeals in an unpublished decision rendered without oral argument (and without the benefit of any kind of briefs from the Egg World defendants) affirmed the Nevada District Court’s decision to deny Egg Works’ Motion for Preliminary Injunction. See Egg Works, Inc., et al v. Egg World LLC, et al, Appeal No. 10-17534 (9th Cir. April 27, 2011) (unpublished). A copy of the decision can be downloaded here.

The decision is fairly straightforward, with the Court of Appeals finding no abuse of discretion on the part of the lower court in denying Egg Works’ Motion for Preliminary Injunction:

The district court correctly identified the legal standard for likelihood of confusion of a trademark, its findings were not clearly erroneous, and the district court did not clearly err in finding no likelihood of confusion concerning appellants’ trademark. See AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979). We conclude that the district court did not abuse its discretion in concluding that appellants failed to meet the requirements to merit preliminary injunctive relief. Accordingly, we affirm the district court’s denial of appellants’ motion for a preliminary injunction.

So where does the case go from here? Well, assuming Egg Works decides not to waste any more money by seeking reconsideration or appealing to the U.S. Supreme Court, the case goes back to Nevada district court and continues to move forward. But with Egg World not currently represented by counsel, Egg Works will now be able to obtain a default and seek a default judgment against thecompany. And Egg Works may try to seek defaults against the individual defendants as well, who have not show any particular interest in continuing the fight in court (even though they did win both at the lower court and on appeal – although admittedly only at an early preliminary stage).

Of course, given that the Egg World restaurant that gave Egg Works so much heartburn last year closed down earlier this year [Comment—I know from firsthand experience that running a restaurant is tough, and probably more so in these economic times], does Egg Works really want to continue to spend legal fees fighting this out after suffering two battle defeats – even after having essentially won the war at the end of the day? We shall see.

[Full Disclosure: My law firm has represented one of the Defendants in other legal matters, but did not represent any of the Defendants in this case.]

Caesars Palace Files Declaratory Judgment Action Over OCTAVIUS TOWER

In so many trademark lawsuit stories that grab the media’s attention, the story is often one of a large corporation enforcing its trademark rights against individuals and small businesses in a manner that is often described as “trademark bullying” (but which, of course, from the corporation’s perspective could be seen as zealous protection of the company’s valuable trademark rights). The story behind this lawsuit is quite the opposite – in this case, it is the large corporation that is being bullied (or more accurately, majorly inconvenienced since a large corporation has sufficient resources to fight a legal battle in court) by an individual that is seeking to enforce highly questionable trademark rights.

On April 8, 2011, Caesars World, Inc. (“Caesars”), the owner of the CAESARS PALACE brand of hotel-casinos (including Caesars Palace in Las Vegas), filed a declaratory judgment action against a German man named Marcel July and his Nevada limited liability company, Octavius Tower LLC, based on the defendants claims to have exclusive ownership rights to the mark OCTAVIUS TOWER and demands that Caesars stop using the name in connection with a hotel tower. See Caesars World, Inc. v. July et al, Case No. 11-cv-00536 (D. Nev. April 8, 2011). A copy of the complaint (with exhibits) can be downloaded here.

Back in 2007, Caesars World’s parent company, Harrah’s Entertainment, Inc. (which has since been renamed Caesars Entertainment Corporation) announced a $1 billion expansion of the Caesars Palace Hotel-Casino in Las Vegas. One of the new hotel towers built as part of the expansion was going to be named the “Octavius Tower” (going along with Caesars “Roman” themed hotel/casino – presumably named after Julius Caesar’s adopted nephew, Gaius Octavius [for you Roman history scholars, feel free to correct me]).

The Octavius Tower at Caesars Palace in Las Vegas

Two days after Caesars’ announcement regarding its plans to build Octavius Tower, Mr. July, being the enterprising fellow that he appears to be, decided to registered several domain names such as octaviustowercom; octaviustowers.com; octaviustowerlasvegas.com; and octaviustowerslasvegas.com. The same day, July also registered the domain namescaesarstower.com; caesarstowers.com; caesarspalacetower.com; caesarspalacetowers.com; and caesarspalacetowerslasvegas.com. The websites at those domain names promoted that “The new Caesars Palace Towers are Coming Soon” and that the domain names were for sale (see Exhibit B of the Complaint). Caesars filed domain name arbitration actions against July under the UDRP with respect to those domain names that incorporated the mark Caesars Palace (but chose not to go after the Octavius Tower domain names without any trademark registration). The domain names were transferred to Caesars after the arbitrator determined that the domain names had been registered in bad faith. See Caesars World, Inc. v Marcel July Ra Christian Kaldenhoff, Nat'l Arb. Forum, FA 0801001126341 (March 3, 2008).

On July 20, 2007, Caesars filed its own intent-to-use application for the mark OCTAVIUS TOWER for “hotel services.” The application was allowed by the PTO on January 29, 2008; however, because of well-publicized construction delays due to lack of funding after the major downturn in the economy (see news articles here and here), Caesars was not able to provide a Statement of Use before the January 29, 2011 deadline and the application went abandoned (although Caesars, anticipating that its original application would go abandon, filed a new application on December 10, 2010).

Of course, what happened during the interim? Mr. July filed his own trademark registration applications with the PTO for the mark Octavius Tower in connection with entertainment services – specifically on May 7, 2008, July filed for the mark OCTAVIUS TOWER for “Entertainment services, namely, providing a web site featuring musical performances, musical videos, related film clips and photographs”. A registration was issued September 1, 2009. [Query—given that Caesars was already aware of Mr. July propensity for opportunism as illustrated by his domain name registrations and the fact that the marks were identical, why didn’t Caesar file an Opposition against Mr. July’s applications when it had the chance?] On July 23, 2009, July filed a second application for OCTAVIUS TOWER for “Entertainment in the nature of visual and audio performances, and musical, variety, news and comedy shows; Presentation of live show performances; Theatrical and musical floor shows provided at discotheques and nightclubs; Theatrical and musical floor shows provided at performance venues.” A registration for this second application issued on January 12, 2010. In addition to these federal registrations, July also filed three Nevada state trademark registrations for the mark OCTAVIUS TOWER in connection with entertainment services (here, here, and here) as well as a Florida trademark registration. Caesars alleges in its complaint that July has not used the mark in connection with any of the entertainment services identified in the registration (while I have not reviewed the specimens of use submitted by July in order to get his marks registered, I would not be surprised if they are questionable on their face).

Given that the PTO allowed Mr. July’s applications to register despite Caesars pending application for OCTAVIUS TOWER for hotel services, one would naturally not expect Caesars second application for OCTAVIUS TOWER to encounter any objections from the PTO, right? Wrong. On February 24, 2011, the PTO issued a non-final office action rejecting Caesars new application on the basis of a likelihood of confusion with Mr. July’s registration. So what did Mr. July do once he learned of the rejection? He got an attorney to send a cease and desist letter to Caesars (see Exhibit D of the Complaint) demanding that Caesars stop using Mr. July’s “trademarked name” Octavius Tower in any manner and threatening to pursue “all legal remedies available to him.” Caesars counsel wrote back on March 21, 2011, arguing no likelihood of confusion and offering to enter into a coexistence agreement. On March 23, 2011, July’s attorney later wrote back rejecting the coexistence agreement and reiterating the threat to take legal action. Subsequently, July purportedly modified his website at http://www.octaviustower.com/ to add a page that includes Caesars' 2007 announcement of its plan to launch Octavius Tower and includes copies of the correspondence July’s counsel sent to Caesars along with the message to the public about Caesars “infringement” of July’s trademark rights:

Public awareness of this unacceptable corporate behavior is crucial to eradicating it and we are asking you to take a stand and make a difference on this issue. Your collective voice is more compelling than the lobbying power of corporate giants and it is a voice that cannot be ignored. Together we can make a difference and help keep our freedom intact, for us, for our children, and for our grandchildren.

Caesars, recognizing its opportunity to file a declaratory judgment action against Mr. July in order to redress this mess, filed the instant action. In addition to seeking declarations of non-infringement of Mr. July’s trademark rights, Caesars also seeks to cancel July’s federal and state trademark registrations on the basis of non-use and fraud.

So with all of Mr. July’s talk about enforcing his trademark rights, we shall see how important those marks truly are to him and how strongly he feels about his trademark rights (and the strenghth of such rights). Too many individuals seem to have this impression that registration of a particular mark is the end-all-be-all for solidifying exclusive rights to a particular term. But registration is merely prima facie evidence of trademark rights. If you don't actually have any underlying trademark rights to a mark (i.e., some associated goodwill that the consuming public associates with your mark and thegoods/serivces sold using the mark), then you will not be entitled to make a claim of exclusive rights to a term (especially against a third party using the mark in connection with a substantially differnet good or service).

And while I suspect that Mr. July may try to turn this dispute into a "David vs. Goliath" battle (as reflected by his website) of a large corporation using its corporate power and the legal system to steal his valuable trademark, this is one time where I side with the big company.

Utah District Court Rejects 1-800 Contacts Google Adword Lawsuit Against Lens.com

While this decision is a little old by blogging standards, since it did not receive much publicity and yet deals directly with the hot trademark issue of purchasing a competitor’s trademarks as part of Google’s Adwords program, I thought it worthwhile to give it some coverage.

Plaintiff 1-800 Contacts, Inc. (“Plaintiff”), an online seller of contact lenses, had filed suit against Defendant Lens.com, Inc. (“Defendant”), also an online seller of contact lenses, for trademark infringement arising from the purchase by Defendant (or marketing affiliates of Defendant) of Plaintiff’s trademarks as keywords to generate sponsored links to Defendant’s website.

Both parties filed motions for summary judgment and on December 14, 2010, the U.S. District Court for the District of Utah, in a lengthy but detailed decision (including providing great detailed background information regarding Google’s Adword program), granted Plaintiff’s motion for summary judgment on Defendant’s defense that purchase of a keyword is not a use in commerce, but also found that Defendant was entitled to summary judgment on all of Plaintiff’s claims. See 1-800 Contacts, Inc. v. Lens.com, Inc., Case No. 2:07-cv-591, 2010 U.S. Dist. LEXIS 132389 (D. Utah December 14, 2010). A copy of the decision can be found here (Justia.com).

After setting forth the respective trademark rights of the parties and providing a detailed discussion of Google’s Adword program (recommended reading for any trademark attorneys with clients out there upset about competitors purchasing their trademarks as keywords for sponsored links), the court noted that while Defendant had purchased numerous keywords that consisted of variations and misspellings of Plaintiff’s service mark, none were Plaintiff’s actual service mark and Plaintiff had failed to present any evidence showing that Defendant ever purchased Plaintiff’s exact service mark as a keyword.

The court noted, however, that some of Defendant’s marketing affiliates had purchased Plaintiff’s exact service mark as a keyword (the court’s decision also provides a detailed discussion regarding the use by online sellers of marketing affiliates). Defendant has a relationship with the affiliate network Commission Junction, which included the marketing of Defendant’s website JustLenses.com.

Plaintiff presented evidence showing two of Defendant’s affiliates as having purchased Plaintiff’s service mark as a keyword. The first affiliate purchased variations of Plaintiff’s trademark as keywords which resulted in the following “impressions” (i.e., the appearance of an advertiser’s link after a user conducts an internet search), the language of which were drafted by the affiliates’ own employees:
1. Buy Contacts Online
Simple online ordering of lenses.
Compare our prices and save!
http://www.justlenses.com/
2. 1-800 Contacts
Simple online ordering of lenses.
Compare our prices and save!
http://www.justlenses.com/
3. 1800 Contacts: Buy Online
Simple online ordering of lenses.
Compare our prices and save!
http://www.justlenses.com/

The second affiliate’s keyword purchases resulted in the following impressions
LensWorld.com 75% Off
Up to 75% off Retail Price!
Free Shipping on Orders Over $89
http://www.lensworld.com/
JustLenses.com Savings
Up to 70% off Retail Price. Name
Brand Contacts & Low Prices.
http://www.justlenses.com/

In 2005, Plaintiff, having done some routine searches to see what competitor impressions appear when doing a internet search for Plaintiff’s trademarks, contacted Defendant about sponsored advertisements for Defendant’s website being triggered by searches of Plaintiff’s trademarks. After Defendant discovered that the ads were coming from Defendant’s marketing affiliates, Defendant agreed to work with Plaintiff’s counsel, who provided Defendant with a list of twenty terms that Plaintiff asked Defendant and its affiliates to implement “negative matching” for such terms (i.e., to ensure that no ad is generated when a particular term is searched). Plaintiff again contacted Defendant in April 2007 about impressions being generated from searches of Plaintiff’s trademarks. After receiving no satisfaction, Plaintiff filed suit in August 2007. In October 2007, Commission Junction put Defendant in touch with one of the affiliates, who was informed by Defendant to implement certain negative keywords such as “1-800-Contacts.” Defendant ultimately was able to get Commission Junction to identify and communicate to the affiliates who were generating the offending impressions (the two mentioned above) to cease bidding on certain keywords, which they did immediately.

The court first analyzed the “use in commerce” issue – and quickly sided with those courts who have concluded that use of another’s mark to trigger internet advertisements for itself is a use in commerce:

The Lanham Act does not require use and display of another’s mark for it to constitute “use in commerce.” Rather, “use in commerce” occurs when a mark is “used or displayed in the sale or advertising of services and the services are rendered in commerce.”120 Here, Plaintiff’s service mark was used to trigger a sponsored link for purposes of advertising and selling the services of Defendant. In other words, Plaintiff’s mark was used to promote Defendant’s services and to provide a consumer with a link to a website where it could make a purchase from Defendant. The court concludes such actions constitute a “use in commerce” under the Lanham Act.

The court then turned to the issue of likelihood of confusion. Plaintiff attempted to argue that the appearance of Defendant’s advertisements whenever a user does a search for “1800Contacts,” amounts to a “bait and switch that “spawns confusion,” – “akin to a consumer asking a pharmacist for Advil and the pharmacist handing the consumer Tylenol.” However, the court quickly shot down Plaintiff’s faulty analogy:

This analogy mischaracterizes how search engines function. A more correct analogy is that when a consumer asks a pharmacist for Advil, the pharmacist directs the consumer to an aisle where the consumer is presented with any number of different pain relievers, including Tylenol. If a consumer truly wants Advil, he or she will not be confused by the fact that a bottle of Tylenol is on a shelf next to Advil because of their different appearances.

This analogy is supported by case law. In J.G. Wentworth, a court questioned the Brookfield decision because of its “material mischaracterization of the operation of internet search engines.” “At no point are potential consumers ‘taken by a search engine’ to defendant’s website due to defendant’s use of plaintiff’s marks in meta tages.” Instead, “a link to defendant’s website appears on the search results page as one of many choices for the potential consumer to investigate.” When the link does not incorporate a competitor’s mark “in any way discernable to internet users and potential customers,” there is “no opportunity to confuse defendant’s services, goods, advertisements, links or websites for those of” its competitor.

The court then goes on to explain the problem with companies like Plaintiff who focus too much on the “use” of their marks alone rather than focusing on use that is likely to cause consumer confusion:

Plaintiff monitors use of its mark by others on the Internet. It does so by entering its mark or a variation of it as a search term. If a competitor’s advertisement appears on the search-results page, it sends a cease and desist letter to the competitor to preclude the competitor’s advertisement from appearing on the same page as Plaintiff.

Notably, however, ninety-five percent of the impressions for Plaintiff are triggered by non-trademarked keywords such as contacts, contacts lenses, or by brand names such as Acuvue or Focus. When a company incorporates broad matching for terms such as “contacts or contact lenses,” its sponsored link will appear even if the search term is “1800Contacts.” In other words, simply because the search term is “1800Contacts,” does not mean the keyword generating the sponsored link also was 1800Contacts or a similar variation thereof. One cannot tell from a screen shot alone what keyword generated the sponsored link.

The end result, though, is that when a consumer enters “1800Contacts” as a search term, it will see a competitor’s advertisement anytime the competitor bids on “1800Contacts” “contacts” or “contact lenses” as a broad match. If the advertisement remains the same regardless of which search term triggers it, there is no more likelihood of confusion for the advertisement triggered by the trademark versus the advertisement triggered by the generic phrases. Nor is there any greater impact on the goodwill or reputation of the trademark holder. It is beyond dispute that a competitor cannot be held liable for purchasing a generic keyword to trigger an advertisement that does not incorporate a holder’s mark in any way, even if that competitor’s advertisement appeared when a consumer entered a trademarked search term. Given that fact, it would be anomalous to hold a competitor liable simply because it purchased a trademarked keyword when the advertisement generated by the keyword is the exact same from a consumer’s perspective as one generated by a generic keyword. Imposing liability under such circumstances would elevate “use” over consumer confusion.

As stated above, Plaintiff sends cease and desist letters anytime a competitor’s advertisement appears when Plaintiff’s mark is entered as a search term. Were Plaintiff actually able to preclude competitor advertisements from appearing on a search-results page anytime its mark is entered as a search term, it would result in an anti-competitive, monopolistic protection, to which it is not entitled. Because a consumer cannot see a keyword, nor tell what keyword generated an advertisement, the court concludes that the mere purchase of a trademark as a keyword cannot alone result in consumer confusion. Accordingly, the relevant inquiry here regarding consumer confusion is not just what keyword was purchased, but what was the language of the advertisement generated by that keyword.

(emphasis added).

With that, the court turned to the two types of impressions at issue – ones that did use Plaintiff’s mark and ones that did not. Regarding the ones that did not use Plaintiff’s mark or a similar variation in the advertisement, the court noted that the closest case was one ad that generated “1-800 -Discount Contacts” in the title. But the court found that the composite view of the advertisements were overwhelmingly dissimilar in both sight and sound. The only similarity was the use of “contact” or “contacts” which is unlikely to create consumer confusion because of the numerous sellers of contact lenses. This strongly weighed in favor of no confusion. Regarding the advertisements that did use Plaintiff’s mark, the court focused on the advertisements generated by Defendant’s affiliates (noted above) that expressly used “1800 Contacts” in the title. The court found this was use of Plaintiff’s mark and weighed in favor of a finding of likelihood of confusion.

Regarding the “intent to copy” factor, while the court acknowledged that Defendant’s own purchase of variant keywords could lead one to conclude that it was done to derive benefit from Plaintiff’s reputation or goodwill by generating an advertisement for Defendant, the court accepted Defendant’s evidence that any such benefit was a de minimus part of its business:

Defendant purchased over 8,000 keywords, of which only nine are complained about by Plaintiff. Those nine keywords generated about 1,600 impressions out of more than 112 million impressions that have been linked to Defendant between the years 2004 and 2008. This, too, demonstrates that Defendant was not targeting its marketing efforts to ride on Plaintiff’s reputation or goodwill. While all doubts must be construed against Defendant, there is insufficient evidence to create a doubt about Defendant’s actions. The court therefore concludes this factor is, at most, neutral with respect to Defendant.

But the factor favored Plaintiff with respect to the ads by the marketing affiliates who had directly used Plaintiff’s mark in their ads.

Plaintiff had presented no evidence of actual confusion, so this factor favored Defendant. As for similar marketing channels, the court made the observation that, focusing just on internet, both parties advertise through sponsored links and the fact that both links appear on the same search page would dispel rather than cause confusion because the websites are separate and distinct, suggesting two completely unrelated business entities [ed.—interesting way of looking at it]. Nonetheless, the court found sufficient similarity to have this factor weigh somewhat in favor of Plaintiff. The court also found that it was unlikely that consumers exercise a high degree of care in selecting contact lens providers, so this factor favored Plaintiff.

Finally, in analyzing the strength of Plaintiff’s mark, the court found the mark to be conceptually weak – putting together the two generic terms “Contacts” (“The strength of Plaintiff’s mark on the Internet is weakened by the very nature of how third parties use generic and descriptive words on search engines.”) and “1-800” (“others necessarily must use similar generic and descriptive phrases to market their product on-line or through a toll free number”). As for the commercial strength of Plaintiff’s mark, the court found several flaws in the survey evidence provided by Plaintiff to demonstrate the commercial strength of its mark (including not focusing just on Internet, the fact that it was not a double-blind survey, and the fact that the results were somewhat marginal). The court noted that while Plaintiff had shown about 2.5 million impressions were generated on the Internet specifically matching the keyword “1800Contacts” or a close variation over a six year period, it still only represented about 2.5% of the Plaintiff’s total internet impressions. The court concluded that the conceptual and commercial strength combined indicated that Plaintiff’s mark was only moderately strong. And because Defendant’s own sponsored ads did not include Plaintiff’s mark or a similar variation of it, then, given the moderate strength of Plaintiff’s mark, the court found there was little possibility that a consumer would confuse Defendant with Plaintiff. However, with respect to the advertisement by the marketing affiliates with did use Plaintiff’s mark in the advertisement, the court found that such use, given the moderate strength of Plaintiff’s mark, would likely confuse a consumer about the source of the affiliate’s advertisement.

Taking all of the factors together, the court concluded that there was insufficient evidence for a jury to conclude that Defendant infringed on Plaintiff’s mark for all advertisements that did not use Plaintiff’s mark in them, and accordingly, granted summary judgment in favor of Defendant on that issue. In contrast, the court found there was a likelihood of confusion for the marketing affiliate advertisements that did use Plaintiff’s mark. However, because the affiliates were not named as parties to the lawsuit, the court then turned to the issues of whether the affiliate’s action could be imputed to Defendant under a theory of contributory infringement or vicarious infringement.

The court rejected any vicarious liability on the basis of any lack of an agency relationship between Defendant and the affiliates with the infringing impressions. Plaintiff attempted to impute liability for its very participation in the affiliate marketing program whereby affiliates could purchase keywords. However, because it was the language of the impressions, and not the purchase of keywords themselves, that created a likelihood of confusion, it is only as to those impressions that Defendant could be vicariously liable. In this case, Defendant had little direct contact with affiliates (and had to work through Commission Junction). Defendant had no authority to monitor or supervise affiliate operations except with respect to the use by such affiliates of Defendant’s own marks. Defendant also was not in a position to exercise any degree of control over an affiliate’s website.

As for a theory of contributory infringement, the court found that Plaintiff had not presented any evidence that Defendant intentionally induced the affiliates to infringe on Plaintiff’s mark: “At most, Plaintiff has presented evidence that Defendant did not institute negative keywords and that it knew of some of the keywords that a few affiliates were using in their advertising efforts. As discussed above, however, trademark liability cannot attach from the mere use of a trademark as a keyword. Thus, none of the evidence presented by Plaintiff demonstrates that Defendant intentionally induced its affiliates to infringe on Plaintiff’s mark.”

Moreover, Plaintiff failed to show that Defendant knew about the specific impressions noted above generated by Defendant’s marketing affiliates and failed to take action or was willfully blind to such infringement. Specifically, in the screenshots that were attached to Plaintiff’s April 2007 correspondence, none of them demonstrated the impressions found by the court to be infringing – and instead, were of the non-infringing advertisements that the two marketing affiliates had generated. “Thus, in April 2007, Plaintiff did nothing more than provide general information to Defendant that a non-infringing advertisement was appearing upon entry of certain search terms. Defendant therefore cannot be charged with knowledge or willful blindness based on that information. Nor did the information impose a burden on Defendant to go search out all of its affiliates’ actions to make sure none of them were using Plaintiff’s mark.”

The court also noted that when Plaintiff included one of the infringing impressions it is August 2007 complaint, the screenshot by itself did not provide Defendant with sufficient information for it to determine immediately who the affiliate was (among Defendant’s 10,000 affiliates). “Because contributory trademark infringement does not require a defendant ‘to refuse to provide a product or service to those who merely might infringe the trademark,’ Lens.com had no obligation to cease licensing its name to all of its affiliates while it took steps to identify the one who generated this particular impression.”

The court found that “there is insufficient evidence to show that Defendant failed to take appropriate action to stop McCoy from publishing the advertisements. There is no indication that Defendant intended to benefit from the Infringing Impressions, nor is there evidence of how many Infringing Impressions and clicks occurred during the relevant time period. Accordingly, the court concludes that Defendant cannot be held liable for contributory infringement.”

The remainder of the court’s decision involves Plaintiff’s claim for breach of contract (for which the court found no enforceable agreement on the part of Defendant to not purchase Plaintiff’s mark or variations thereof as a keyword), Plaintiff’s claim for unfair practices under state law (claims not supported by Plaintiff in its opposition), Plaintiff’s claim for common law trademark infringement and unfair competition (rejected for the same reasons as Plaintiff’s Lanham claims), and Plaintiff’s claim for unjust enrichment (since Plaintiff has not shown that use of its service mark as a keyword constituted infringement, then it is not entitled to any payment for such use – “Stated differently, while the law protects one’s property right in a trademark, the scope of that protection is not without its limits. Use outside of the scope of that property protection is not a use that is unjust to retain without payment. Indeed, if Plaintiff were able to obtain payment under unjust enrichment, common law would effectively expand the scope of Plaintiff’s statutory protection. Because one generally cannot extend legal rights beyond one’s property rights, the court grants summary judgment in Defendant’s favor on this claim.”).

In the end, the court gave the Plaintiff one small victory in granting summary judgment on Defendant’s defense that the purchase of keywords did not constitute a “use” in commerce; however, it was certainly overshadowed by the overwhelming victory given to Defendant by the court granting summary judgment in favor of Defendant and dismissing all of Plaintiff’s claims against Defendant.