Competitor banned from using BellSouth's marks and name unfairly

In the ongoing battle to define what does - and does not - constitute fair use of trademarks and service marks in the wake of the Telecommunications Act of 1996, BellSouth, a regional fixed-line telecommunications operating company, has achieved an important victory in BellSouth Intellectual Property Corp v Access Integrated Networks Inc (1:02-CV-2165-WBH (ND Ga)). The US District Court for the Northern District of Georgia granted BellSouth's renewed motion for a preliminary injunction against the misleading and deceptive advertising practices of a competing local exchange carrier, Access Integrated Networks (AIN).

What would otherwise be a straightforward action for trademark and service mark infringement, false advertising and unfair competition between two competitors was complicated by the fact that, pursuant to the Telecoms Act, incumbent local exchange carriers, including BellSouth, must permit competing local exchange carriers, such as AIN, to lease components of their networks so that the competing local exchange carriers may provide their own competing telecoms services to their customers. Thus, under US law, AIN has a limited right to describe the nature of its relationship with BellSouth when offering or advertising its services to potential consumers. BellSouth's suit contends that AIN falsely represented that its services were those of BellSouth.

AIN acknowledged that "use of the BELLSOUTH marks and trade dress in most of the ways alleged in the lawsuit is unlawful". AIN attempted to prevent the entry of a preliminary injunction, however, by arguing that it had ceased all of the alleged misconduct and that it could not be held liable for the acts of sales agents who were independent contractors. The district court denied BellSouth's previous application for a preliminary injunction on the basis of AIN's representation that it had discontinued the alleged offences. However, the court invited BellSouth to return if it discovered that the objectionable conduct was in fact ongoing. BellSouth filed a renewed motion for preliminary injunction in December 2002. In support of its motion, BellSouth submitted over 100 declarations of consumers documenting false and misleading statements by AIN sales agents. Based on that evidence, the district court concluded AIN's voluntary cessation argument was "without merit".

AIN's argument that it could not be held liable for the acts of its independent contractors because it never "directly sanctioned the alleged unlawful conduct" and "the alleged misconduct [was] 'random and isolated'" was similarly unsuccessful. The district court held that AIN could in fact be held liable under US trademark law for the foreseeable acts of its sales agents upon which third-parties might reasonably rely. The court also found that BellSouth's evidence demonstrated that instances of actual consumer confusion spread across a nine-state area. On this basis, the district court reasoned that AIN could be held liable for what it characterized as "widespread" misrepresentation perpetrated by AIN's independent contractors.

The court's order enjoins AIN from:

• "using the BELLSOUTH marks and name except as necessary to provide the services contemplated by the interconnection agreement";
  
  
• "representing that AIN is affiliated with BellSouth and, in particular, stating that AIN is BellSouth, a subsidiary, a division or a faction of BellSouth, a provider of BellSouth services, or a billing agent of BellSouth";
  
  
• "representing that a consumer's telephone service will remain with BellSouth if the consumer agrees to accept AIN's offer to provide telecommunications services";
  
  
• "representing that AIN's products are those of BellSouth"; and
  
  
• "offering for sale any goods or services using BellSouth's marks".

The district court's decision is significant for two reasons. First, it clearly stands for the principle that, although the Telecoms Act requires incumbent local exchange carriers like BellSouth to permit emerging telecoms service providers such as AIN to make limited use of the incumbent's telecoms network to provide services to their customers, the new company still has a duty under US trademark and unfair competition law not to mislead customers as to the underlying relationship between itself and the incumbent. Second, the decision puts companies on notice that they can be held liable for the reasonably foreseeable acts of independent contractors in appropriate circumstances, and must therefore take steps to ensure that their sales agents comply with applicable laws.

Robin S Wharton, Kilpatrick Stockton LLP, Atlanta