Failure to follow advice in availability opinion may constitute bad faith

Following its adoption of ONESMART for use in conjunction with smart card services, Mastercard International sought a declaratory ruling that the mark did not infringe First National Bank of Omaha's (FNBO) SMARTONE mark used for banking, credit card and smart card services (Mastercard International Inc v First National Bank of Omaha Inc (SDNY February 23 2004)). FNBO counterclaimed for trademark infringement. Both parties moved for partial summary judgment on a number of issues. The most significant of which, was Mastercard's motion that FNBO should not be entitled to recover monetary damages should it prevail on its infringement claim.

The US District Court for the Southern District of New York first noted that the law in the Second Circuit requires a showing of bad faith, actual confusion or consumer deception before an accounting of the infringer's profits will be awarded to a prevailing trademark owner. The court then denied Mastercard's motion, even though there was no evidence of actual confusion or any deliberate attempt by Mastercard to trade off of the goodwill in the SMARTONE mark. Instead, the court concluded that statements in the trademark availability search and opinion rendered by Mastercard's in-house counsel were a sufficient basis upon which a jury could infer the bad faith that is necessary for an accounting of profits to be awarded to a prevailing plaintiff.

Significantly, the availability opinion did not rate FNBO's marks as posing a high risk and did not specifically indicate that confusion between the respective marks was likely. Moreover, the opinion did not include a recommendation against adoption of the mark. Rather, the opinion of counsel stated that while:

"we would be prepared to argue to the Trademarks Office that ONESMART is sufficiently different from SMARTONE that the two terms can coexist [...] it may be necessary to abandon attempts to register ONESMART itself [...]."

The opinion continued:

"[W]e would recommend the term be used as a composite form - ONESMART MASTERCARD [...] [and] we cannot rule out the possibility of an opposition proceeding or other legal action being taken by [FNBO]."

The court held that Mastercard's failure to follow the advice set out in the availability opinion suggested that it may have acted in bad faith and created a factual issue requiring examination at full trial.

Karin Segall, Darby & Darby, New York