Metatag use leads to award of profits and attorneys' fees

In Venture Tape Corporation v McGills Glass Warehouse (540 F3d 56, August 28 2008), the US Court of Appeals for the First Circuit has considered the issue of whether the unauthorized use of a trademark as a metatag constituted use upon which a finding of trademark infringement liability can be based.

Venture Tape Corporation manufactures and sells specialty adhesive tapes and foils for use in the stained glass industry. In connection with its business, Venture has used and obtained trademark registrations for the marks VENTURE TAPE and VENTURE FOIL. Over the years, it has expended many hundreds of thousands of dollars advertising and promoting its products and marks, both in print and on the Internet. As a result, the district court found - and the appellate court agreed - that Venture had “gained considerable popularity, prestige and goodwill in the worldwide stained glass market”.

McGills Glass Warehouse, through its website, sells adhesive tapes and foils for use in the stained glass industry in direct competition with Venture. In 2000 McGills began using the VENTURE TAPE and VENTURE FOILS marks in two unauthorized ways:

it placed the VENTURE marks directly on certain of its pages, but did so in a colour that was the same as the background of the screen so that the terms were not viewable by consumers; and
it inserted the VENTURE marks into the embedded computer language of its website.

Terms comprising this embedded computer language are commonly referred to as 'metatags'. Although they are not typically viewed by visitors to the website that embeds them, they are recognized by internet search engines. In the instant case, the use by McGills of the VENTURE marks as metatags and as part of the invisible background of its website caused internet searchers to be directed to the McGills website. McGills did not have the permission or authorization to use the VENTURE marks in this manner. McGills did not even sell Venture’s products on its website.

Upon discovering McGills's use of the VENTURE marks, Venture brought an action for trademark infringement, seeking an injunction as well as damages and the recovery of its attorneys' fees. In ruling on a motion for summary judgment filed by Venture, the district court concluded that McGills had essentially admitted all of the factors that the court was required to examine in connection with its determination on liability. Specifically, the court concluded, based on the testimony of McGills’s owner, that:

the parties’ marks were the same;
the parties were direct competitors; and
both parties used websites to promote and market their products.

Based on an admission by McGills’s owner, the district court also concluded that McGills had acted intentionally in using the VENTURE marks “for the express purpose of attracting customers to McGills’s website”.

On appeal, McGills argued that because it had no way of actually knowing whether any of its efforts had successfully lured customers to its site, it was impossible for Venture (and the court) to conclude that actual confusion had occurred. Disposition of the case on summary judgment was thus improper. McGills also argued that the district court had erred in concluding that Venture was entitled to approximately $426,000 in damages, attorneys' fees and costs.

Addressing the liability issue, the First Circuit concluded that McGills was essentially arguing that because Venture had not proven actual confusion, summary judgment in Venture’s favour was inappropriate. However, the court pointed out that actual confusion is not required for a finding of trademark infringement liability. The court agreed with the district court that the likelihood of confusion factors, including the admission by McGills’s owner that his purpose for using the VENTURE marks was to lure customers, overwhelmingly supported the conclusion that confusion was likely to occur. Therefore, summary judgment was appropriate.

With respect to the monetary award, McGills raised three issues on appeal. First, McGills argued that the award did not correspond to the actual harm suffered by Venture and that the latter had not even attempted to show actual harm. The First Circuit explained that:

“when a plaintiff cannot prove actual damages attributable to the infringer’s misconduct (eg, specific instances of lost sales), its recovery of an equitable share of the infringer’s profits serves, inter alia, as a ‘rough measure’ of the likely harm that the mark owner incurred because of the infringement.”

In this case, the district court’s assessment was without fault in this regard.

Second, McGills argued that the amount awarded by the district court did not correspond to the amount of money that it had made on sales of tapes and foils, the only products sold by Venture. Again, the First Circuit concluded that the district court had been correct and that McGills’s complaint about the basis for the award was misplaced. Under the Lanham Act, the burden of proving a profit award first rests with the plaintiff: the plaintiff must show that there is direct competition. Upon such a showing, the burden shifts to the defendant infringer “to show the limits of the direct competition”. In this case, Venture met its burden by proving McGills’s sales. In contrast, McGill failed to meet its burden of establishing that some of those sales were “unrelated to and unaided by McGills’s illicit use of Venture’s marks”.

Finally, McGills attempted to argue that the attorneys' fee award was inappropriate. The First Circuit confirmed that in view of the fact that McGills’s infringement was wilful, it was within the discretion of the trial court to find the case “exceptional” and to award attorneys' fees to the prevailing plaintiff.

Tim Kelly, Fitzpatrick Cella Harper & Scinto, New York

Metatag use leads to award of profits and attorneys' fees

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