US Supreme Court renews interest in the Lanham Act

In 2014 two Supreme Court opinions decided who can bring a claim for false advertising. However, it was also an important year for the First Amendment in trademark cases

The headline trademark news from 2014 was the Supreme Court’s renewed interest in the Lanham Act, with two opinions on who can bring a claim for false advertising. In non-patent cases, the Supreme Court has also influenced Lanham Act holdings, clarifying the determination of ‘exceptional’ for attorneys’ fees purposes and narrowing general jurisdiction over foreign entities. Most relevant for the day-to-day work of trademark practitioners, though, is the continued steep decline in courts’ willingness to presume irreparable harm in trademark infringement cases. In addition, the First Amendment remained an unavoidable presence this past year.

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The opinion in Lexmark confirmed that consumers still cannot bring false advertising claims, even where their businesses is acting as a purchaser

Determining who can bring a claim

The Supreme Court issued two decisions clarifying who can sue for false advertising under Section 43(a), 15 USC §1125(a), allowing the plaintiff to proceed in each case, with Lexmark, decided in March 2014, beginning the court’s burst of Lanham Act decision making. Lexmark advised its customers that it was illegal for them to use Static Control’s refilled ink cartridges in Lexmark printers. Static Control reacted by filing suit for false advertising. The court allowed the suit to be brought, holding that a plaintiff need not be a competitor of the defendant in order to have standing to sue for false advertising. Rather, the plaintiff need only be within the zone of interests of the statute in order to plead “injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations” (Lexmark Int’l, Inc v Static Control Components, Inc, 134 S Ct 1377 (2014)). The opinion confirmed that consumers still cannot bring false advertising claims, even where their business is acting as a purchaser.

The court’s ruling eliminates a confusing three-way circuit split, rejecting a multi-factor balancing test, the vague ‘reasonable interest’ standard and a categorical requirement for a showing of competitive injury. Since Lexmark, courts have been asking whether certain claims constitute injuries to commercial interests. Accusations of patent infringement against a business selling related products are more perilous now than before Lexmark, but other claims may also be covered. In one case, for example, plaintiffs providing taxi dispatch services did not directly compete with defendant Uber, a mobile app that connects passengers with drivers. Nevertheless, the court found standing under Lexmark for a challenge to Uber’s allegedly deceptive advertising on rates, licensing and insurance because the plaintiffs had alleged that the advertising diverted sales from their own services (Yellow Gp LLC v Uber Techs, Inc, 2014 US Dist LEXIS 94093 (ND Ill 2014)).

The Supreme Court decided yet another case in 2014 allowing a false advertising claim to proceed. Despite the fact that a federal agency did not find a certain beverage label objectionable under the Food, Drug and Cosmetics Act, the court found that a private plaintiff could still challenge the label’s contents under the Lanham Act (Pom Wonderful, LLC v Coca-Cola Co, 189 L Ed 2d 141 (2014)). Coca-Cola manufactured and sold a juice blend that consisted mainly of apple and grape juices, though it also included 0.3% pomegranate juice and 0.2% blueberry juice. Despite the minimal amount of those ingredients, the product label featured the words ‘pomegranate’ and ‘blueberry’ prominently. The Food and Drug Administration (FDA) allowed Coca-Cola to use the label, but competitor Pom Wonderful sued under Section 43(a). In holding for Pom Wonderful, the court reasoned that while the FDA has implemented labelling regulations, it lacks the expertise of competitors in the field which know “how consumers rely upon certain sales and marketing strategies”. After Pom Wonderful, an FDA labelling decision does not provide a safe harbour for food and beverage producers, which would be well advised to audit their labelling based on Lanham Act false advertising standards. The court highlighted the more extensive role that the FDA plays in regulating pharmaceuticals, but did not decide whether its holding extended to drug labelling as well.

More flexible attorneys’ fees standard

While its analysis occurred in the context of a patent case, the Supreme Court’s caution in 2014 against the use of strict limits and categories in awarding attorneys’ fees also applies in Lanham Act cases. As an important premise, the patent law attorneys’ fee provision, which the court was reviewing, is identical to the attorneys’ fee provision in federal trademark law: “The court in exceptional cases may award reasonable attorney fees to the prevailing party” (35 USC §285; 15 USC §1117(a)). The court emphasised that courts interpreting this language should follow a “holistic, equitable approach”, considering the totality of the circumstances, rather than “a more rigid and mechanical formulation” (Octane Fitness, LLC v Icon Health & Fitness, Inc, 134 S Ct 1749 (2014)). It rejected a standard in patent cases that required either that there have been “some material inappropriate conduct” or that the litigation have been “brought in subjective bad faith” and be “objectively baseless”. Any hard and fast requirement for a finding of exceptionality – including wilfulness, bad faith, malice or vexatiousness – is no longer valid.

Other courts have now followed Octane Fitness in Lanham Act cases, expanding their prior definitions of ‘exceptional’. For example, the Third Circuit found in a Lanham Act case that Octane Fitness eliminated its previous threshold requirement “that the losing party acted culpably”. Under the new standard in that circuit, a district court could find that a case was exceptional if there is “an unusual discrepancy” in the merits of the parties’ positions or the losing party litigated in an “unreasonable manner” (Fair Wind Sailing, Inc v Dempster, 764 F 3d 303 (3d Cir 2014)). There should now be more leeway for parties to argue on the question of attorneys’ fees, particularly in circuits that have used exacting formulae for determining what constitutes an exceptional case. In Octane Fitness the court also rejected a “clear and convincing” standard of proof in the attorneys’ fees context, which contradicts the standard previously applied by some district courts and courts of appeals.

Presumption of irreparable harm disappearing

Apart from the Supreme Court’s Lanham Act-related activity, the most important decisions for trademark owners are part of a trend that has been chipping away at the presumption of irreparable harm in infringement cases. A decade ago, where a plaintiff in a trademark infringement case seeking injunctive relief showed a likelihood of success on the merits, the court would presume that the irreparable harm factor had been met. It is extremely difficult to quantify the economic consequences of the appearance of an infringer’s product in the marketplace and whether it is likely to cause lasting harm to the plaintiff’s reputation and sales. However, in non-trademark cases in the 2000s, the Supreme Court expressed strong disapproval of categorical rules and presumptions for injunctive relief. Based on that stance, courts are rethinking and generally rejecting the presumption of irreparable harm. In 2014 the Third Circuit joined the Ninth Circuit in ruling that the presumption of irreparable harm has been eliminated in such cases (Ferring Pharms, Inc v Watson Pharms, Inc, 765 F 3d 205 (3d Cir 2014)), and the First, Second and Eleventh Circuits have strongly suggested as much in dicta. District courts that have considered the issue have rejected the presumption almost unanimously. However, many district courts continue to rely on the presumption reflexively, unaware that it might be in doubt.

Despite the gradual disappearance of the presumption, even those courts rejecting it generally find irreparable injury once the party seeking an injunction makes a showing of likelihood of success on its trademark infringement claim. Some courts have explicitly recognised that it will often simply be true that a showing of likelihood of infringement will demonstrate irreparable injury.

Nevertheless, courts rejecting the presumption have sometimes refused to find irreparable harm where:

  • the plaintiff has not shown a likelihood of confusion;
  • the defendant is no longer using the marks at issue;
  • the plaintiff’s statements regarding harm are unsupported, conclusory or speculative; or
  • the plaintiff has delayed in seeking relief.

A few district courts have found that the harms of trademark infringement can be compensated with monetary damages.

Plaintiffs seeking a preliminary injunction in a trademark infringement case should explicitly articulate how the violation causes irreparable injury and explain the inadequacy of monetary damages. The evidence accepted for irreparable harm may be quite similar, if not identical, to evidence supporting a likelihood of success on the merits. Hard evidence of irreparable harm may be difficult to provide at the early stages of litigation, although it may include loss of control over the trademark and product, instances of actual confusion, sale of inferior goods or services by the defendant, lost consumers or lost sales, or threat to goodwill and reputation. Defendants should press the requirement of proof of injury, emphasising the speculation necessarily involved in showing future harm and pointing to any lack of proof of the evidence described above. They should highlight any delay by the plaintiff in enforcing the mark and could also argue that monetary damages would adequately compensate the plaintiff, suggesting how such damages might be calculated in their case.

Finally, the Second Circuit has maintained the presumption in a false advertising case, but appeared to limit its application to cases in which the plaintiff can show that it is likely to succeed in a claim of literal falseness and that the case involves comparative advertising or wilful deception (Merck Eprova AG v Gnosis SpA, 760 F 3d 247 (2d Cir 2014)). However, the case in which the Third Circuit found the presumption gone was a false advertising case (Ferring Pharms, 765 F 3d 205). District courts are also split as to whether the presumption remains in false advertising cases.

Commercial and non-commercial speech

The distinction between commercial and non-commercial speech was key in right of publicity, infringement and false advertising cases in 2014 as courts decided which First Amendment protections apply. In one case, Jewel Food Stores had placed a newspaper ad congratulating basketball superstar Michael Jordan on his induction into the Basketball Hall of Fame. Jordan sued on the basis that the ad violated the Section 43(a) prohibition on false endorsement and his state right of publicity. The Seventh Circuit found the ad to be commercial speech, subject to fewer First Amendment protections, because it promoted the supermarket in addition to saluting Jordan (Jordan v Jewel Food Stores, 743 F 3d 509 (7th Cir 2014)). The court held that commercial speech need not propose a particular transaction; it may include material that does not offer specific goods for sale, but generally promotes brand loyalty.

Statements that take a position in a scientific debate may also be commercial speech when made in the context of advertisements. The Fifth Circuit considered ads stating that a competitor’s product contained significant levels of a certain chemical (Eastman Chem Co v PlastiPure, Inc, 775 F 3d 230 (5th Cir 2014)). Because the defendant made its allegations in a commercial context, the court found that “it is of no moment that the commercial speech in this case concerned a topic of scientific debate”. Such statements can be challenged as false advertising without falling foul of the First Amendment.

Courts have often found that video games are expressive speech, comparing them to movies and television shows. Activision Blizzard, maker of the Call of Duty video games, prevailed in two different cases by asserting its First Amendment rights. In the federal case, the plaintiff owned a registration for an angry monkey design, used on wearable patches popular with the military. Activision used a similar image in Call of Duty: Ghosts as one of 600 virtual patches that players could choose from to adorn their avatars in the game. The court noted that the standard for artistic relevance in cases involving expressive works is simply “above zero” as long as the work is not explicitly misleading as to source, and that Activision met that standard with its use of the patch (Mil-Spec Monkey, Inc v Activision Blizzard, Inc, 2014 US Dist LEXIS 165943 (ND Cal 2014)).

Former Panamanian dictator Manuel Noriega’s right of publicity similarly failed to trump the First Amendment rights of Activision Blizzard, which included a brief depiction of Noriega in its game Call of Duty: Black Ops II. A state court in California found that the video game maker had made a transformative and de minimis use of Noreiga’s likeness in the context of a “complex and multi-faceted game” (Noriega v Activision Blizzard, Inc, No BC-551747 (Cal Super Ct 2014)).

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The Trademark Trial and Appeal Board ordered the cancellation of a number of REDSKINS trademark registrations, in a decision which is currently on appeal before the US District Court for the Eastern District of Virginia

Image: Shutterstock.com/ dean bertoncelj

Constitutionality of Lanham Act, Section 2(a)

Federal courts were involved in 2014 in appeals involving Section 2(a) of the Lanham Act, which bars registration of scandalous and disparaging trademarks (15 USC §1052(a)). First, the Trademark Trial and Appeal Board (TTAB) found that the term REDSKINS was disparaging to a substantial component of Native Americans when registrations of the mark issued, between 1967 and 1990 (Blackhorse v Pro-Football, Inc, 111 USPQ 2d 1080 (TTAB 2014)). It ordered the cancellation of the registrations in a decision which is currently on appeal before the US District Court for the Eastern District of Virginia. The Department of Justice has intervened in the appeal to defend the constitutionality of the Section 2(a) bar. Questioning at oral argument before the Federal Circuit in another case highlighted the panel’s concerns about whether the Section 2(a) bar violates the First Amendment. At issue is the TTAB’s denial of registration of THE SLANTS as disparaging for a musical group (In re Shiao Tam, 108 USPQ 2d 1305 (TTAB 2013)). Evidence showed that the term is an ethnic slur for people of Asian descent and the TTAB also found that consumers of the band’s services would understand the term in its derogatory meaning.

Also in 2014, the Federal Circuit affirmed the TTAB’s refusal to register STOP THE ISLAMISATION OF AMERICA for “understanding and preventing terrorism” (In re Geller, 751 F 3d 1355 (Fed Cir 2014)). The TTAB found the mark disparaging to a substantial number of Muslims in the United States; the court upheld this finding as supported by substantial evidence, but did not discuss the constitutionality issue.

Trademark validity

A common argument in favour of the constitutionality of Section 2(a) is that refusal to register a trademark does not impinge on speech because the owner can continue to use the mark. The argument downplays the benefits bestowed by trademark registration, exemplified by an Eighth Circuit case relying on the presumption of validity (Lovely Skin, Inc v Ishtar Skin Care Prods, LLC, 745 F 3d 877 (8th Cir 2014)). A district court had ordered cancellation of LOVELYSKIN and LOVELYSKIN.COM for skincare products and online retail services, finding that they lacked acquired distinctiveness when registered. The court of appeals reversed, holding that the defendant had failed to overcome the “strong presumption of validity” from registration with vague evidence of third-party use of similar business names and trademarks.

In good news for those using their trademarks as a verb, a district court found that GOOGLE was not generic

In good news for those using their trademarks as a verb, a district court found that GOOGLE was not generic. Two individuals registered 763 domain names that combined the word ‘google’ with names and other terms. After Google, Inc succeeded with a Uniform Domain Name Dispute Resolution Policy complaint, the domain name registrants filed a federal lawsuit seeking cancellation of Google’s federal registrations on the basis of genericness (Elliot v Google, Inc, 2014 US Dist LEXIS 127352 (D Ariz 2014)). They argued that the public understands the verb ‘to google’ as the act of searching the Internet on any search engine. The court first firmly rejected the plaintiffs’ argument that a verb cannot function as a trademark. Further, Google’s consumer surveys showed that the primary significance of GOOGLE is as a brand name and that Google actively enforces its rights in the mark. The court emphasised that Google, Inc should not be penalised for having a famous name adopted by the public “to describe that act of using the class of products or services to which the mark belongs”.

Moving to trade dress, US practitioners are well aware of the Supreme Court’s holding that a utility patent is “strong evidence that the features therein claimed are functional” (TrafFix Devices, Inc v Marketing Displays, Inc, 532 US 23, 29 (2001)). However, the disclosure of a related utility patent does not necessarily mean the end of a trade dress claim. In a case involving the functionality of a pattern on absorbent materials, the Fourth Circuit found that while the plaintiff owned utility patents, they did not cover the pattern that the plaintiff was seeking to protect as trade dress, but rather the process for making the material. Considering functionality, the court asked whether the design at issue affected product quality or was simply ornamental and ultimately held that there was a genuine question of fact as to whether the pattern selected was a matter of aesthetic choice (McAirlaids, Inc v Kimberly-Clark Corp, 756 F 3d 307 (4th Cir 2014)).

Counterfeiting and jurisdiction

In yet another instance of the Supreme Court’s influence over Lanham Act cases from its non-Lanham Act holdings, the Second Circuit reversed a district court’s exercise of general jurisdiction over a non-party foreign bank in a counterfeiting case (Gucci Am, Inc v Bank of China, 768 F 3d 122 (2d Cir 2014)). The court followed the Supreme Court’s recent limitations on general jurisdiction and applied them to relief sought from non-parties (see Daimler AG v Bauman, 134 S Ct 746 (2014)). Under the Second Circuit’s opinion, a non-party foreign bank is not subject to general personal jurisdiction for the purposes of freezing a defendant’s assets, even though it maintains a branch in New York. The district court’s authority to compel the bank instead depends on whether the court has specific jurisdiction over it. Under Daimler, a foreign corporation is subject to general jurisdiction only in its place of incorporation or its principal place of business.

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In New York Pizzeria, the court ultimately (and unsurprisingly) found that a pizza’s flavour was both non-distinctive and functional

Image: shutterstock.com/ Jag_cz

Appeal could cost you

In a cautionary tale, those appealing a decision of the US Patent and Trademark Office (USPTO) to federal district court should be aware that, win or lose, they may have to pay “all expenses of the proceeding” (15 USC §1071(b)(3)). One applicant had to pay the USPTO’s expenses in a civil action reviewing an ex parte TTAB decision, including $35,926 in attorneys’ fees (Shammas v Focarino, 109 USPQ 2d 1320 (ED Va 2014)). An applicant may introduce new evidence if it chooses to appeal via a district court, but it should consider the fact that the appeal may be more expensive than proceeding before the Federal Circuit.

Enforcing taste trademarks

Finally, this last case could come straight from a law school exam. In the area of non-traditional marks, a district court in Texas was asked to decide whether the flavour of the restaurant’s Italian food could serve as a valid trademark (New York Pizzeria, Inc v Syal, 112 USPQ 2d 1610 (SD Tex 2014)). A pizzeria claimed that a former employee was using its recipes and sued for, among other claims, trademark infringement for copying the ‘distinctive flavours’ of its pasta and pizza. The court ultimately (and unsurprisingly) found that the food’s flavour was both non-distinctive and functional.

Anne Gilson LaLonde is the author of Gilson on Trademarks, published by LexisNexis 
[email protected]

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