Laches defence splits Ninth Circuit

United States of America
In Internet Specialties West Inc v Milon-DiGiorgio Enterprises Inc (Cases 07-55199 and 07-55087, March 17 2009), the US Court of Appeals for the Ninth Circuit has denied the equitable defence of laches to defendant Milon-DiGiorgio Enterprises Inc (MDE) against Internet Specialties West Inc’s trademark infringement claim. The majority concluded that although Internet Specialties’ six-year delay in bringing an action against MDE was unreasonable, MDE was not prejudiced because it had not spent significant money or time developing brand recognition of the allegedly infringing mark during Internet Specialties’ delay.

Internet Specialties and MDE are internet service providers. Internet Specialties first used the domain name 'ISWest.com' in 1996. Two years later, MDE began use of the domain name 'ISPWest.com'. Internet Specialties discovered MDE’s use of 'ISPWest.com' in late 1998, but took no immediate action because while Internet Specialties offered dial-up and digital subscriber line (DSL) internet access nationwide, MDE offered dial-up access only in Southern California. MDE expanded its services nationwide in 2002 and began offering DSL internet access in 2004. Internet Specialties filed suit for trademark infringement. MDE raised the defence of laches, arguing that its business had grown from 2000 to 13,000 users and that changing domain names would constitute prejudice.

The jury found that infringement had occurred but awarded no damages. The district court judge denied MDE’s laches defence and issued an injunction barring MDE’s use of the mark ISPWEST. MDE appealed.

The Ninth Circuit affirmed, but the panel split. Neither the majority nor the dissent was impressed with Internet Specialties’ argument that MDE’s expansion in 2002 and 2004 constituted a valid reason for delay. The laches period began in 1998 when Internet Specialties first learned of the existence of 'ISPWest.com'. Therefore, under Ninth Circuit law, a presumption of laches applied. However, the laches inquiry also includes consideration of whether prejudice resulted from the delay in bringing suit.

The majority viewed the issue as whether MDE’s claim of prejudice was based on "mere expenditures in promoting the infringed name [...] or [...] on an investment in the mark ISPWEST as the identity of the business in the mind of the public”. The bulk of MDE’s advertising took the form of pay-per-click advertisements - efforts that, in the majority’s opinion, "create[d] little to no brand awareness". Moreover, MDE did not use its mark in these advertisements. MDE’s failure to use its mark in its "most prevalent form of advertising" constrained its ability to create any "public association" between itself and the mark ISPWEST. Accordingly, the majority affirmed the district court’s denial of the laches defence.

The dissent stated that the majority’s determination was a "defiance of circuit precedent", the practical effect of which was to "eviscerate the defence of laches in trademark law". The dissent argued that for purposes of laches, prejudice is established if the party "has continued to build a valuable business around its trademark during the time that the plaintiff delayed the exercise of its legal rights". Based on MDE’s expansion, the dissent found prejudice in requiring MDE’s 13,000 customers to change their email addresses, and the "tens of thousands more" who correspond with those customers. 

The dissent would thus find laches where a defendant continued to build a valuable business around its trademark during the plaintiff’s delay:

"The majority’s evisceration of laches means that a big company can lurk in the tall grass while its little prey gradually fattens itself by dint of great effort and expense. Then, when the small competitor has succeeded, the big company can shake it down for a cut of its hard-won success, or destroy the name under which it innocently did business for years. That is trademark law as protection racket, rather than trademark law as prevention of consumer confusion."

Moving forward, to establish a laches defence, trademark defendants in the Ninth Circuit would be well advised to demonstrate efforts in building brand recognition in, and public association with, the allegedly infringing trademark, and not merely in building their businesses.

Stephen M Schaetzel and Damien C Moore, King & Spalding LLP, Atlanta
 

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