IP Legal Lounge

INTA Annual Meeting In Full Swing

This weekend marks the beginning of the 129th Annual Meeting of the International Trademark Association.  My hometown of Chicago is pleased and privileged to host this year's meeting.  Welcome to everyone in attendance, and I hope that you enjoy your stay in the Windy City.

As an aside, Meet the Bloggers III will take place on Monday, April 30th starting at 7:30 p.m. at the Billy Goat Tavern, 430 N. Michigan Avenue.  More information can be found at The TTABlog.  I plan to attend and hope to see you there.

Seventh Circuit Finds Particular Expression Of Farting Plush Doll Protected By Copyright And Other Party's Copying Of Numerous Features Is Thus Copyright Infringement

We've all seen it on Beavis & Butt-Head, South Park, or The Simpsons.  Some of us even participated in the childish prank in our more juvenile days.  Yet how many of us ever thought that the phrase "pull my finger" would one day become the topic of a United States Court of Appeals case?  This is precisely what happened when a manufacturer of a farting plush doll took issue with another company's production of a similar looking doll.  As the Seventh Circuit eloquently put it, "Somewhat to our surprise, it turns out that there is a niche market for farting dolls, and it is quite lucrative."

The facts are as follows.  Plaintiff Tekky Toys sells a whole line of farting dolls.  Around 1999 it finished a doll that it named "Pull My Finger Fred."  This was a white, middle-aged, overweight male with black hair and a receding hairline, who wore blue pants and a tank top.  He had an extended finger on his right hand that, when squeezed, created a farting sound.  Fred also made crude, funny statements, such as "Did somebody step on a duck?" or "Silent but deadly."  The copyright in Fred was registered in February 2001.  In early 2001, the president of defendant, Novelty, Inc. spotted a Fred doll in Hong Kong and subsequently described Fred to Novelty's art director who prepared a drawing based on the description.  This doll became known as Fartman, and was released in November 2001.  When Tekky learned of Fartman in 2002, it filed suit.

The trial court ruled for Tekky on summary judgment as to the issue of liability, finding that Novelty had infringed its copyright.  A jury subsequently found for Tekky on various other claims and awarded damages in the amount of $116,000 for the copyright infringement claim.  The court also granted Tekky's attorneys' fees petition in the amount of $575,099.82.  Novelty appealed.

With respect to the copyright claim, the Seventh Circuit Court of Appeals disagreed with Novelty's contention that the lower court protected too much of Tekky's doll - not only the expression of the toy but the idea of a farting doll itself.  The Court found that the two dolls were substantially similar, since the combination of numerous features on both dolls would lead an objective observer to believe they were the same.  Novelty's argument that its doll was simply based on the "idea" of "a typical man wearing jeans and a T-shirt in a chair doing the 'pull my finger' joke" did not impress the Court.  The various features that Tekky combined to create Fred were the expression of that idea, and were thus protected.  As the Court pointed out, Novelty could have created a plush doll of a middle-aged farting man (the idea) that looked nothing like Fred and did not include elements common to both dolls.  The Court, thus, affirmed the district court's summary judgment ruling for Tekky on the issue of copyright infringement liability.

The Seventh Circuit ended up affirming the district court's ruling on all grounds, including trademark infringement and attorneys' fees, and the opinion, found here, is worth reading.

JCW Investments, Inc. v. Novelty, Inc., 2007 WL 817673 (7th Cir., March 20, 2007).

Beanie Babies Trademark Infringement Case Found To Be "Exceptional" For Purpose Of Attorney Fees Award

Ty, Inc., creator of the popular "Beanie Babies" plush toys, prevailed on a trademark infringement and unfair competition claim against two defendants, and moved for attorneys' fees based on the contention that this was an "exceptional case."  The Lanham Act provides that the "court in exceptional cases may award reasonable attorney fees to the prevailing party."  The general rule is that each party to a trademark infringement suit is responsible for its own fees.  However, fee-shifting is appropriate in certain "exceptional cases."

While the statute does not define the term "exceptional case," the Seventh Circuit has held that this includes acts of infringement characterized as malicious, fraudulent, deliberate, or willful.  There needs to be, at least, a finding of willful infringement in order for the exceptional case doctrine to apply.  Willfulness may be found if the infringer knows that its conduct is infringing upon another's rights or if the infringer has acted in reckless disregard to the trademark owner's rights, i.e. suspecting wrongdoing and deliberately failing to investigate (also known as "willful blindness").

The Court found that the defendants' infringement was indeed willful and this case was, thus, exceptional.  It based this finding on the fact that the defendants admitted to modeling their product after the Beanie Babies knowing of the success and reputation of Ty's marks.  Defendants also used hang tags similar to the hang tags on the Beanie Babies products to market their similar product.  They further proceeded without the advice of counsel even after receiving a likelihood of confusion refusal from the U.S. Patent & Trademark Office to register a similar mark, as well as receiving a cease and desist letter from Ty.  The Court, thus, granted Ty's motion for attorney's fees.

Ty, Inc. v. Softbelly's, Inc., et al., (Slip Op.) 2007 WL 734394 (N.D. Ill., March 6, 2007).

Court Holds That Misappropriation And Unfair Competition Claims Are Not Preempted By The Copyright Act

Section 301 of the Copyright Act governs all legal claims that "are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106" and "come within the subject matter of copyright as specified by sections 102 and 103."  In other words, the Act preempts equivalent common law claims or rights under state statutes.

Plaintiffs Dow Jones & Co., Inc. ("Dow"), McGraw-Hill Companies, Inc.("McGraw-Hill"), and Chicago Board Options Exchange, Inc. ("CBOE") filed a three-count complaint in the Circuit Court of Cook County, Illinois against defendants International Securities Exchange, LLC ("ISE"), an electronic securities exchange that offers options trading, and Options Clearing Corp. ("OCC"), the sole clearing agency for standardized securities options in the United States.  Plaintiffs alleged misappropriation, tortious interference with prospective economic advantage, and unfair competition relating to ISE's announcement that it intended to commence unauthorized options trading on DJIA and S & P 500 options in direct competition with the licensed options offered by plaintiff CBOE.  Defendant ISE did not have licenses from either Plaintiff Dow or McGraw-Hill to offer these options since plaintiff CBOE holds the exclusive right to offer options on the S & P 500 Index and the DJIA in the United States. 

The defendants removed the suit to federal court, claiming that the misappropriation count and the unfair competition count were completely preempted by Section 301 of the Copyright Act.  Plaintiffs filed a motion to remand the action back to state court arguing that each of their three claims arises exclusively under state law.  The District Court for the Northern District of Illinois looked not only to the Copyright Act itself, but to the statute's legislative history which states unequivocally that "[s]tate law causes of action such as those for misappropriation [and] unfair competition . . . are not . . . preempted under Section 301."  The Court analyzed the matter further by asking whether plaintiffs' specific claims satisfied the Copyright Act's two requirements for preemption noted in the first paragraph above, and determined that they did not.

Plaintiffs' misappropriation and unfair competition claims were not based on defendants' threatened use of the published index values as "works of authorship" as that term is defined in Sections 102 and 103.  Instead, the Court determined that plaintiffs' claims were based on defendants' intended use of plaintiffs' research and development in creating the indexes as well as the goodwill and reputation associated with plaintiffs and their indexes.  The Court also determined that the second preemption requirement was not met as the rights plaintiffs sought to protect did not fall within Section 106.  Although the defendants argued that plaintiffs' claims were based on defendants' intended copying and distribution of factual information, the Court found that plaintiffs were not concerned with defendants' intended copying of the index values, but of their use of unlicensed material for profit.  Since the Court concluded that the misappropriation and unfair competition claims did not meet the preemption requirements of the Copyright Act, the District Court had no jurisdiction over the matter and, therefore, remanded the case to the Circuit Court of Cook County.

Chicago Board Options Exchange, Inc., et al. v. Intnl. Securities Exchange, LLC, et al., (Slip Op.) 2007 WL 604984 (N.D. Ill., Feb. 23, 2007).

Seventh Circuit Affirms Summary Judgment For Trademark Defendant Based On Lack Of Secondary Meaning For Plaintiff's Mark

Plaintiff Custom Vehicles ("Custom") sells a type of van under the name "Work-N-Play" that can be converted from a mobile office to a camper, and vice versa.  Custom sued defendant Forest River for trademark infringement and, having lost on summary judgment, appealed the decision to the Court of Appeals for the Seventh Circuit.

Custom (actually, the original applicant was J.T. Custom Works, Inc., who assigned the mark to Custom) filed an intent-to-use trademark application in 2000 for WORK-N-PLAY for use with "vehicle conversion services."  The mark proceeded through examination, and was finally registered in September 2002.  While Custom claimed a first use date of September 2000, the Court notes that such sale did not occur under the mark WORK-N-PLAY.  In fact, the record apparently shows that Custom did not actually make bona fide sales until 2004, when it sold six vans (as proof of use in commerce, Custom apparently submitted a flyer advertising the vehicle conversion services, but I was unable to pull up this document via the USPTO's electronic docket retrieval system).

In 2002, Defendant, which was a much larger company than Custom, started selling a van with a ramp door at the back and space inside for a repair shop so that one could transport and repair a motorcycle or snowmobile without the need to take it to a repair shop.  Defendant called this product "Work and Play," and by 2004 its annual sales had exceeded $10 million.  Both Custom and defendant promoted their respective products at recreational-vehicle trade shows (in other words, the channels of trade were similar and this could potentially lead to consumer confusion).

In its discussion, the Court maintained that Custom's mark WORK-N-PLAY is a descriptive mark in that it describes a characteristic of the goods or services in question (i.e. the van's owner could "work out of it through the week" and "play out of it on the weekends").  The Court pointed out that trademark owners are generally not permitted to appropriate a descriptive mark because this would impair competition (Note: although it is true that merely descriptive marks cannot be registered on the Principal Register without a showing of acquired distinctiveness or secondary meaning, such marks may, nonetheless, be registrable on the Supplemental Register as long as they are already in use and are capable of distinguishing the applicant's goods or services, i.e. they are not generic designations).  So until and unless Custom's mark WORK-N-PLAY achieved secondary meaning - by becoming uniquely associated with the plaintiff as identifying the source of the vehicle conversion services, and not solely as a descriptive designation for them - the Court stated that it could not be legally protected as a trademark.  Since, due to insufficient sales, Custom could not demonstrate secondary meaning for the descriptive mark, the Court held that no basis existed for presuming that consumers would be confused into thinking that defendant's "Work and Play" van had been produced by Custom.  The Court, therefore, affirmed the lower court's summary judgment ruling in favor of defendant, Forest River, Inc.

Comment: It is interesting to note that Custom's WORK-N-PLAY trademark was registered on the Principal Register (see Download Work-N-Play.pdf), which has a dual significance.  First, although Custom filed its application based on intent-to-use in 2000, shouldn't the application date have constituted constructive use of the mark once that application matured into a registration in 2002?  If so, and since this constructive use date preceded defendant's first use of its mark, Custom's registration should have afforded it nationwide priority over defendant.  The second important aspect is that registration on the Principal Register essentially serves as a presumption that the mark is inherently distinctive, and, therefore, not merely descriptive.  I have not reviewed the summary judgment briefs or any other underlying court filings in this case (including the District Court's summary judgment ruling), but I would be interested to know what others think about this.  Perhaps there is a simple and legitimate answer to my musings.  Any comments would be appreciated.

Custom Vehicles, Inc. v. Forest River, Inc., 2007 WL 401571 (7th Cir., Feb. 7, 2007).

Appellate Court Reverses Grant Of Preliminary Injunction In Favor Of Employer

In a fairly straightforward analysis, the Court of Appeals of Indiana reversed the trial court's grant of a preliminary injunction in favor of a former employer due to its finding that the underlying non-competition clause was unenforceable.  The defendant/appellant in this case worked at plaintiff/appellee Dow Agrosciences, LLC ("DAS") as a district sales manager in its crop protection business, and signed an employee agreement that included a non-competition provision.  As part of this provision, he agreed that for a period of two years from the date of termination of his employment he would not "engage in or contribute [his] knowledge to any work or activity involving an area of technology or business that is then competitive with a technology or business with respect to which [he] had access to Confidential Information during the five years immediately prior to such termination."  He also agreed that during such two year period he would not interfere with or disrupt the business relationship carried on by DAS with any of its customers.  The non-compete clause did include a provision that would allow him to use his valuable knowledge for any work or activity if he furnished to DAS "clear and convincing written evidence, including assurances from [him] and [his] new employer, that the fulfillment of [his] duties in such proposed work or activity would not inevitably cause [him] to disclose, base judgments upon, or use any Confidential Information."

Defendant/appellant continued to work for DAS in a variety of positions for a period of a few years and had access to confidential information.  He then received an offer from Pioneer, a competitor of DAS.  Defendant/appellant apprised Pioneer of the possible issues involved, and Pioneer made him an offer contingent upon his obtaining written consent from DAS per the terms of the non-competition provision.  Although defendant/appellant spoke to various people at DAS and sent them correspondence explaining how his DAS job differs from the potential opportunity with Pioneer, DAS declined to provide the required consent.  Notwithstanding, and after meeting with his personal attorney, defendant/appellant decided to accept the Pioneer offer and Pioneer apparently agreed to cover his reasonable legal expenses in the event that DAS sued.  Roughly ten days after he started working at Pioneer, DAS filed a complaint and motion for preliminary injunction.

Although the trial court granted the preliminary injunction, the Court of Appeals reversed.  A grant or denial of a preliminary injunction by the court involves an analysis of various factors which include: (1) the adequacy of the remedies at law and whether the plaintiff would be caused irreparable harm in the event the injunction does not issue, (2) whether the plaintiff demonstrates a reasonable likelihood of success at trial, (3) whether the injury to the plaintiff outweighs the threatened harm of an injunction to the defendant, and (4) the public interest. 

In the appeal, plaintiff/appellant argued that the non-compete provision is void due to a lack of geographic limitation or customer-specific restriction.  The Court began its analysis by stating the general rule that "[a]greements involving covenants not to compete are in restraint of trade and are not favored in the law."  They should, therefore, only be enforced if the restraint (1) is reasonably necessary to protect a legitimate interest of the employer, (2) is not unreasonably restrictive of the employee, and (3) is not against public policy.

In evaluating the legitimate employer interest element, the Court agreed with the trial court that defendant/appellant possessed confidential and highly confidential information in a variety of areas, and that DAS had a legitimate interest in protecting such highly confidential information.  The Court of Appeals, thus, concluded that the trial court did not abuse its discretion (the standard of review in such cases) as it pertains to the first prong of the reasonableness test.

As for the scope of the restriction and its reasonableness as to defendant/appellant, the Court began its analysis by stating that this means reasonableness "in terms of time, geography, and types of activity prohibited."  Since courts routinely find two-year non-competition durations as being reasonable, defendant/appellant did not challenge the time limitation imposed by the non-compete provision.  He did, however, take issue with the lack of geographic limitation or any customer-specific restriction in the non-compete clause.  The Court analyzed the language of the provision and determined that even if defendant/appellant did not possess confidential information in certain areas, simply having "access to" such information would be enough to trigger the non-competition clause.  Additionally, the preclusion from interfering or disrupting DAS's business relations with "any" of its customers without a distinction between past, present, or future customers is quite broad (see above excerpts from the non-compete clause, specifically, the blue wording).  The Court also noted that defendant/appellant's resignation letter included written assurances, pursuant to the "consent" exception in the agreement, as well as specific examples relating to his ability to fulfill his new duties at Pioneer without disclosing or using any confidential information that he obtained at DAS.  Apparently, Pioneer offered similar assurances to DAS that defendant/appellant's new position would not violate the non-competition clause, but DAS was not convinced.  The Court seems to believe that such assurances should have sufficed, but for "the breadth of the non-competition clause," and DAS's belief that the clause was applicable to virtually the the entire world.

In so determining, the Court briefly analyzed the public policy prong of the reasonableness test in general terms.  It stated that the best interest of the public is for persons not to be "unnecessarily restricted in their freedom [to] contract."  As it relates to the instant matter, the Court stated that DAS effectively prevented defendant/appellant "from carrying on his calling.  This it cannot do."  The Court of Appeals, therefore, held that while DAS's interest was legitimate, the restraint imposed by the non-compete provision was overly broad in scope and against public policy, thereby making it unreasonable.  Hence, it reversed the grant of the preliminary injunction for DAS.

Glenn v. Dow Agrosciences, LLC, 2007 WL 286582 (Ind. App., Feb. 2, 2007).

Intellectual Property Law Association of Chicago (IPLAC), Internet Law Committee Meeting Announcement

As Vice-Chair of the Intellectual Property Law Association of Chicago's (IPLAC) Internet Law committee, I have been busy planning our mid-season seminar.  The seminar, entitled "Data Privacy and the Internet," will take place on January 24, 2007 at DePaul University College of Law, and the speaker will be Katherine Strandburg, Associate Professor of Law.  Please click on the attached flyer for more information.  I hope you can join us.

Download 12407_iplac_internet_committee_depaul_luncheon_flyer_final.pdf

Motions To Strike Portions Of Briefs Not Allowed In Seventh Circuit Appellate Practice

If your practice includes appellate work in the Seventh Circuit, DO NOT FILE a Motion to Strike portions of the opposing party's brief.  In a short, published opinion, Judge Easterbrook of the Seventh Circuit Court of Appeals took issue with a motion to strike portions of the appellee's brief filed by the appellant in a trademark suit.  The appellant, in essence, was requesting the Court to redact portions of the appellee's brief that it deemed contained unsupported assertions or errors.  Judge Easterbrook appropriately pointed out that the proper procedure for such claim of errors is by way of a reply brief, "not to ask a judge to serve as editor."

Apparently, although motions to strike portions of briefs are not authorized by the appellate rules (and are not granted by the judges), they are filed all the time.  Thus, Judge Easterbrook held as follows:

The court has ample power to change the length of a brief from the presumptive maximum. . . I have decided to use that power.  My practice has not led to a discernible reduction in the number of these motions, however, perhaps because I have not explained it in a published opinion.  Now notice has been given--and I have decided to raise the stakes and deduct from the brief double the number of words in a motion to edit an opponent's brief or any other equivalently absurd, time-wasting motion.

Since the appellant's motion to strike contained approximately 1,200 words, the maximum length of the reply brief was shortened from 7,000 words to 4,600 words.

Custom Vehicles, Inc. v. Forest River, Inc., 2006 WL 2714690 (7th Cir., Sept. 25, 2006).

Doctrine Of Laches, Statutes Of Limitations, And Trademarks

The U.S. District Court for the Northern District of Illinois denied a defendant's Fed.R.Civ.P. 12(b)(6) motion to dismiss a three-count complaint alleging (1) trademark infringement under Section 43(a) of the Lanham Act (actually an unfair competition claim), (2) infringement under the Illinois Trademark Registration and Protection Act, and (3) deceptive trade practices under the Uniform Deceptive Trade Practices Act (UDTPA).  Plaintiff alleged that it had used the mark "Superior Dent" since November, 2000, and had registered the mark "Superior Paintless Dent Removal" in Illinois in April, 2001.  Plaintiff further alleged that it became aware of defendant's use of "Superior Dental Removal" in January, 2001, and wrote a cease & desist letter as well as commenced negotiations with defendant regarding use of the parties' trademarks at that time.  As an aside, I never realized the intellectual property rights at stake in the automobile dent removal area (see my prior post found here).

After the initial communications during the first few months of 2001, the plaintiff's complaint did not allege any further contacts with defendant regarding this matter until March, 2005, when plaintiff's attorney wrote another cease & desist letter.  The defendant, therefore, argued that the Section 43(a) claim was barred by the doctrine of laches and that the Illinois Trademark and UDTPA claims were barred by the applicable statutes of limitations.

The Lanham Act (U.S. Trademark Act) does not include a statute of limitations.  Instead, courts use the equitable doctrine of laches to determine whether a trademark infringement claim is untimely.  Laches is actually an affirmative defense that the defendant must plead in its response to the complaint.  The elements of laches are: (1) plaintiff knew of the allegedly infringing use by defendant, (2) plaintiff's delay in taking any action was inexcusable, and (3) defendant would be unduly prejudiced if plaintiff is allowed to assert its rights.  The Court determined that these elements are not clearly present on the face of the complaint.  While plaintiff alleged knowledge of defendant's allegedly infringing use as early as 2001, the complaint did not demonstrate that the delay in bringing the instant suit was inexcusable or that the defendant would be prejudiced by allowing the claim to be brought now.

With respect to plaintiff's claim under the Illinois Trademark Act, the Court reasoned that, similar to the federal Lanham Act, the Illinois Trademark Act does not have a statute of limitations.  While it does provide that Lanham Act construction should be given persuasive authority in interpreting the Illinois Trademark Act, the Court pointed out that the Lanham Act itself does not contain a statute of limitations.  Hence, the Court denied defendant's motion to dismiss count 2.

Finally, defendant argued that plaintiff's UDTPA claim should fail due to the expiration of the applicable statute of limitations.  The Court, once again, asserted that the UDTPA does not set forth a statute of limitations.  While the defendant might possibly have a legitimate doctrine of laches defense, the Court maintained that such a defense cannot be resolved at this stage of the litigation.  Bottom line: it is very difficult to get a case dismissed under Rule 12(b)(6) based on laches unless the factual assertions in the plaintiff's complaint show inexcusable delay and prejudicial conduct.  Such an affirmative defense is more likely to be successful on a motion for summary judgment after discovery has been concluded.

Superior Paintless Dent Removal, Inc. v. Superior Dent Removal, Inc., 2006 WL 2821545 (N.D. Ill., Sept. 29, 2006).

President Bush Signs Trademark Dilution Revision Act of 2006

On Friday, October 6, 2006, President Bush signed into law the "Trademark Dilution Revision Act of 2006."  See the White House news release here, and my take on the Act in a recent post here.