IP Legal Lounge

Warning: Ignoring A Complaint For Trademark Infringement And Counterfeiting May Be Hazardous To Your Health

When plaintiff filed an action alleging trademark infringement and counterfeiting in violation of the Lanham Act, defendant apparently did not think much of it since it failed to respond.  Fed.R.Civ.P. 55(a) requires the clerk to enter default  when a defendant fails to appear and the plaintiff files either an affidavit to that effect or an application for entry of default.  The rule states that in such an instance "the clerk shall enter the party's default." (Emph. added).  This is exactly what happened in the case of Conn-Selmer, Inc. v. Apex Industries, Inc., and the U.S. District Court for the Eastern District of Wisconsin now considers plaintiff's motion for default judgment.

In its complaint, plaintiff claimed ownership of the federally registered trademark NORMANDY for clarinets and NORMANDY & Design for various wind instruments.  Plaintiff further alleged that defendant imported musical instruments, including clarinets, from China and India under the name NORMANDY, and then sold them through various Internet sites such as eBay.com.  Defendant made such use of the marks without plaintiff's consent, and the Court, taking the well-plead allegations as true, did not hesitate in finding the defendant liable for trademark infringement and counterfeiting.  The Court thus turned to the issue of damages.

As an initial matter, let's take a quick look at the pertinent counterfeiting statutes.  Section 45 of the Lanham Act defines a "counterfeit" as "a spurious mark which is identical with, or substantially indistinguishable from, a registered mark."  Section 34(d)(1)(B) defines a "counterfeit mark" as follows:

[A] counterfeit of a mark that is registered on the principal register in the United States Patent and Trademark Office for such goods or services sold, offered for sale, or distributed and that is in use, whether or not the person against whom relief is sought knew such mark was so registered. 

One thing is clear, plaintiff's marks were registered on the Principal Register in the USPTO, and plaintiff can thus make the counterfeiting claim.  Under Section 35(a), a plaintiff who has established its case for counterfeiting is eligible to recover the defendant's profits, any damages sustained by plaintiff, and the costs of the action, and, treble damages shall be awarded (unless extenuating circumstances exist) if the defendant intentionally used the mark, knowing it was a counterfeit mark (see Section 35(b)).  Alternatively, Section 35(c) allows the plaintiff to elect to recover statutory damages in the amount of $500 to $100,000 per counterfeit mark per type of goods or services sold, or, if the court finds that the use of the counterfeit mark was willful, up to $1,000,000 (Note: the statutory award is not multiplied by the number of counterfeit items sold or offered for sale - e.g. whether only one clarinet or 1,000 clarinets were sold under the NORMANDY mark, plaintiff is still eligible for a single award of statutory damages). 

When deciding on an award of statutory damages under the Lanham Act, courts usually look to the body of case law dealing with the similar provision in the Copyright Act since the trademark statute provides limited guidance as to the proper determination of an award.  This is exactly what the Court did in this case.  The Court listed a number of factors that may be considered, such as profits earned by the defendant, revenues lost by the plaintiff, the deterrent effect on others, whether the conduct was innocent or willful, and the potential for discouraging the defendant.  The plaintiff in this case sought statutory damages in the amount of $500,000, claiming that defendant's use of the NORMANDY mark for clarinets was willful.  After analyzing the relevant factors, the Court agreed.  The Court concluded that based on defendant's default and the allegations of the complaint, defendant's conduct was willful, thus making plaintiff eligible for the increased award of statutory damages.

Finally, plaintiff requested permanent injunctive relief under Section 34(a).  The court granted the injunction, apparently in the exact wording sought by plaintiff.  This included the broad provision restraining the defendant "from unfairly competing with [plaintiff] in any manner whatsoever."  The Court thus granted plaintiff's motion for default judgment in its entirety. 

So what is the moral of today's story you ask?  If you get sued, answer the complaint!  This is especially important when so much is at stake such as in a counterfeiting case. 

Comment: While discussing the recoverable damages, the Court stated that "[w]hen a court awards damages under § 1117(a) [another name for Section 35(a) and includes damages for trademark infringement, unfair competition and cybersquatting], the court must also enter judgment for three times the amount of profits or damages, whichever is greater..." (Emph. added).  However, as I read it, the plain language of Section 35(b) says that this is only so in the case of a violation of Section 32(1)(a) "that consists of intentionally using a mark or designation, knowing such mark or designation is a counterfeit mark.  Minor details; I know. 

Conn-Selmer, Inc. v. Apex Industries, Inc., (Slip Op.) 2006 WL 752895 (E.D. Wis., March 20, 2006).

George Brett Scores Again As Court Denies Leo Stoller And Company's Motion To Alter Or Amend Judgment

Those in the trademark community have probably heard of Central Mfg. Co, Stealth Industries, Inc., and Leo Stoller.  Those three parties brought an action against Hall of Famer George Brett (formerly of the Kansas City Royals) and his company, Brett Brothers Sports, for trademark infringement and unfair competition under state and federal law based on use of the mark STEALTH for "baseball, softball, t-ball bats."  Summary Judgment motions were filed by both sides and the District Court for the Northern District of Illinois issued an opinion granting judgment to Brett on all claims, cancelling plaintiffs' trademark registration and awarding attorney's fees and costs to Brett.  See John Welch's prior post at The TTABlog for a more complete summary of that Court opinion.

Plaintiffs subsequently filed a "motion for reconsideration" arguing that (1) the Court erred in finding that plaintiffs had abandoned their use of the mark and cancelling the mark, (2) Brett had not established any trademark rights in STEALTH, and (3) the Court committed "clear error and abuse of discretion" when it found plaintiffs' suit to be exceptional, thus awarding attorney's fees to Brett.

The Court first raised a technical issue stating that a "motion for reconsideration does not exist as such under the Federal Rules of Civil Procedure."  Instead, the Court treated the motion as one seeking to alter or amend a judgment under Fed.R.Civ.P. 59(e).  A court may grant such a motion in three circumstances: (1) newly discovered evidence; (2) an intervening change in the law; or (3) the judgment reflects a manifest error in the law.  Plaintiffs alleged the third circumstance in their motion.  However, as the Court pointed out, "situations [of manifest error] rarely occur . . . and the motion to reconsider should likewise be rare."

The Court quickly dismissed plaintiffs' first assertion of error, reiterating that since the record showed that Brett was the senior user of the STEALTH mark on baseball bats, cancellation of plaintiffs' mark was proper.  As to plaintiffs' contention that Brett had not established trademark rights in STEALTH, the Court stated that numerous declarations and authenticated documents show that Brett's use of the mark was widely recognized by the public, while plaintiffs' products were unknown.  Finally, the Court discussed the award of attorney's fees and costs to Brett under both Section 35 of the Lanham Act and the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFDBPA"), 815 ILCS 505/10a(c).  The ICFDBPA gives a court broad discretion by allowing it to grant "reasonable attorney's fees and costs to the prevailing party."  Section 35 of the Lanham Act is much narrower, requiring a finding of an "exceptional" case before a court can issue an award of attorney fees.  A case is considered "exceptional" when it is "so lacking in merit and so burdensome to defend against that it could fairly be described as oppressive."  The Court cited a laundry-list of factors that lead it to conclude that this case was "exceptional."  For example, plaintiffs included a claim for trademark infringement in their complaint at a time when they owned no registration for the mark (see my "comment" regarding this issue here).  In addition, plaintiffs failed to respond to numerous discovery requests until Brett filed a motion to compel, they gave inconsistent and contradictory testimony, and failed to produce evidence of even one sale.  The court therefore affirmed the award of attorney's fees and costs and denied plaintiffs' Rule 59(e) motion to alter or amend the judgment.

Comment: I am curious how long it normally takes the USPTO to update its records after a federal court cancels a registration.  According to the TARR system, plaintiffs' STEALTH mark is still registered although the District Court cancelled it back on September 30, 2005.

Central Mfg. Co. v. Brett, (Slip Op.) 2006 WL 681058 (N.D. Ill., March 15, 2006).

Wrestling, Trademarks, And Injunctions

Court Sets Aside Injunction Based On Material Mistake That Caused Defendant To Settle.

There is no question that professional wrestling has become part of American mainstream entertainment, especially when entities in this arena start filing lawsuits for protection of their intellectual property.  Plaintiff, Patterson, filed an action in the Eastern District of Wisconsin for unfair competition and trademark infringement against defendant, TNA Entertainment, LLC.  Plaintiff alleged that he had adopted various marks for use in connection with professional wrestling, including World Wrestling Association, W.W.A. Superstars, Superstars of Wrestling, and other variations of these marks.  He further alleged that defendant had infringed on his right to use those marks.

The parties participated in a mediation which resulted in a settlement of the case.  Defendant, after much hesitation, agreed that the injunction would include use of the term "Superstars" due to plaintiff's representation that he had already successfully prevented another competitor from using this term.  Approximately one month later, the defendant filed a "Motion for Relief from Judgment, to Rescind Settlement Agreement, Vacate Injunction, Reinstate Action and for Sanctions."  Defendant claimed that the settlement had been procured by fraud and, as such, the judgment should be vacated pursuant to Fed.R.Civ.P. 60(b).

During settlement discussions, plaintiff represented that he had successfully petitioned to cancel a federal trademark registration owned by another competitor, Titan Sports, Inc. d/b/a The World Wrestling Federation, for the mark "WWF Superstars."  Although defendant was originally unwilling to agree to the inclusion of "Superstars" in the injunction, it changed its mind based on plaintiff's representations of prior success in preventing another competitor from using this term.  When defendant obtained a copy of the relevant documents from the U.S. Patent and Trademark Office ("USPTO"), it became apparent that this trademark registration was not canceled due to plaintiff's petition, but rather upon the petition of Titan Sports, Inc.  In other words, the trademark owner canceled its own mark.  The USPTO records do show that the cancellation proceeding by plaintiff was dismissed and, subsequently, the "WWF Superstars" mark was surrendered under Section 7 of the Trademark Act.  Paragraph (e) of that section says, "Upon application of the registrant the Director may permit any registration to be surrendered for cancellation, and upon cancellation appropriate entry shall be made in the records of the Patent and Trademark Office."  Thus, plaintiff's representations to defendant in the instant litigation were false.

Although the Court found such representations to be false, it did not go as far as to say that they were fraudulent for purposes of setting aside the judgment under Fed.R.Civ.P. 60(b)(3).  Nonetheless, since Rule 60(b)(1) states that a judgment may be set aside based on "mistake, inadvertence, surprise, or excusable neglect," the Court granted defendant's motion to set aside the injunction.  The Court found that the mistake in this case was material to defendant's decision to enter into the settlement agreement.  However, since this mistake did not rise to the level of fraudulent misrepresentation, the Court denied defendant's motion for attorney's fees and costs.

Patterson v. TNA Entertainment, LLC, (Slip Op.) 2006 WL 587696 (E.D. Wis., March 10, 2006).

Licensee Has The Duty To Stop Using Trademarks Once Licensing Agreement Ends

In a fairly straightforward opinion, the Northern District of Illinois held that when a licensing agreement is terminated and the contracts are silent with respect to removal of licensed trademarks, such duty belongs to the licensee.

Plaintiff, Super Wash, provides car washing services and equipment across the United States under its "Super Wash" mark, and owns several federal trademark registrations on the Principal Register.  Plaintiff granted a non-exclusive license to defendant, Sterling, to use the marks in the operation of a car wash in Indiana.  The agreement specified that defendant could not install brushes for customer use without plaintiff's consent.  Defendant, nonetheless, did just that, and plaintiff subsequently instructed defendant to cease using its marks.  Defendant eventually removed all of the signs except the exterior one, which remained on display until after plaintiff filed the lawsuit.  Among other things, plaintiff sued for trademark infringement under Section 32 of the Lanham Act and unfair competition under Section 43(a).  Pending before the Court were defendant's summary judgment motion as well as plaintiff's cross-motion.

The Court concluded that none of the contractual provisions of the agreement relied upon by the parties addressed the circumstances under which the parties could end their relationship, and who would be responsible to remove the marks in the event of termination.  Nevertheless, since the license agreement did not specify any particular duration or provide that it was terminable only for cause, the Court determined that the agreement was thus terminable at the will of either party for any reason.  The Court found that the licensing agreement was terminated based on various actions by both parties.  In such a situation, and where the licensing agreement is otherwise silent, the duty to remove the licensed trademarks belongs to the licensee.  "As a general matter of trademark law, a licensee cannot continue to use a trademark after the license agreement is terminated."  Continued use constitutes trademark infringement.  The Court therefore found defendant liable for trademark infringement and unfair competition.

Interestingly, plaintiff requested treble damages and attorney's fees in its summary judgment motion based on an allegation of willful infringement.  The Court declined to rule on this since such a ruling would be premature considering plaintiff has not yet established that it is entitled to any damages.  The light at the end of the tunnel for the defendant may be the Court's statement at the end of the opinion that it knew "of no reason why [plaintiff] did not have a duty to mitigate its damages" which could have been limited to the expense of removing the sign (according to defendant, it invited plaintiff to remove the exterior sign upon termination of the license agreement).

Super Wash, Inc. v. Sterling, (Slip Op.) 2006 WL 533362 (N.D. Ill., March 2, 2006).

Seventh Circuit's Take On The Meaning Of "Transmission" Under The Computer Fraud And Abuse Act

Evan Brown at InternetCases.com has a nice summary of a recent Seventh Circuit decision concluding that a "transmission" under the Computer Fraud and Abuse Act may include not only the downloading of information from the Internet, but also the loading of software from a disk.  You can find Evan's entire post here.

Marketing Guru Sues For Trademark Infringement And Cybersquatting Based On Defendant's Alleged Use Of His Name On The Internet

Many of you are probably familiar with Kevin Trudeau.  He is a widely-published author and has appeared in numerous infomercials.  Trudeau filed suit in the Northern District of Illinois against defendant, Lanoue, for trademark infringement, cybersquatting, and related claims stemming from Lanoue's alleged use of the domain names "trudeau.com" and "kevintrudeau.com" to sell various products without Trudeau's permission.  Defendant asserted various counterclaims.  Both parties filed summary judgment motions and Trudeau also filed a motion to strike a portion of Defendant's reply brief.

Plaintiff's Motion to Strike

The Court first took up a fairly technical matter relating to summary judgment motions.  A party may not introduce new arguments in a reply brief not previously mentioned in its memorandum in support of summary judgment.  Defendant did not contest the strength and protectability of Trudeau's trademark in his original summary judgment filing.  However, he sought to introduce this argument in a reply brief.  The Court concluded that this was improper since such an action would deny Trudeau an adequate opportunity to respond.  The Court thus granted Trudeau's motion to strike this section of defendant's reply brief.

Trademark and Related Claims

Defendant raised three main arguments in his summary judgment motion relating to the trademark claims: (1) Trudeau authorized him to use the trademarks, (2) no likelihood of confusion exists, and (3) he is protected from liability by the first-sale doctrine.

Defendant argued that he was impliedly authorized to sell the products using Trudeau's name and image due to the fact that the two have known each other for ten years and had a business relationship for the same length of time.  Although Trudeau admitted knowing about defendant's use of the domain name trudeau.com for over five years prior to making any kind of complaint about such use, the Court decided that this was not sufficient to allow an inference of implied authorization (more on acquiescence below).  The Court concluded that such an inference must be left to the trier of fact. 

As for the likelihood of confusion argument, defendant claimed that no confusion existed since Trudeau relied on distributors to sell products to consumers and defendant was such a distributor.  The Court rejected that argument under an infringement analysis.  Even if defendant's allegations were true, he was still required not to confuse the public by implying an affiliation or association with Trudeau during a time in which defendant was not an authorized distributor.  Due to various factual allegations by Trudeau, the Court concluded that the likelihood of confusion issue would need to be decided by the trier of fact.

Finally, defendant argued protection based on the first-sale doctrine which confers protection from Lanham Act claims to a purchaser who does no more than stock, display, and resell a trademarked product.  However, since Trudeau denied that defendant was an authorized distributor of his products, the Court decided that it could not find as a matter of law that defendant was protected under the first-sale doctrine.  Hence, it denied defendant's summary judgment motion on the trademark claims.

As for defendant's related claims, the Court concluded that, in Illinois, claims under the Consumer Fraud and Deceptive Business Practices Act, the Uniform Deceptive Trade Practices Act, and common law unfair competition must be resolved according to Lanham Act principles.  Therefore, summary judgment as to these counts was also denied.

Cybersquatting Claim

Trudeau also filed a claim under the Anti-Cybersquatting Protection Act (ACPA), codified at 15 U.S.C. 1125(d), claiming that defendant had a bad faith intent to profit from the mark.  Defendant argued that he should prevail on this claim as a matter of law, but the Court put great weight on the commercial aspect of defendant's websites, and defendant's lack of evidence as to bona fide non-commercial uses of Trudeau's name.  The Court also mentioned the fact that defendant had previously attempted to register "trudeau.com" and "kevintrudeau.com" as federal trademarks and such applications were rejected.  The Court, thus, surmised that this should have provided some notice to defendant that he does not have legitimate rights to use such marks.  Since bad faith intent is a fact sensitive issue, the Court denied defendant's summary judgment motion as to the cybersquatting claim. [Note: I reviewed the USPTO records with respect to these two trademark applications.  They both received Office Actions for various reasons, but one requirement the Examining Attorney made in both was that defendant clarify whether the name in the mark identifies a living individual.  If so, that individual's consent would need to be obtained and entered as part of the examination record.  We can only surmise that defendant did not believe he could obtain Trudeau's consent since defendant never responded to these Office Actions and the marks were subsequently abandoned.]

Trudeau's Summary Judgment Motion

After analyzing and denying defendant's final two summary judgment arguments based on Trudeau's cyberpiracy and publicity claims, the Court next turned to Trudeau's motion for summary judgment.  The only point here worth mentioning pertains to defendant's counterclaim of acquiescence.  In granting summary judgment for Trudeau, the Court correctly held that acquiescence should be pled as an affirmative defense to a trademark claim, not as a counterclaim.  Does this mean that defendant will not be able to use this defense (assuming he did not plead acquiescence as an affirmative defense), or will the Court allow such an amendment to the pleadings at this point in the litigation?

All in all, this was a victory for Trudeau.  It will be interesting to see if this case ever makes it to trial, or, more likely, settles in the upcoming weeks/months.

Comment: In analyzing Trudeau's trademark infringement claim, the Court refers to 15 U.S.C. 1125.  This section of the Lanham Act, also known as Section 43, deals primarily with false advertising, unfair competition, dilution and, of course, cybersquatting.  However, straight trademark infringement claims based on a plaintiff's ownership of a federal registration should be analyzed under Section 32 of the Lanham Act.  Since, according to USPTO records, Trudeau did not possess any federal registrations for TRUDEAU-formative marks, is it a misnomer to label this claim as "trademark infringement"?

Trudeau v. Lanoue, (Slip. Op.) 2006 WL 516579 (N.D. Ill., March 2, 2006)

Independent Contractor May Still Be Liable For Misappropriation Of Trade Secrets

Defendant, Bartell, worked part-time for approximately seven years as an independent contractor for a manufacturer of automobile and truck transmission testing equipment ("plaintiff").  He never signed a restrictive covenant or a confidentiality agreement.  When Bartell left to begin a competing business, plaintiff filed suit under Wisconsin's Uniform Trade Secrets Act.  The lower court granted summary judgment for Bartell, and plaintiff appealed.

The Seventh Circuit Court of Appeals decided that as an independent contractor, Bartell presumptively owned his work product, and plaintiff failed to offer into evidence any proof that the knowledge Bartell gained during his years working at the company belonged to plaintiff.  However, with respect to any information developed by plaintiff, the issue becomes whether Bartell, as the recipient of the information, knew or should have known that it is a trade secret and that the disclosure by plaintiff to him was made in confidence.  Hence, Bartell did not acquire rights to plaintiff's trade secrets just because he used the information it supplied to him in the performance of his duties.  The Court of Appeals discerned that a reasonable jury could find that Bartell knew plaintiff treated at least some of this data as its trade secrets.  Furthermore, there was still a question as to whether Bartell disclosed or used plaintiff's confidential information improperly.  The Seventh Circuit, therefore, vacated the judgment and remanded the case for further proceedings.

Hicklin Engineering, L.C. v. Bartell, 2006 WL 399165 (7th Cir., February 22, 2006).

Notice Pleading And Preemption Under The Illinois Trade Secrets Act

In a case with multiple parties and a convoluted fact-pattern pending in the Northern District of Illinois, the Court discussed the trade secrets claim and its bearing on other claims in plaintiffs' First Amended Complaint.

Defendant Providential Bancorp, Ltd. ("PBL") filed a Motion to Dismiss numerous counts pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6), including the count based on the Illinois Trade Secrets Act ("ITSA"). This claim revolved around proprietary software created by one of the plaintiffs for use by the defendants. In its motion , PBL argued that the Court should apply the heightened pleading requirements found in Rule 9(b) to the trade secrets count (and other counts) since plaintiffs' entire complaint was "grounded in fraud." The Court rejected this argument, holding that allegations of non-fraudulent conduct, such as the trade secrets claim, simply need to meet the liberal notice pleading standard of Rule 8(a).

To state a claim for relief under the ITSA, 765 ILCS 1065/1 et seq., a plaintiff need only allege that the (1) information at issue was a trade secret, (2) defendant misappropriated it, and (3) used it in defendant's business. The Court found that plaintiffs' allegations met this standard under the liberal pleading requirements of Rule 8(a)(2).

The Court, however, dismissed plaintiffs' conversion count based on preemption under the ITSA. Although it found that plaintiffs' allegations were sufficient under notice pleading standards, the Court ruled that the ITSA preempts other laws providing civil remedies for the misappropriation of trade secrets (with an exception for breach of contract claims). See 765 ILCS 1065/8. Since it found that plaintiffs' conversion claim rested solely on defendants' alleged misappropriation of the software product, the Court dismissed this count with prejudice.

Systems America, Inc., et al. v. Providential Bancorp, Ltd., et al., 2006 WL 463314 (N.D. Ill., February 24, 2006).