IP Legal Lounge

Court Issues Declaratory Judgment In Finding That The Word "Max" Is Not By Itself Protectable As A Trademark

In a fairly straightforward case, the Northern District of Illinois granted Declaratory Judgment under 28 USC 2201(a) to plaintiff Amerimax Real Estate Partners in a trademark dispute with Re/Max International, Inc.  Plaintiff is a real estate broker and has two Illinois state trademark registrations for the marks "Amerimax Real Estate Partners" and "Amerimax."  Re/Max is in the business of franchising real estate brokerage offices, and is the owner of U.S. trademark registrations for the marks "Re/Max" and "ReMax," as well as various designs containing these marks.  Re/Max authorizes thousands of franchisees and independent contractors to use its marks in connection with real estate brokerage services throughout the United States and other countries.

Plaintiff alleges that Re/Max contacted it in 2005 to claim exclusive rights in the word "Max," and to assert that plaintiff's use of its own marks infringed on Re/Max's rights.  Plaintiff, thus, filed an action for Declaratory Judgment seeking a declaration that (1) the word "Max" is generic or descriptive, (2) Re/Max has no exclusive rights to that word, and (3) plaintiff is not infringing.  Plaintiff also sought an injunction prohibiting Re/Max from attempting to preclude its use of "Max" through litigation or other means.  In response, Re/Max filed a counterclaim alleging trademark infringement and unfair competition.

The Declaratory Judgment Act allows a U.S. district court to "declare the rights and other legal relations of any interested party" in a case of actual controversy.  In other words, as the Court puts it, the Act allows "a party who is reasonably at legal risk because of an unresolved dispute, to obtain judicial resolution of that dispute without having to await the commencement of legal action by the other side."  It is therefore necessary to determine whether an actual case or controversy exists.  As applied to trademark suits within the Seventh Circuit, the courts use a two-pronged test: (1) whether the defendant's conduct has created a real or reasonable apprehension of liability on the part of the plaintiff (the party seeking declaratory relief), and (2) whether the plaintiff has engaged in a course of conduct bringing it into an adversarial conflict with the defendant.

The Court determined without much trouble that an actual case or controversy existed in this matter as Re/Max had contacted plaintiff in order to assert its exclusive rights in its marks and had subsequently filed a trademark infringement counterclaim against plaintiff.  The Court then considered the threshold issue of whether the word "Max," as used in the parties' trademarks, is by itself a protectable trademark.  The Court concluded that it was not protectable for the following reasons.  First, many companies use "Max" as a prefix or suffix with their names, trademarks, products, or services.  The Court included a laundry list of such marks (e.g. Office Max, Car Max, Max Real Estate Network, etc.).  Next, the Court stated that "Max" is commonly used as an abbreviation for the word "maximum," and, as such, "is therefore ubiquitous in both commerce and ordinary language."  Finally, the Court referred to Re/Max's own admission that in 1996 it had filed two U.S. trademark applications for the term "/Max," and that both of these applications were refused registration and were subsequently abandoned (NOTE: While the Court does not specify the reason for the refusals to register and the USPTO's TDR system does not contain any documents pertaining to the prosecution history of these two applications, I presume that the refusals were based on descriptiveness).  The Court therefore held that (1) "Max" is a generic or common descriptive word, (2) Re/Max does not have any exclusive rights to that word, and (3) plaintiff does not infringe on Re/Max's mark.  However, the Court refused to grant injunctive relief to plaintiff as it determined that little danger existed that Re/Max's challenged conduct would continue due to the issuance of the Declaratory Judgment.

Amerimax Real Estate Partners, Inc. v. Re/Max Intnl., Inc., (Slip Op.) 2006 WL 2794934 (N.D. Ill., Sept. 26, 2006).

A Closer Look At The "Trademark Dilution Revision Act of 2006"

A number of people have already blogged about the Trademark Dilution Revision Act ("TDRA") that both Houses of Congress recently passed, and that President Bush is expected to sign into law within the next couple of weeks.  I figured a closer look is warranted.

As an initial note, anti-dilution statutes protect the owner of a famous mark from uses that dilute or lessen the mark's unique and distinctive character, regardless of whether or not there is a "likelihood of confusion" - normally the linchpin of trademark infringement law.  This means that a famous mark will be protected, and dilution will be found, even if a similar mark is used to identify the source of completely unrelated goods or services.  Such laws bestow safeguards upon the owner of a famous mark more akin to property rights than to traditional trademark rights, and ensure that the owner's considerable financial and other investments in the strong, well-known mark will be protected.

The TDRA is Congress's response to the U.S. Supreme Court's 2003 Moseley v. V Secret Catalogue, Inc. decision in which the Court held that the Federal Trademark Dilution Act required proof of actual dilution.  Up until then, the various Federal Circuit Courts (and many states) had been split as to whether there should be proof of actual dilution or likelihood of dilution.  The TDRA expressly allows for injunctive relief and other damages (in the case of willful actions) "against another person who, at any time after the owner's mark has become famous, commences use of a mark or trade name in commerce that is likely to cause dilution by blurring  or dilution by tarnishment of the famous mark."  (Emph. added).  Hence, the new standard is likelihood of dilution.  Blurring is the erosion of distinctiveness caused when another party trades on the public's recognition of the famous mark by using it to identify the source of unrelated goods and services.  Dilution by tarnishment, on the other hand, is defined as the harm caused to the reputation of a famous mark through an unsavory or unpleasant association that brings the famous mark into disrepute (e.g. use of a famous mark by a pornographic website).

Additionally, by defining a famous mark as one that is "widely recognized by the general consuming public of the United States as a designation of source of the goods or services," the TDRA essentially does away with the idea of "niche market" fame.  This concept, which refers to marks that are famous only in a certain geographic area or among a specific group of consumers, is no longer viable under the revised Act.  However, in a move that most trademark practitioners would probably consider to be appropriate, Congress preserved and clarified the exclusions already in existence in the current dilution statute (Section 43(c)), namely, (1) fair use - including descriptive use of the famous mark, use in comparative advertising, and use in parodies, social criticism or social commentary upon the owner of, or goods/services associated with, the famous mark; (2) all forms of news reporting and news commentary; and (3) any noncommercial use of a mark.  Such uses of a famous mark are not actionable as dilution under the TDRA.

It has been a long road, and many parties have been involved in making this legislation a reality.  Let's just hope that it leads to more or less consistent case law from hereon out.

Summary Judgment Granted In Part And Denied In Part In Unusual Cybersquatting Case

The popular apparel and home products company, Lands' End, Inc., brought a case in the U.S. District Court for the Western District of Wisconsin concerning matters of typosquatting.  Lands' End's allegations against the defendants included violations of the Anticybersquatting Consumer Protection Act ("ACPA") and false advertising under Section 1125(a) of the Lanham Act.  The defendants brought a motion for summary judgment, which the court granted in part and denied in part.

Defendants participated in an affiliate program in which they were able to link to Lands' End's website, and when a consumer purchased products from Lands' End by connecting to www.landsend.com from the defendants' site, the defendants received a 5% commission on the purchase.  However, although they were required to disclose information regarding all of the sites they proposed to link to Lands' End's website, the defendants did not do so.  In fact, they devised an intricate scheme in which they registered numerous similar domains such as www.lnadsend.com, www.landsende.com, and www.landsennd.com.  When a customer attempted to access the official Lands' End website but accidentally typed the name of one of defendants' websites into a web browser, the browser would appear to take the customer directly to the Lands' End website.  In reality, the browser would link the customer "invisibly" to defendants' authorized affiliate websites.  Thus, the defendants would receive a 5% commission on any purchases made by the unsuspecting consumer.

ACPA Claim

In order to succeed on its ACPA claim, Lands' End must prove that (1) "Lands' End" is a distinctive or famous mark entitled to protection (this was easy as defendants conceded that "Lands' End" was a registered trademark); (2) defendants' domain names are "identical or confusingly similar to" Lands' End's mark (once again, this was easy to show since the defendants' domain names deviated from Lands' End's by only one letter in the majority of cases); and (3) defendants registered the domain names with the bad faith intent to profit from them.  15 U.S.C. 1125(d).

The court noted that this was not a typical cybersquatting situation in which someone registers a well-known mark as a domain name and then attempts to sell that domain name to the rightful owner - a kind of extortion scheme.  However, while the defendants argued that, because their typosquatting scheme directed traffic to Lands' End's website rather than away from it, they did not act with bad faith, the court determined that they, nonetheless, intended to profit from their ownership of illicit domain names.  The court analyzed each of the nine bad faith factors set forth in Section 1125(d)(1)(B)(i), and came to the conclusion that the defendants' conduct satisfied a number of them (e.g. defendants never used their infringing domain names as trademarks, and have no intellectual property rights in them).  Hence, the district court denied defendants' summary judgment motion with respect to the ACPA claim, and left the question of bad faith for determination by the finder of fact.

False Advertising Claim

To prove false advertising under Section 1125(a) of the Lanham Act, Lands' End must show that defendants

(1) made a false or misleading statement, (2) that deceived or was likely to deceive a substantial segment of the audience to whom defendants advertised, (3) on a subject material to the consumer's decision to purchase the advertised goods, (4) touting goods entering interstate commerce, (5) and that resulted in actual or probable injury to plaintiff.

On its face, this claim fails since the defendants never made any actual "statements" to the consumers who simply accessed their domain names by accident, and because they never "advertised" to anyone.  In fact, as the court aptly notes, "defendants profited from their typosquatting scheme . . . by not publicizing their venture."  Hence, the district court granted the defendants' summary judgment motion based on the false advertising claim.

Lands' End, Inc. v. Remy, et al., 2006 WL 2521321 (W.D. Wis., Sept. 1, 2006).

Employers Beware: Broadly Worded Non-Compete/Non-Solicitation Clauses May Invalidate Such Provisions

Because non-solicitation agreements are restrictive covenants in restraint of trade, they are disfavored by law.  This is the case in many states, including Illinois and Wisconsin.  The U.S. District Court for the Eastern District of Wisconsin took up this issue when plaintiff, SYSCO Food Services of Eastern Wisconsin, LLC ("SYSCO") sued its former employees who had signed identical employment agreements.  The agreements provided, in pertinent part, that for a period of twelve months following termination or cessation of their employment, defendants would be restrained from directly or indirectly engaging in any of the following activities with respect to any product or service sold by SYSCO or similar to or competitive with a product or service sold by SYSCO:

In any area, solicit, sell to, or contact with a view to selling any such product or service, any person, firm, or company from whom [defendants] solicited any order or to whom [defendants] sold any product or service or otherwise dealt with on behalf of [SYSCO] at any time during the year preceding termination or cessation of [defendants'] employment with [SYSCO].

According to the allegations in SYSCO's complaint, after the defendants started working for one of its competitors, they contacted each other's former SYSCO customer accounts in an "account swapping" scheme.  SYSCO considered this to be violative of the above-referenced non-solicitation clause.  SYSCO filed a motion for preliminary injunction while the defendants filed a motion to dismiss.

Citing from prior authority, the district court first determined that for a covenant not to compete to be valid in Wisconsin it must: "(1) be necessary for the protection of the employer or principal; (2) provide a reasonable time restriction; (3) provide a reasonable territorial limit; (4) not be harsh or oppressive to the employee; and (5) not be contrary to public policy."  The court then proceeded to dissect the non-solicitation covenant, applying the five factors above.

First, the phrase "[i]n any area" at the beginning of the covenant appears to imply any geographic area.  While the lack of a territorial limitation does not by itself automatically invalidate an otherwise narrowly tailored restrictive covenant, it nonetheless factors against a finding of validity.  Secondly, the non-solicitation covenant prohibits conduct not only with SYSCO's customers, but also with anyone with whom the defendants attempted to do business on behalf of SYSCO, i.e. from whom they solicited an order, whether or not such persons actually became customers.  Finally, the non-solicitation covenant includes a catch-all provision that prohibits the defendants from soliciting, selling to, or contacting with a view to selling any product or service to a party with whom the defendants "otherwise dealt with on behalf of [SYSCO]."

The district court, acknowledging that restrictive covenants must be liberally construed in favor of employees, held that, on its face, the language in the covenant violated all but the "reasonable time restriction" requirement.  The language served not to protect SYSCO's legitimate business interests, but rather to prohibit ordinary competition and to unnecessarily restrict the defendants' employment opportunities.  The court, therefore, denied SYSCO's motion for preliminary injunction and dismissed all of the counts in SYSCO's complaint that depended on the enforceability of the non-solicitation covenant.

Comment: As an employer, one must make certain that employee agreements are narrowly tailored as necessary to protect a legitimate business interest of the employer, but not unnecessarily restrictive of the employee's future business opportunities.  It is always best to seek counsel in drafting such documents.

SYSCO Food Services of Eastern Wisconsin, LLC v. Ziccarelli, 2006 WL 2465955 (E.D. Wis., Aug. 28, 2006).

Successful Use Of The Lanham Act Against An Importer Of Gray Market Goods

The Seventh Circuit Court of Appeals recently considered a "gray market" goods case involving the importation (or reimportation) of cigarettes.  "Gray market" cigarettes include those that are manufactured in the United States, exported to another country, and then reimported into the U.S., or cigarettes that are manufactured outside the U.S. under the U.S. company's trademark and which are intended for sale in foreign markets, but which are, nonetheless, imported into the U.S.

R.J. Reynolds ("RJR"), which sells Camel, Winston, Salem, and Doral brand cigarettes, sued the retail chain operator Cigarettes Cheaper! ("CC") under the Lanham Act for importing its cigarettes intended for sale overseas.  CC argued that there was no violation of the Lanham Act since the trademarks were genuine, applied either by RJR itself or by one of its licensees.  Before the trademark claim went to a jury, the district court judge determined that if material differences exist between products designated for domestic and foreign markets, then the sale of the reimported product under the same trademark that consumers associate with the domestic product could be confusing and in violation of the Lanham Act.  This determination ran counter to CC's argument that the Lanham Act always permits the use in the United States of trademarks affixed by the owner.  Hence, the issue before the jury was whether or not the domestic and foreign cigarettes were "materially different."  The jury determined that they were different and awarded $4 million in damages to RJR.  CC appealed.

The Seventh Circuit held that while the "Lanham Act does not block the reimportation and sale of genuine articles under their real trademarks . . . this principle does not apply if the domestic and foreign products are materially different."  The reason for this exception is that in such a situation there is a potential to mislead or confuse consumers about the nature or quality of the product.  Consumers will assume that it is the exact same product as normally available domestically, but this is not the case.  The Seventh Circuit agreed with the various rulings of the district court judge pertaining to discovery, introduction of evidence, and jury instructions, and affirmed the decision in favor of RJR.

R.J. Reynolds Tobacco Company v. Cigarettes Cheaper!, 2006 WL 2441674 (7th Cir., Aug. 24, 2006).

Arbitration Clause At Issue In A Copyright Infringement Suit

Beidleman, a photographer, entered into a limited license agreement with a textbook publisher for the reproduction of his photograph of Mt. Everest in 40,000 textbooks.  The agreement included a typical arbitration clause stating that any disputes in connection with the agreement would be settled by arbitration in New York City.  After printing the contemplated textbooks, the publisher allegedly proceeded to produce in excess of 1,000,000 more copies without Beidleman's consent.  Not surprisingly, Beidleman filed suit alleging copyright infringement.

After both parties moved for a stay of the proceedings, Beidleman stated that he would not agree to arbitration of the matter.  The publisher, thus, filed a motion for an extension of the stay, and informed the court that it would seek to compel arbitration by filing an action in the U.S. District Court for the Southern District of New York.

In granting the publisher's motion, the court cited to the Federal Arbitration Act ("FAA") and various cases that held arbitration to be a favored means of dispute resolution.  Contractual language pertaining to arbitration must be liberally construed by the courts, with any doubt being resolved in favor of arbitration.  Whether or not a certain claim is arbitrable is founded on principles of contract interpretation since an arbitration clause is simply a type of contract provision.

Beidleman's opposition to the motion was comprised primarily of two arguments.  Besides arguing that the copyright claim is outside the scope of the arbitration clause, he also asserted that the limited license expired when the publisher reproduced the 40,000 copies authorized by Beidleman.  Therefore, the reasoning goes, the arbitration clause should not apply to any additional copies made after the agreement allegedly expired.  I don't know if this latter argument will be successful, but kudos to Beidleman for some creative lawyering.

The court held that Beidleman's arguments addressed both the scope of the arbitration clause and whether the licensing agreement expired, thus, nullifying the arbitration provision.  "Questions concerning the scope of an arbitration should be decided in favor of arbitration."  The court, therefore, granted the stay of all proceedings pending a determination by the U.S. District Court for the Southern District of New York as to whether or not it should compel arbitration.

Beidleman v.Littell, 2006 WL 2425321 (N.D. Ill., Aug. 21, 2006).

Seventh Circuit Uses Technology To Provide Case Information

As posted by Denise Howell at Bag and Baggage, the Seventh Circuit Court of Appeals is now doing podcasts, and offering subscriptions to its oral arguments and opinions via RSS feed.  Two cheers to the Seventh Circuit for its foray into the sometimes murky realm of judicial technology.

Trademark Registration Written Materials From Half-Moon Seminar

On July 27, 2006, I participated in a trademark seminar held at the Hyatt Regency Chicago.  My presentation related to the U.S. trademark registration process.  I am attaching a bare-bones outline of my materials for those curious about this topic.  While the attached information may prove useful, especially for those with minimal knowledge about trademarks, please be advised that these materials are not posted as a form of legal advice.  The trademark registration process is complicated and full of potential pitfalls.  It is, therefore, usually beneficial to consult with a knowledgeable intellectual property attorney prior to filing a trademark application.

Now that I am done with my babbling, enjoy. Download U.S. Trademark Registration written materials.pdf

Employer Suing Its Former Employee Under Computer Fraud And Abuse Act May Be Required To Advance The Litigation Expenses Of The Former Employee

The Seventh Circuit Court of Appeals recently considered an ancillary, yet interesting issue relating to a suit based on the Computer Fraud and Abuse Act.  A former employer, International Airport Centers ("IAC") had sued its former employee, Jacob Citrin, alleging that the employee had breached his fiduciary duties to IAC when he deleted certain company data from the laptop lent to him for work use by IAC.  The district court dismissed IAC's suit for failure to state a claim and on appeal the Seventh Circuit reversed and remanded the case to the district court.

Citrin subsequently filed suit in Delaware state court for advancement of money for attorneys' fees and expenses he had incurred defending himself against IAC's suit.  Apparently, Citrin's employment contract required IAC to pay his expenses of defending any suit based on acts performed in connection with the company's business "in advance of the final disposition of such action."  If, however, Citrin is found to have breached his fiduciary duty to IAC, there will be no indemnification and he will thus have to repay any money advanced to him by the company.  Since IAC is chartered in Delaware, it concedes that Delaware law governs.  Nonetheless, IAC asked the district court to enjoin him from proceeding in the Delaware suit based on a theory that the suit was a collateral attack on the Seventh Circuit's ruling that IAC has stated a claim against Citrin under the federal Computer Fraud and Abuse Act.  The district court denied the preliminary injunction motion, and IAC appealed.

In affirming the district court's ruling, the Seventh Circuit held that Citrin is simply requesting an advancement of his litigation expenses in accordance with his employment contract, and his entitlement to such advancement is independent of the merits of the suit for which the money is sought.  In other words, the claim for advancement is not a compulsory counterclaim to the underlying suit as it does not arise out of that litigation, but rather out of the employment contract.  The Court did raise a slight concern that in filing his suit in Delaware, Citrin may have been "forum shopping," as Delaware not only permits advancement clauses but encourages them.  While Citrin could have brought his advancement suit in the Northern District of Illinois without the need for separate litigation, the court, nevertheless, concluded that Delaware was also an appropriate forum as its state law governed the matter.

Comment: Maybe I am missing something since I do not specialize in employment law matters, I have not seen the employment contract provision at issue in this case, and I am not familiar with the facts in the underlying suit.  I can understand a clause that requires the employer to indemnify the employee named as a defendant in a suit brought by a third party.  However, I find it odd that an advancement clause would not contain an exception for those cases in which the employer itself was suing its former employee based on acts performed or breaches made in connection with the employer's business.

International Airport Centers, L.L.C., et al. v. Citrin, 2006 WL 2060425 (7th Cir., July 25, 2006).

Lack Of Action By Former Employer For Three Years May Suffice To Invalidate Covenant Not To Compete

In a very fact-sensitive case, the Court of Appeals of Indiana affirmed the trial court's judgment that defendant Weigel did not breach an employment agreement's non-solicitation and non-compete clauses.  The defendant was trained to perform dent removal work for automobile dealerships, individuals, and others, and signed an agreement - as a contractor - with a third party agreeing not to solicit his employer's clients and not to compete with his employer in a limited geographic area for a period of two years after termination of the agreement.

A number of years later, defendant wrote to his employer terminating the agreement and arguing that the existing contract was void.  He immediately began servicing on his own the same customers for whom he had provided services while working for his former employer.  The trial court reasoned that the employer had not offered the defendant any marketing or additional experience in the paintless process for a few years, the employer had not provided him with any clients for the last few years of the employment relationship, the employer never entered into any other contracts with subsequent contractors and/or employees in an attempt to continue the paintless dent removal business after the defendant terminated his relationship with the employer, and the employer never made a demand upon the defendant to perform the obligations of the agreement during the period of the two years that the covenants were in effect.

More than three years after the defendant's termination letter, plaintiff brought the breach of contract action against him (pursuant to a bankruptcy settlement, the plaintiff acquired the defendant's agreement and sought injunctive relief and damages against defendant).  The trial court determined that plaintiff had no interest sufficient to permit enforcement of the restrictive covenants based on the above factors.  The court reasoned that the employer "cannot stand idly by for three years and then assert a claim for the disgorgement of all [the defendant's] profits."  In essence, the employer had acquiesced to the defendant's conduct. 

Since covenants not to compete are in restraint of trade, they are not favored by the law.  They will be enforced only if reasonably necessary to protect a legitimate interest of the employer, not unreasonably restrictive on the employee, and not against public policy.  In affirming the lower court's judgment, the Court of Appeals held that the employer, and thus the plaintiff as assignee of the employment agreement, could not assert a claim for damages after it did nothing for three years after the alleged breach and essentially ceased all operations when the defendant terminated the agreement.  There was no ongoing business, no good will to protect, and, thus, no damages as a result of defendant's actions.

Press-A-Dent, Inc. v. Weigel, 2006 WL 1716866 (Ind. App., June 21, 2006).