IP Legal Lounge

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).

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).

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.

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.

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).

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

Trademark Infringement Case Leads, Albeit Indirectly, To A Forty-Year Prison Sentence

Trademark practitioners in Illinois are quite familiar with the case of the World Church of the Creator ("World Church").  In 2000 the World Church was sued for trademark infringement by the TE-TA-MA Truth Foundation--Family of URI, Inc. (the "Foundation") that operated under the name "Church of the Creator."  The district court judge entered summary judgment in favor of the World Church, but the Seventh Circuit reversed and remanded the case with instructions to enter judgment in favor of the Foundation.  That decision can be found here. 

In a related criminal case, the leader of the World Church, Matthew Hale, was convicted in 2004 on two counts of obstructing justice and one count of soliciting a crime of violence in connection with his resistance to the judgment entered in the trademark case and "his involvement in a plot to have the judge murdered."  Mr. Hale appealed.  On May 30, 2006,in a thirty-page per curiam decision found here, the Seventh Circuit affirmed on all counts.