Trademarks / Likelihood of Confusion
In the Third Circuit, All Lapp Factors Must Be
Accounted For
Megan Heller and Paul Devinsky
In a scathing opinion, the U.S. Court of Appeals for the Third Circuit reversed the district court, finding that there was a likelihood of confusion between the marks at issue and that the undisputed facts were sufficient to find trademark infringement as a matter of law. The court also imposed its own likelihood-of-confusion holding (in the first instance). Sabinsa Corp. v. Creative Compounds, LLC, Case No. 08-3255 (3d Cir., July 9, 2010) (Roth, J.) (Ambro, J., concurring).
Sabinsa alleged infringement of the "ForsLean" mark by Creative Compounds, which marketed a product using the mark "Forsthin." Both products are weight management supplements in the "nutraceuticals" (nutritional supplements) field derived from the plant Coleus forskohlii. Sabinsa entered the market as an ingredient supplier for nutraceutical manufacturers with ForsLean in 2000, along with marketing ForsLean directly to the public through pamphlets.
Creative Compounds, which also supplied forskohli to manufacturers, adopted "Forsthin" as a mark in 2004. After Sabinsa sent a cease-and-desist letter, Creative Compounds responded by filing a declaratory judgment action. Creative Compounds conceded that Sabinsa owned the ForsLean mark and that the mark is valid and legally protectable, leaving the likelihood of confusion with its Forsthin mark as the only issue. After the district court ruled for in Creative Compounds favor, Sabinsa appealed.
On appeal, the Third Circuit held that the district court erred in its findings on the Third Circuit Lapp factors, a 10-factor likelihood-of-confusion test in use in the Third Circuit since 1983. The Third Circuit noted that the district court failed to properly set forth and weigh the Lapp factors by analyzing only three of the factors and neglecting much of the evidence presented by Sabinsa. Conceding that a district court may find that certain Lapp factors are inapplicable, the court cautioned that the district court must nevertheless explain that in its decision.
The court noted that although a case in the present circumstances would typically be remanded to reweigh the factors, here the facts were largely undisputed and that application of the correct standard could support only one conclusion.
Applying the factors, the court held that the district court committed clear error when considering the similarity of the marks, the first Lapp factor, by focusing on minute differences rather than the "overall impression." On the second Lapp factor, the strength of the marks, the court held that the district court clearly erred in finding the mark to be highly suggestive. As for the third Lapp factor, purchasers' sophistication, the court held that the district court committed legal error by over-emphasizing the sophistication of the manufacturers purchasing the product, discounting Sabinsa's pamphlets for the public. While some remaining factors weighed in favor of Creative Compounds, the court held that the overall weight of the analysis pointed to likelihood of confusion.
Judge Ambro filed a concurrence, joining the opinion in full, but noting that Sabinsa submitted no survey evidence of actual consumer confusion, the sixth Lapp factor. He further disagreed with the majority's assessment of Sabinsa's target consumer. However, Judge Ambro still believed that the Lapp factors weighed heavily in favor of a finding of likelihood of confusion.
Trademarks / Likelihood of Confusion
Likelihood of Confusion Depends on Evaluation of All
Factors
Melody Wirz
Addressing the issue of likelihood of confusion between "Sensient Flavors" and "SensoryEffects Flavor Company," the U.S. Court of Appeals for the Eighth Circuit upheld the grant of summary judgment in favor of SensoryEffects Flavor, holding that no reasonable jury could find a likelihood of confusion between the marks. Sensient Techs. Corp. et al. v. Sensory Effects Flavor Co. et al., Case No. 09-2686 (8th Cir., July 21, 2010) (Bye, J.) (Colloton, J., concurring-in-part, dissenting-in-part).
Both companies sell flavors through similar trade channels. The defendants' president had a past affiliation with a sister company of plaintiff, Sensient Flavors. In the district court, Sensient Flavors alleged federal trademark infringement and sought temporary relief against consumer confusion. After Sensient Flavors obtained a temporary restraining order, SensoryFlavors—which had a federal trademark registration for SensoryEffects—changed its name to SensoryEffects Flavor Company. Sensient Flavors amended its compliant to add SensoryEffects Flavor Company. After trial, the district court granted summary judgment in favor of defendant, SensoryEffects Flavor Company, on all counts. Sensient Flavors appealed.
The first issue on appeal was whether Sensient Flavors had actually used its mark in commerce to qualify for relief under the Lanham Act. Sensient Flavors argued that the SensoryFlavors mark was used in commerce because the mark was incorporated into customer presentations, a press release, an announcement and a website. The Eighth Circuit rejected this proposition and affirmed summary judgment based on a lack of evidence of any sale or transport of goods bearing the SensoryFlavors mark.
Sensient Flavors also argued that the company name SensoryEffects Flavor Company was likely to cause confusion with the company name Sensient Flavors. The Eighth Circuit rejected this proposition after application of a six-factor test. More particularly, the court found two (of the six) factors weighed in favor of Sensient Flavors: the Sensient Flavors mark was strong, as indicated by the district court; the degree of competition between the products was high, as conceded by the parties. However, the court found that the other four factors weighed in favor of SensoryEffects Flavor Company: the marks were dissimilar, based on the "sight, sound, and meaning" test and the sophistication of customers; SensoryEffects Flavor Company did not intend to pass of its goods as Sensient Flavors goods, because the record did not support intent to confuse customers; Sensient Flavors failed to produce any evidence of actual confusion, because the arguably inadmissible incidents related only to use of SensoryFlavors, and not to use of SensoryEffects Flavor Company; and the likelihood of confusion was diminished based on the conditions of purchase and the degree of care expected of customers because the parties conceded that they were competitors with sophisticated customers. Weighing the factors and uncontested facts, the court concluded that summary judgment was proper because "no reasonable jury could find a likelihood of confusion." The Eighth Circuit discounted, as not relevant, whether the defendant knew of the plaintiff's name at the time it selected its own; a factor that seemed to heavily influence the district court.
Judge Colloton dissented, arguing that because a reasonable jury could find a likelihood of confusion, summary judgment was improper. More particularly, Judge Colloton noted that intent to deceive is proven by circumstantial evidence, which was presented and which could have lead to a reasonable jury to find in favor of Sensient Flavors on that factor; and a reasonable jury might have found initial interest confusion based on phone marketing of the products and "the aural similarity of SENSient Flavors and SENSoryEffects Flavor (with 'Company' as an immaterial add-on)."
Trademarks / Attorneys' Fees
No Attorney's Fees for Defendant Who Did Not Prevail
on the Merits
Jennifer M. Mikulina
Determining that the defendant was not the prevailing party, the U.S. Court of Appeals for the Tenth Circuit reversed a district court's order granting attorneys' fees to a defendant who defeated a motion for preliminary injunction in a counterfeit case. Lorillard Tobacco Company v. Isaac G. Engida d/b/a I and G Liquors, Case Nos. 08-1037, 08-1334 (10th Cir., July 9, 2010) (Holmes, J.).
Lorillard Tobacco filed suit against Isaac Engida, alleging that he was selling counterfeit Newport® cigarettes in violation of the Lanham Act. The district court initially granted Lorillard's requests for a temporary restraining order (TRO) and an ex parte seizure order, but it later dissolved the TRO and denied Lorillard's motion for a preliminary injunction. The 10th Circuit affirmed the district court's denial of the preliminary injunction and denied Lorillard's subsequent petition for rehearing. Lorillard filed a petition for certiorari, but was denied at the Supreme Court. When the case finally returned to the district court, Lorillard filed a notice to dismiss without prejudice before Engida filed his answer. Engida moved for an award of attorneys' fees. The district court awarded Engida fees incurred in defending against Lorillard's "unnecessary and vexatious" appeals. Lorillard appealed.
Under the Lanham Act, a court may award reasonable attorney fees to the prevailing party in exceptional cases. In reversing the district court's fee award, the 10th Circuit held that Engida was not a prevailing party because the district court did not grant him any merits-based relief. Lorillard dismissed the action voluntarily before Engida filed an answer, which does not create a prevailing party because there was no judicially sanctioned change in the legal relationship of the parties. According to the 10th Circuit, the district court's denial of Lorillard's request for a preliminary injunction was not merits-based. Lorillard lost the motion for a preliminary injunction because it failed to carry its burden of proof on the likelihood of irreparable harm and the balance of harms, not because it failed to establish that it was likely to prevail on the merits.
Trademarks / Unfair Competition
General Cigar "Restored" as Rightful Owner of
COHIBA Cigar Mark
Shilpa V. Patel, Ph.D.
The U.S. Court of Appeals for the Second Circuit reversed a lower court holding that plaintiff-appellee, Empresa Cubana Del Tabaco (Cubatabaco) was not entitled to relief from a 2004 judgment dismissing Cubatabaco's claim of unfair competition under New York law in connection with defendant-appellant General Cigar's use of the famous COHIBA cigar mark. The Second Circuit also reversed a previous judgment entered in favor of Cubatabaco that had permanently enjoined General Cigar's use of the mark. Empresa Cubana Del Tabaco v. General Cigar Co. Inc., Case No. 08-5878 (2d Cir., July 14, 2010) (non-precedential)
Cubatabaco is a Cuban state corporation that has claimed, during almost 13 years of litigation, that it should own the U.S. rights to the COHIBA mark. In 2006, it seemed that General Cigar owned the use of the mark COHIBA in the United States after the U.S. Supreme Court refused to hear Cubatabaco's appeal. Subsequently, a New York Court of Appeals decision ruled that while New York's common law of unfair competition did not recognize the famous marks doctrine, a foreign plaintiff may prevail on a claim of unfair competition based on misappropriation, by showing that a defendant deliberately copied the plaintiff's mark for use in New York and that consumers of the defendant's product primarily associate the mark with the plaintiff's product. In the New York state case, the court did not mention a separate and distinct requirement of bad faith. After the case was reopened in the Southern District of New York, Cubatabaco relied upon the intervening state court decision in framing its Rule 60(b) motion for relief from a judgment dismissing Cubatabaco's unfair competition claims. Based upon the New York state case, district court again enjoined General Cigar from using the Mark. General Cigar appealed.
On appeal to the Second Circuit explained that Rule 60(b)(6) provides for a catch-all provision that is a grand reservoir of equitable power to do justice in a particular case and is properly invoked when extraordinary circumstances justify relief or when the judgment may work an extreme and undue hardship. However, the court cautioned that Rule 60(b) motions are disfavored.
Here the Second Circuit explained that Rule 60(b)(6) motion did not warrant reopening the 2004 judgment as a consequence of the New York state court decision because, as a general matter, a mere change in decisional law does not constitute an extraordinary circumstance for the purposes of the federal rule. The Second Circuit also found that the state court decision did not represent an intervening change in New York's law of unfair competition, nor did it clarify elements of an unfair competition claim or correct misinterpretations of New York law by federal or lower state courts.
Trademarks / EU Procedure in Opposition and Non-Use
This Bud's for Budvar
Gavin Lawson and Gary Moss
The Court of Justice of the European Communities dismissed an appeal by Anheuser-Busch from the General Court and the Board of Appeal at the Oppositional Division (OHIM) that its "Budweiser" trade mark should be registered despite the presence of three other "Budweiser" marks owned by Budĕjovický Budvar, národní podnik ("Budvar"), which opposed the registration of "Budweiser" by Anheuser-Busch. The case marks what is expected to be the final appeal in the seemingly never-ending dispute between the parties which has now run for more than 10 years. Anheuser-Busch, Inc. v. Budĕjovický Budvar, národní podnik and OHIM, Case No. C‑214/09 P, (ECJ, July 29, 2010).
In April 1996, Anheuser-Busch filed an application to register the word sign "Budweiser" for "beer, ale, porter, malted alcoholic and non-alcoholic beverages." In September 1999, Budvar opposed Anheuser-Busch's attempt to register the mark "Budweiser," relying on the existence of its word mark "Budweiser"—registered in Germany, Austria, the Benelux region and Italy for "beer of any kind"—and two figurative marks including the words "Budweiser Budvar." After a number of proceedings in the Opposition Division and the Boards of Appeal, Budvar's opposition was sustained. Anheuser-Busch appealed to the General Court (formerly the Court of First Instance) and thereafter to the EU Court of Justice.
Anheuser-Busch's appeal to the court covered three grounds, two of which were effectively based on the procedural point that Budvar should not have been able to rely on a renewal certificate for one of the marks which Budvar had submitted out of time. The court found (in agreement with the General Court) that Budvar was not in fact required on its own initiative to submit proof of the renewal of the certificate by a certain date to support its case. Rather, OHIM is entitled to require proof that an earlier mark has been renewed if that mark expires after the notice of opposition had been filed.
In respect to the third ground, the court made it clear that evidence of use of one registered trademark cannot at the same time be evidence of use of another registered trademark. However, the court noted that this third ground of appeal had not been raised earlier by Anheuser-Busch. At first instance (OHIM), Anheuser-Busch had not disputed that the documents in question related to the use of one of the other trademarks. Therefore, as this new plea extended the subject matter of the dispute, the court concluded that Anheuser-Busch could not advance it at this stage.
Copyright
Copyright / Standing
Assignment of Cause of Action—Not!
Eric Garcia
In a memorandum affirming the district court's summary judgment dismissal of plaintiff's copyright infringement claims for lack of standing, the U.S. Court of Appeals for the Ninth Circuit held that an assignment agreement did not actually grant the plaintiff ownership interest in a copyright license, but rather assigned a cause of action, which is prohibited by the Ninth Circuit law. Nafal v. Carter et al., Case No. 08-55540 (9th Cir., July 21, 2010) (non-precedential).
In 2005, plaintiff Ahab Joseph Nafal entered into an assignment agreement with the licensee of a song called, "Khosara, Khosara," which was written by Egyptian composer Balight Hamdy in 1957, then recorded and used in an Egyptian film. Nafal filed suit in 2005 against Jay-Z over the alleged unauthorized sampling of the "Khosara, Khosara" song in the rap hit, "Big Pimpin," which was the most successful single in Jay-Z's Vol. 3 ... Life and Times of S. Carter album that sold more than 3 million records.
The defendants argued that the assignment agreement did not confer Nafal with an ownership interest in the "Khosara, Khosara" work, but rather granted Nafal the right to bring a suit. According to defendants, Nafal agreed to bring and partially finance the suit in return for a share of the recovery. The Ninth Circuit agreed, finding that the assignment documents did not actually grant Nafal an ownership interest in an exclusive copyright license. Rather, the documents were a disguised assignment of a cause of action. The assignment of a cause of action is prohibited by the Ninth Circuit's 2005 ruling in Silvers v. Sony Pictures. Therefore, the court held that Nafal was not a co-owner of the exclusive license and thus did not have standing to sue.
Copyright / Attorneys' Fees
An Attorney Who Does Not Personally Sign a Vexatious
Filing Is Not Personally Liable
Ulrika E. Mattsson
The U.S. Court of Appeals for the Seventh Circuit confirmed a district court decision, holding that the plaintiff had failed to comply with local rules and pretrial orders by not filing the appropriate pretrial order and therefore dismissed the case and awarded sanctions against plaintiff to pay the defendant's legal fees and attorneys' fees. However, the court reversed the imposition of sanctions against counsel, holding that liability is direct, not vicarious. FM Industries, Inc. v. Citicorp Credit Services, Inc., Case No. 08-3154 (7th Cir., July 23, 2010) (Easterbrook, J.).
FM Industries sued Citicorp Credit Services for copyright infringement. FM Industries claimed that Citicorp had infringed its computer software by continuing to use its license by transferring the software from a computer's hard disk to its random access memory after FM Industries had dropped it.
Local rules required the parties to cooperate to produce a
pretrial order. The principal counsel for FM Industries, Rhines,
did not complete this task on time. When he finally did, the
documents were non-compliant because he allowed the president and
principal shareholder of FM Industries, Michael Friedman, to draft
many of the documents. After dismissing the claims, the district
court ordered FM Industries to pay Citicorp's legal fees. The
district court also concluded that Rhine had vexatiously multiplied
the proceedings and was thus liable for attorneys' fees.
Finally, the district court further held that McGrath, a copyright
specialist engaged by Rhine to assist him, was also liable for
payment of attorneys' fees. FM Industries appealed.
On appeal, the Seventh Circuit affirmed the dismissal and the award
of sanctions against FM Industries and Rhine, but reversed the
impositions against McGrath. The Court noted that "FM
Industries and its lawyers were playing games, engaged in
extortion, or both." They demanded statutory damages of $15
billion, even though the statute provides that the award cannot
exceed $150,000. When Citigroup missed one deadline by one day, FM
Industries sought $815 million in sanctions, even though FM
Industries had missed many deadlines. Moreover, FM Industries
served numerous demands without regard to the rules, which forced
the recipients to incur legal expenses to learn what obligations
they had. When FM Industries was informed that the demands it had
served were ineffectual, they did not follow up with proper
subpoenas, but walked away.
The court further noted that even though McGrath filed an appearance in the case and signed five documents, none of those five documents was found vexatious. The court stated that "McGrath was not engaged as a second-tier reviewer of Friedman's scribbling; he was engaged to help Rhine get his bearings in copyright law. That McGrath failed at this task does not make him responsible for documents that bear Rhine's name but not his own. Liability under §1927 is direct, not vicarious."
Trade Secrets
Trade Secrets / Inevitable v. Likely Disclosure
Executive Temporary Injunction Against New Employment
May Be Needed to Prevent "Likely" Disclosure
Eric Levinrad
The U.S. Court of Appeals for the Third Circuit affirmed a preliminary injunction barring a senior bakery executive from beginning employment with a competitor, finding that the "likely" disclosure of bakery's trade secrets to the new employer was sufficient harm to support the injunction. Bimbo Bakeries USA, Inc. v. Chris Botticella, Case No. 10-1510 (3rd Cir., July 27, 2010) (Greenberg, J.).
As Bimbo's vice president of operations for California, Botticella had access to a broad range of Bimbo's confidential information. Botticella was one of only seven people who knew the recipe for Bimbo's Thomas' English Muffins, with their unique "nooks and crannies" texture. In October 2009, Botticella accepted an employment offer from Hostess Brands, one of Bimbo's primary competitors. When Bimbo learned that Botticella was going to be working for Hostess, it moved for injunctive relief and presented evidence that Botticella continued to receive and copy Bimbo's confidential information after accepting the job with Hostess and without disclosing such acceptance to Bimbo. After the district court preliminarily enjoined Botticella from beginning employment with Hostess to prevent the likely disclosure of Bimbo's trade secrets, Botticella appealed.
The Third Circuit affirmed, finding under Pennsylvania law that an injunction prohibiting the commencement of employment can issue on a showing of the "likely" disclosure of trade secret information and also finding that a showing that the trade secret disclosure was inevitable was not required. The court reasoned that the injunction in this case was not issued pursuant to the doctrine of inevitable disclosure, which is recognized by Pennsylvania law, but rather based on the basis showing of likely disclosure. The court rejected Botticella's argument that an injunction against employment could only issue when it would be "virtually impossible" for an employee to fulfill his employment duties without disclosing a former employer's trade secrets, finding that a prior Third Circuit case supporting this argument had incorrectly interpreted Pennsylvania law. The court also rejected the argument that the inevitable disclosure doctrine only applied to "technical" trade secrets, concluding that an injunction could issue "if the facts of the case demonstrate a substantial threat of trade secret misappropriation," regardless of whether the trade secrets are of a technical or non-technical nature.
While affirming the injunction against the commencement of Botticella's employment, the court suggested that such an injunction could only be "temporarily" imposed. Noting the "severe restriction" imposed by prohibiting someone from pursuing his livelihood, the court cautioned that if Bimbo was found to be entitled to relief following a disposition on the merits, the district court "should fashion a remedy appropriate to protect Bimbo's trade secrets without unduly imposing on Botticella's right to pursue his chosen occupation."
Practice Note: This case highlights the risks involved when employees move between competitor companies. Departing employees should be careful to distance themselves from access to confidential information, at the risk of possibly being enjoined from commencing their new employment. Companies hiring employees from competitors should take active measures to ensure that the employee brings no confidential information. Simply obtaining a representation from the employee to this effect—as Hostess did here—is not alone sufficient to avoid the risk of the employee being enjoined from commencing his new job.
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