Trademarks and service marks are recognized today as valuable business assets. Multimillion dollar marketing campaigns often are designed around a new product or service associated with a new mark. Selecting and clearing the mark for use therefore can be a step having serious business consequences. This is particularly true as trademark and service mark owners demonstrate an increased vigilance in policing and protecting their marks.

The Hilfiger Case

International Star Class Yacht Racing Ass'n v. Hilfiger, U.S.A., Inc., 80 Fed. 3rd 749 (2nd Cir. 1996), a recent decision by the Court of Appeals for the Second Circuit, provides a case study of the problems that can arise with trademark clearance. It is the latest in a line of cases that place increased clearance responsibilities on companies selecting new marks.

Defendant Hilfiger began designing "nautical" clothing with details from "competitive sailing". Hilfiger intended to use the mark STAR CLASS in conjunction with this clothing and asked its outside trademark counsel to conduct a "trademark screening search" for the mark for clothing. A typical "trademark screening search" involves an on-line computer database search of the records of the U.S. Patent and Trademark Office. Such a search would only reveal federal registrations and applications. In its request, Hilfiger did not indicate to its attorneys that the clothing was "nautical" clothing. Thus, the attorneys only searched class 25, the clothing class, which search did not reveal any identical federal registrations or applications. No class which might have included nautical or sailing items other than clothing was searched.

Hilfiger's attorneys advised Hilfiger of the results of this search and recommended that a "full trademark search" be conducted before using the mark. A "full trademark search" typically involves hiring an outside service to search federal and state registrations and applications as well as common-law and perhaps other relevant databases for any identical or confusingly similar marks. Hilfiger did not conduct such a search prior to its use of the STAR CLASS mark. Had a full search been conducted, it would have revealed (as a later search did reveal) that STAR CLASS was a mark in the yachting context. It is owned by the International Star Class Yacht Racing Association, a corporation founded for the purpose of governing and promoting STAR CLASS yacht racing. The Association sued Hilfiger on various grounds including common law trademark infringement. It claimed that Hilfiger acted in bad faith in adopting and using this mark based, in part, on Hilfiger's failure to conduct a comprehensive trademark search before using the mark.

The District Court did not find bad faith. The Second Circuit, however, disagreed and used the following colorful language to explain why:

In light of Hilfiger's minimal efforts to ascertain whether "STAR CLASS" was, in fact, a trademark, we agree with ISCYRA that the district court clearly erred in finding Hilfiger guilty only of simple copying and not of intent to copy a mark. Given Hilfiger's awareness that it was copying "authentic details ... from the sport of competitive sailing," it should have shown greater concern for the possibility that it was infringing on another mark. Hilfiger's choice not to perform a full search under these circumstances reminds us of two of the famous trio of monkeys who, by covering their eyes and ears, neither saw nor heard any evil. Such willful ignorance should not provide a means by which Hilfiger can evade its obligations under trademark law.

The economic consequences to Hilfiger of this finding and the Second Circuit's vacating of the trial court's decision are substantial. While the District Court had enjoined Hilfiger, it had not granted the Association's request for an accounting of Hilfiger's profits or an award of attorney fees (both forms of relief provided for by the federal trademark and unfair competition laws). The Second Circuit, however, disagreed and remanded the case for a determination as to whether bad faith had been shown. If bad faith is established, the Association could be awarded Hilfiger's profits and attorneys fees. In addition, the District Court would have discretion, based on federal statute, to enhance the award beyond actual profits for "such sum as the court shall find to be just, according to the circumstances of the case." Courts typically enhance damages where intentional, bad faith conduct is found. Given that Hilfiger had millions of dollars in sales, its failure to conduct the requisite trademark search may prove to be a very costly omission.

Trademark Clearance Considerations

Hilfiger offers a variety of lessons to companies selecting new trademarks and service marks. Following are a few of the more important ones.

Satisfy The Applicable Clearance Standard

Hilfiger and certain earlier cases suggest that a court's evaluation of what constitutes an adequate search will be influenced by the sophistication of the alleged infringer. While a mom and pop operation may get away with something considerably less than a full search, sophisticated corporations that have numerous marks and derive substantial benefit from them will be held, in all likelihood, to a higher standard. If such companies know how to perform trademark clearance properly - and they do - anything less could be viewed as the "willful ignorance" found by the Second Circuit in Hilfiger.

A Cost Benefit Analysis Justifies the Extra Expense

From a cost benefit analysis standpoint, it will be worth the added expense in virtually every instance for a company to conduct a full trademark search. The prospect of litigating and losing a trademark litigation and having to pay damages, additional enhanced damages and attorneys fees and also being enjoined would seem to more than justify the additional expense. In fact, this consideration may have played a part in the Second Circuit's decision - i.e., given the substantial exposure that an incomplete search would create, how else could Hilfiger's failure to conduct a complete search be explained except as a case of "willful ignorance".

Rationalize the Trademark Selection Process

The extra expense of conducting a complete search can be mitigated in part by creating a more rational and informed trademark selection process. When marketing and management personnel better understand what constitutes a strong versus weak trademark and how the trademark system works, there will be fewer false starts and fewer "back to the drawing board" situations. The money saved by improving that part of the process should more than offset the cost of conducting full searches later on in the trademark clearance process.

Dig Deeper During the Clearance Process

Coordination between trademark counsel and those business people selecting the mark should measure up to the task. The barebones request, "clear this, we want to use this on clothing" is not enough. Trademark counsel, whether in-house or outside the company, needs to know more about how the mark was selected to make sure that there are no hidden dangers in using the mark. For example, a mark derived from someone else's photograph or painting could raise copyright infringement problems.

Also, the context in which the mark will be used should be fully understood. A trademark used in connection with oil drilling equipment might be used without problem by a clothing company because the goods are so different that the marks are not confusingly similar. One would reach a different conclusion if the clothing company intended to advertise the clothing in dramatic oil field settings.

Careful consideration also should be given to the various possible goods and services with which the mark might some day be used. This should be done to avoid restricting the natural expansion of the use of the mark. For example, a mark which may be available for use in connection with restaurant services might not be available for use in connection with shirts promoting the restaurant.

Exercise Care With Attorney Advice

Consideration should be given to how to handle attorney advice concerning the adequacy of searches. Quite obviously, trademark counsel has a duty to alert the client to potential problems, including the inadequacy of a trademark search. Once that advice has been given, it could, as in Hilfiger, later surface as a basis for finding willful infringement. In short, once the advice is given, it may be perilous to ignore it.

Conclusion

When it comes to trademark clearance, it does not pay to be penny-wise and pound foolish.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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