Significant Developments in U.S. Trademark Law: 2019 Annual Update
March 6, 2020, Covington Alert
Below are the selections of Covington’s Trademark Practice Group for the “Top Ten” most significant and interesting developments in U.S. trademark law during 2019.
Supreme Court invalidates bar on registering “immoral” or “scandalous” trademarks.
Drawing on precedent established in 2017’s Matal v. Tam, the Supreme Court in Iancu v. Brunetti struck down a provision of the Lanham Act barring registration of “immoral” or “scandalous” trademarks. The Court held that the provision amounted to impermissible viewpoint discrimination under the First Amendment. Notably, the case elicited several justices’ views regarding the proper treatment of the federal trademark system under the First Amendment.
In Matal, the Court struck down the Lanham Act’s bar on the registration of trademarks that may “disparage . . . or bring . . . into contemp[t] or disrepute” any “persons, living or dead.” That case concerned the denial by the Patent and Trademark Office (“PTO”) of an application by the lead singer of the band “The Slants” to register the band’s name as a federal trademark. The Asian-American singer asserted that he was attempting to “reclaim” a derogatory term. Though the justices disagreed about the status of the trademark registration system under the First Amendment, they all agreed that the provision was an instance of impermissible viewpoint discrimination, barring registration based solely on the ideas or opinions of the trademark applicant.
The Brunetti case -- concerning an effort to register “FUCT” as a mark -- provoked more disagreement but a similar outcome, with the Court striking down the bar on registering “immoral” or “scandalous” marks under the First Amendment. Writing for the majority, Justice Kagan reasoned that the two terms overlapped with each other, and together “distinguishe[d] between two opposed sets of ideas: those aligned with conventional moral standards and those hostile to them; those inducing societal nods of approval and those provoking offense and condemnation.” She went on to list a number of examples in which the PTO has granted registration to marks in the former category, while denying it to marks in the latter: for instance, registering marks associated with campaigns against the use of illegal drugs, while refusing to register marks associated with the promotion of illegal drugs.
The government urged the Court to construe the statute in a way that would limit it to marks that are offensive in their mode of expression, independent of any views expressed. The majority declined to do so, however, reasoning that the statutory language was not susceptible to that interpretation. Because the statute forbids the registration of certain marks based solely on viewpoint, the Court held it violated the First Amendment.
In separate partial concurrences, Chief Justice Roberts, Justice Breyer, and Justice Sotomayor contended that the Court should have adopted the government’s interpretation of the statute as to the “scandalous” portion of the provision, and upheld the bar on “scandalous” marks while striking down the bar on “immoral” marks. These justices construed the term “scandalous,” as used in the statute, to cover essentially only obscenity, vulgarity, and profanity. They also noted that the Court has generally upheld restrictions on such speech under the First Amendment.
Justices Breyer and Sotomayor also engaged in an extended analysis of the status of the trademark laws under the First Amendment that may have broader implications than the case at hand. Justice Sotomayor reasoned that the trademark registration system is a government initiative that cannot be viewed as a direct restraint on speech. She likened it to a limited public forum or a government program or subsidy. Under either of these labels, she noted, “reasonable, viewpoint-neutral content discrimination is generally permissible.” She concluded that bars on registering trademarks on certain items would generally survive so long as the bars are viewpoint-neutral.
Writing separately, Justice Breyer reasoned that the federal trademark system does not fit neatly into any of the Court’s speech categories. Instead of trying to shoehorn it into one of those categories, he argued, courts should instead simply ask “whether the regulation at issue works speech-related harm that is out of proportion to its justifications.” He noted that the trademark statute does not give free reign to register marks, but rather enacts a system of “linguistic regulation.” He also pointed out that the statute also forbids registration of marks that are likely to “cause confusion” or are “merely descriptive.”
Applying this proportionality test to the bar on registering scandalous trademarks, Justice Breyer reasoned that the bar does little harm to First Amendment interests: businesses would still be able to use vulgar words to identify their products, they just couldn’t claim the ancillary benefits of trademark registration. Justice Breyer contended that the government has an interest in refusing to associate itself with vulgar speech. He further reasoned that vulgar words have less value than other forms of speech because they have a physiological and emotional impact that threatens to distract consumers and disrupt commerce. He accordingly would have upheld the bar on registering scandalous marks.
Bankruptcy debtors cannot prevent valid licensees from using their trademarks, Supreme Court holds.
In Mission Product Holdings, Inc. v. Tempnology, LLC, the Supreme Court held that the Bankruptcy Code does not enable a debtor who has filed for bankruptcy to prevent a valid licensee of its trademark from continuing to use the mark.
The Bankruptcy Code allows a debtor to “reject any executory contract”—that is, any contract that neither party has finished performing. 11 U.S.C. section 365(a). Specifically, the Code enables the debtor to repudiate any further performance of its duties if it decides that the contract is a bad deal for the estate. This rejection puts the counterparty in the same position as unsecured creditors, who generally only receive cents on the dollar in Chapter 11 proceedings.
The question before the Court was what effect, if any, such a rejection has on the counterparty’s ability to continue performing its end of the bargain, and continue receiving any benefits due to it that are not affected by the debtor’s failure to perform. In the non-bankruptcy context, it is well settled that, when a party breaches an executory contract by rejecting it, the breach does not automatically cancel the contract and eliminate the counterparty’s rights and duties. Section 365 of the Bankruptcy Code states that a debtor’s rejection of a contract “constitutes a breach.” It might make sense, then, that a debtor cannot eliminate a licensee’s right to use the debtor’s trademark by rejecting the licensing agreement.
A First Circuit panel held to the contrary, however. The panel majority noted that Section 365 specifically lists several categories of contracts under which rejection does not terminate the counterparty’s rights. Drawing a “negative inference” from the provision’s enumeration of these other categories, the panel reasoned that breaches of certain un-enumerated types of agreements—including trademark licenses—do terminate the counterparty’s rights. The First Circuit also reasoned that unique features of the trademark system make this a sensible rule: If a debtor cannot rescind a licensee’s right to use the mark, the debtor would be required to continue to monitor the use of the mark, and to exercise quality control over goods associated with it, in order to ensure that it did not lose the mark. This would frustrate the purpose of the Bankruptcy Code, which, the court reasoned, is to free debtors from such burdens.
The Supreme Court reversed, holding that the negative inference drawn by the First Circuit both ran contrary to the statute’s plain language, and overlooked the fact that many of the provisions regarding specific types of agreements in Section 365 had only been adopted in order to correct erroneous judicial rulings.
Regarding the First Circuit’s reasoning about the special features of the trademark system, the Court noted that the Bankruptcy Code advances a “complex set of aims”: Congress balanced the goal of facilitating reorganizations against other goals, including the goal of protecting “the legitimate interests and expectations of the debtor’s counterparties.” Allowing a debtor to unilaterally terminate a licensee’s rights to use its trademark would frustrate this latter goal, the Court reasoned.
PTO can’t recover attorney salaries from litigating applicants.
A unanimous Supreme Court ruled that a patent applicant who sues for judicial review of an application isn’t responsible for the Patent & Trademark Office’s lawyer and paralegal salaries in Peter v. NantKwest, likely putting an end to the PTO’s requests for such “expenses” in trademark cases as well.
Section 145 of the Patent Act permits applicants dissatisfied with the PTO’s decision on an application to sue in the Eastern District of Virginia. Applicants can offer new evidence in these proceedings, whereas in a direct appeal of the PTO’s decision to the Federal Circuit, no new evidence is permitted. However, section 145 also requires that the applicant pay “all the expenses of the proceedings.”
NantKwest sued under section 145 seeking review of a patent application, but the district court granted summary judgment to the PTO. The PTO then moved for reimbursement of its “expenses,” including pro rata portions of the salaries of attorneys and paralegals who worked on the litigation. Some version of section 145 had existed for about 170 years, but this was the PTO’s first request for such “expenses.” The district court denied the motion for fees, concluding that the statutory language was not sufficiently clear to displace the background “American Rule” that each party is responsible for its own fees. A divided panel of the Federal Circuit reversed, doubting that the American Rule even applied, and finding the language sufficiently specific and explicit to displace the Rule. But the Federal Circuit then reheard the case en banc, sua sponte, and reversed the panel in another divided decision. The Supreme Court granted certiorari, and affirmed.
First, the Court held that the American Rule applied to section 145. The PTO argued that the presumption against fee-shifting only applies when a statute awards fees to a prevailing party, and an award of expenses under section 145 does not depend on the PTO’s success. But the Court denied that the Rule only applies to prevailing-party statutes or that any category of statutes are exempt from the presumption, pointing to its own precedent to the contrary.
Next, the Court held that the statutory reference to “all the expenses” wasn’t sufficiently “specific and explicit” to overcome the American Rule’s presumption against fee-shifting. The Court stated that “expenses” is too broad and unspecific, standing alone, to include fees. In some contexts, “expenses” simply refers to “costs.” And like in its Rimini Street decision, where “full costs” didn’t bring attorney’s fees within the category of “costs,” the Court held that the modifier “all” could not mean “expenses” included a category it otherwise would not.
The Court also pointed to other statues that permit awards of both “expenses” and “attorney’s fees” as evidence that Congress understands the terms to be “distinct and not inclusive of each other.” Finally, the Court pointed to the legislative history and other provisions of the Patent Act, which specifically and explicitly provides for awards of attorney’s fees in other contexts.
The Lanham Act contains a provision with language highly similar to section 145, and the PTO has requested pro rata payment of salaries under that provision as well. While the Supreme Court decision directly addressed only the Patent Act language, it’s likely to forestall future PTO requests for fees under the Lanham Act as well.
Fourth Circuit holds that adding “.com” to generic term may result in distinctive mark.
In Booking.com B.V. v. U.S. Patent & Trademark Office, the Fourth Circuit held that adding a top-level domain such as “.com” to a generic second-level domain such as “booking” may yield a protectable, non-generic mark where evidence shows that consumers associate the domain name as a whole with a particular source. The dissenting judge, however, warned that the court’s decision threatens to allow firms to monopolize generic terms through the mere acquisition of domain names. And the Supreme Court has granted certiorari, so there is a final chapter to be written.
Booking.com operates a website through which consumers can book hotel accommodations. In 2011 and 2012 it filed several trademark applications for the use of BOOKING.COM as a word mark and stylized mark.
The U.S. Patent and Trademark Office (“USPTO”) examiner rejected the applications, reasoning that BOOKING.COM is generic when applied to hotel-booking services. That is, the USPTO held that BOOKING.COM represented a common name for these services. The examiner also concluded that Booking.com failed to establish that the marks had acquired secondary meaning. The Trademark Trial and Appeal Board affirmed.
Booking.com won on appeal to district court, however, based in part on its submission of a “Teflon survey” indicating that 74.8% of consumers recognized BOOKING.COM as a brand name, not a generic reference to hotel websites. Acting as the trier of fact, the district court placed great weight on the survey evidence, holding that the USPTO had not met its burden of establishing that consumers understand “booking.com” to refer generally to online hotel reservation services.
On appeal to the Fourth Circuit, the USPTO argued that, as a matter of law, adding the top-level domain “.com” to a generic second-level domain like “booking” yields a generic term. The court rejected this argument, however, holding that it was inappropriate to break the term into its constituent parts because “the ultimate inquiry examines what the public primarily perceives the term as a whole to refer to.” A domain name may indicate a particular source that its separate parts, on their own, do not suggest.
The court distinguished several other cases in which circuit courts have held that domain names containing generic terms, such as LAWYERS.COM, ADVERTISING.COM, and HOTELS.COM, were themselves generic and therefore not eligible for trademark protection. The Fourth Circuit pointed out that those courts had not adopted a per se rule that adding “.com” to a generic term could never result in a protectable mark. On the contrary, those courts remained open to considering consumer surveys as evidence of the public’s understanding of the proposed marks. The court reasoned that the survey evidence put forth by Booking.com distinguished the case from the prior decisions.
Dissenting in part, Judge Wynn argued that the court’s ruling enabled Booking.com to “have its cake and eat it too” in gaining customer recognition by using a commonly understood generic term to describe its business, while preventing its competitors from doing the same. Only in rare cases, Judge Wynn reasoned, should combining a generic term with a top-level domain be descriptive, as in clever combinations like “rom.com” or “tennis.net.” Otherwise, the addition of top-level domains serve the purely functional role of locating a web address in cyber space, just as the addition of the term “Corp.” serves the purely functional role of identifying a firm’s organizational form. Judge Wynn argued that this outcome was dictated by an 1888 case, Goodyear’s Rubber Mfg. Co. v. Goodyear Rubber Co., 128 U.S. 598 (1888), in which the Supreme Court held that a name consisting of a generic term plus a commercial indicator, such as “Grain Company,” could not be trademarked.
As noted, the Supreme Court will have the final word in this case.
Actual consumer confusion not necessary for award of profits under Lanham Act, Second Circuit holds.
In 4 Pillar Dynasty LLC v. New York and Co., a panel of the Second Circuit Court of Appeals clarified that a plaintiff need not demonstrate actual consumer confusion in order to obtain an award of lost profits for willful trademark infringement under the Lanham Act.
Reflex Performance Resources Inc. and 4 Pillar Dynasty LLC, owners of a registration to the trademark “Velocity” for use in “clothing and performance wear,” sued NY & C, a specialty women’s apparel retailer, for retailing a product line of women’s activewear labeled “NY & C Velocity.” The case went to trial, where a jury found that NY & C had infringed Reflex’s trademark, and rendered an “advisory verdict” that the infringement was willful. The court entered judgment for profits—approximately $1.8 million.
On appeal, NY & C challenged the district court’s determination that its infringement was willful, noting that the plaintiff had failed to put forth any direct evidence of NY & C’s state of mind. The Second Circuit, however, held that the district court reasonably found that the similarities between Reflex’s and NY & C’s products were blatant; reasonably relied on NY & C’s failure to cease selling the allegedly infringing products after being notified of the infringement claim; and reasonably drew an adverse inference based on NY & C’s failure to call a witness who would speak to NY & C’s good faith after promising to do so. It thus refused to disturb the district court’s determination on the willfulness issue.
NY & C next argued that the judgment required reversal because a showing of actual consumer confusion is required to support an award of lost profits under the Lanham Act, and Reflex had not put forth such evidence. NY & C pointed to a 1944 opinion authored by Judge Learned Hand in support of its position, in which Judge Hand had written, “It is of course true that to recover damages or profits, whether for infringement of a trade‐mark or for unfair competition, it is necessary to show that buyers, who wished to buy the plaintiff’s goods, have been actually misled into buying the defendant’s.”
The panel distinguished that language because it was dictum, and that the case had been decided two years prior to the passage of the Lanham Act. The panel noted that the Second Circuit had repeatedly clarified in the years since the Hand opinion that a showing of actual consumer confusion is not required for an award of lost profits. That rule makes good sense from a deterrence perspective, the panel reasoned, because the deterrence rationale focuses on the infringer’s culpability, and “the presence or absence of actual consumer confusion may not always bear a logical connection to an infringer’s good or bad faith.” The panel noted, however, that courts must still balance equitable concerns before awarding lost profits in such a case.
However, the panel reversed the district court’s award of attorney’s fees under the Lanham Act provision allowing such an award in “exceptional cases.” While the district court had applied then-current precedent holding that a finding of willfulness determines the right to attorney’s fees, the Second Circuit held in a later-decided case that the district court may balance a number of factors in determining whether attorney’s fees were warranted under the Lanham Act. The panel remanded for the district court to apply this more flexible test.
Court halts government attempt to strip motorcycle club of trademark through criminal forfeiture.
In United States v. Mongol Nation, a Central District of California judge blocked the government’s latest attempt to seize the trademarked insignias of the Mongol Nation (also known as the Mongols Motorcycle Club) through criminal proceedings. The court held that an order requiring the club to forfeit its collective membership marks would amount to an impermissible infringement on Mongol Nation members’ First Amendment rights of association and speech, and would also constitute an excessive fine in violation of the Eighth Amendment.
A collective membership mark is a unique form of trademark used by members of an organization to signify their affiliation with the group. Unlike a typical trademark, the mark itself is not used to identify goods or services. Rather, the organization’s possession of rights in the mark enables it to prevent others from using its words or images for other purposes, such as to identify goods.
The government has sought forfeiture of the Mongol Nation’s collective membership marks in various criminal prosecutions stretching back over a decade. Indeed, the court here suggested that the government had brought its most recent prosecution against the Mongol Nation (under the Racketeer Influenced and Corrupt Organizations Act (“RICO”)) for the express purpose of stripping the club of its marks. Maintaining that the club’s use of the marks “create[s] an atmosphere of fear through public display,” the government has stated that it seeks to seize the trademark rights so that officers would be entitled to detain a club member and “literally take the jacket right off his back.” In the words of the court, the government “is not merely seeking forfeiture of the ship’s sails,” it is “attempting to use RICO to change the meaning of the ship’s flag” by making the government the mark’s rightful owner. The Mongol Nation, meanwhile, claims that the loss of the right to use the mark would amount to “essentially the death penalty for the organization.”
In separate cases in 2009 and 2010, two Central District of California courts held that the government could not seize the marks as a criminal penalty in the course of the prosecution of individual Mongol Nation members because the marks belonged to the club as a whole, not to the club members who had been charged. Both courts noted that such an order would also likely violate the First Amendment. Undeterred, the government proceeded to indict Mongol Nation as an entity, obtaining guilty verdicts on several counts in 2018, along with a finding by the jury that the marks were forfeitable. The government then sought a preliminary order of forfeiture.
The court held that such an order would violate the First Amendment. It reasoned that the display of word marks or symbols on clothing is “pure speech,” and that wearing clothing indicating one’s association with an organization is “expressive conduct entitled to First Amendment protection.” By exposing Mongol Nation members who wear clothing with (or possibly bear tattoos of) the mark to potential legal sanction, the forced transfer of the legal rights associated with the marks from the Mongol Nation to the government would restrain club members’ speech and associational rights.
Evaluating the restriction under strict scrutiny, the court held that the government had not established that its chosen restraint was “actually necessary” to its interest in punishing the Mongol Nation for its criminal acts. It held that there was “no evidence that forfeiture of collective membership marks will lead to a less violent or capable criminal organization.” The court also held that less restrictive alternatives were available to the government, such as seizing the club’s financial assets.
In addition, the court held that requiring the Mongol Nation to forfeit the marks would be “grossly disproportionate” to the gravity of the offense, and would therefore represent an excessive fine under the Eighth Amendment. The court noted that the symbols “have immense intangible, subjective value to the Mongol Nation and its members.” It also reasoned that the connection between the collective membership marks and the RICO conspiracy was attenuated, given that the government “did not introduce any evidence connecting the use of intellectual property rights to an overt act.” Noting that the Mongol Nation is a largely Latino club, the Court also pointedly observed that the government had not sought forfeiture of symbols in previous prosecutions against similar associations, including rival motorcycle clubs, unions, churches, sports leagues, and fraternities.
Fifth Circuit invalidates state board’s prohibition of “Tire Engineers” mark under First Amendment.
In Express Oil Change, L.L.C. v. TE, L.L.C., the Fifth Circuit held that a Mississippi board’s decision to prohibit the use of the trademark “Tire Engineers” pursuant to a statute regulating the engineering trade was an impermissible restraint on commercial speech. The decision reinforces the principle that limitations on the use of generic terms for branding purposes are inconsistent with the First Amendment.
Mississippi regulates the profession of engineering and restricts the use of the term “engineer,” ostensibly to prevent people who are not licensed by the state from holding themselves out to the public as engineers. Express Oil Change (“Express”) operates automotive service centers under the Tire Engineers mark. The Mississippi Board of Licensure for Professional Engineers & Surveyors (“the Board”) determined that the use of the name Tire Engineers by people not licensed as engineers violated state law, and suggested that Express instead identify its service people as tire “technicians” or tire “experts.”
Express sued, and the district court granted summary judgment in favor of the Board. On appeal, Express argued only that the Board’s decision was an impermissible restriction on commercial speech.
Commercial speech that is “actually or inherently misleading” lacks protection under the First Amendment. The district court held that the term Tire Engineers was inherently misleading because substantial evidence tended to show that the term “refer[s] to actual engineers who have expertise in the manufacture, selection, and repair of tires.” The Fifth Circuit disagreed, noting that the term “engineer” “can mean many things in different contexts.” The Fifth Circuit also reversed the district court’s finding that the term was actually misleading, in light of the Board’s failure to put forth any evidence of actual deception.
Having concluded that the use of the term Tire Engineers was not actually or inherently misleading, the court next evaluated whether the Board’s prohibition on the use of the term directly advanced a substantial government interest, and whether the restraint was more extensive than necessary to serve that interest. Express conceded that the Board has substantial interests in both preventing confusion about the qualifications of Tire Engineers employees and maintaining the public’s perception of “the qualifications and skill of actual licensed engineers.” Express also conceded that the Board’s prohibition on the use of the Tire Engineers mark directly advanced those interests.
Where the Board faltered, Express argued, was in its attempt to show that the prohibition on the term Tire Engineers was appropriately tailored to the government’s interests. The court agreed, holding that the Board had failed to address whether it could have accomplished its goals through the use of a less restrictive alternative, such as requiring a disclaimer. The court accordingly reversed the district court’s grant of summary judgment for the Board, and rendered summary judgment for Express.
Ninth Circuit upholds use of trademarks for purpose of criticism as nominative fair use.
In Applied Underwriters v. Lichtenegger, the Ninth Circuit held that the use of trademarks in a critical online seminar was a protected nominal fair use.
Applied Underwriters, a division of Berkshire Hathaway, provides workers’ compensation insurance under its registered Applied Underwriters and EquityComp marks. Providence Publications, an online news service, published a series of reports and online seminars on workers’ compensation insurance. One such seminar, “Applied Underwriters’ EquityComp Program: Like it, Leave it, or Let it be?” criticized those programs. Applied Underwriters sued, claiming that the use of its marks was unauthorized, that the seminar was targeted at its customers, and that the use created confusion as to sponsorship of the seminar. The district court dismissed the complaint, reasoning that the seminar’s title and contents were nominative fair uses of the marks. While the Ninth Circuit observed that the district court had dismissed the case in an improper manner, it nevertheless affirmed the result.
The district court had granted the defendants’ motion to dismiss with leave for Applied Underwriters to file an amended complaint, but then entered judgment for defendants as a sanction when Applied Underwriters failed to do so. The Ninth Circuit concluded that this was an abuse of discretion, as Applied Underwriters did not violate a court order by failing to amend its complaint, but agreed with the district court’s conclusion, in granting the motion to dismiss because the use was a nominative fair use.
Under the doctrine of nominative fair use, use of a mark that is “the only word reasonably available to describe” a good or service is permissible. A use is a nominative fair use where the good or service isn’t otherwise readily identifiable, the user only uses as much of the mark as is “reasonably necessary” to identify the good or service, and the user doesn’t otherwise suggest sponsorship or endorsement. The panel found that defendants’ use met all three requirements.
First, Ninth Circuit precedent establishes that there is no need to use a “descriptive alternative” to refer to a particular mark in a communication specifically about that mark. Defendant’s seminar was specifically about Applied Underwriters’ insurance programs, not about workers’ compensation insurance generally, so using the mark in the title was necessary and appropriate.
Second, defendants didn’t use more of the marks than required in terms of font or stylization. The seminar and related communications only used the word marks themselves, not any of the associated distinctive design, lettering, or style. Finally, the court found that the uses weren’t confusing, given that defendants explicitly stated that the marks were property of Applied Underwriters, displayed their own marks in emails advertising the seminar, and the email’s text was critical of Applied Underwriters’ program.
The court recognized that it is rarely appropriate to resolve alleged consumer confusion on a motion to dismiss, but this was one of those rare occasions.
Verdict upheld in case against mall over infringement of Oakley and Ray-Ban marks.
In Luxottica Group, S.p.A. v. Airport Mini Mall, LLC, the Eleventh Circuit Court of Appeals affirmed a jury verdict of contributory trademark infringement against the proprietors of a mall in which vendors had sold counterfeit eyewear. Key to the court’s decision was the fact that the landlord possessed constructive notice of the tenants’ infringement, and had the legal right to evict the infringing tenants.
The defendants were owners and master tenants of a mall in College Park, Georgia, that contained over one hundred booths leased to individual vendors. During the tenure of the landlord, Airport Mini Mall (“AMM”), from 2009 on, law enforcement agents conducted three raids on the vendor tenants to confiscate counterfeit goods. In those raids, thousands of glasses bearing marks registered by the Luxottica Group, the maker of Oakley and Ray-Ban glasses, were confiscated.
The defendants were aware of the raids, and had also received letters from Luxottica notifying them that their subtenants were not authorized to sell Oakleys and Ray-Bans. Despite the raids and letters, however, the defendants, on the advice of their attorney, decided not to take action against the vendors unless and until they were convicted of a crime.
Luxottica sued for contributory trademark infringement under the Lanham Act. A jury found all defendants but one liable, and awarded $1.9 million in damages—$100,000 for each infringed trademark. The defendants who had been found liable appealed, arguing, among other grounds, that they did not have sufficient knowledge of the infringing acts and lacked the ability to evict the tenants who were involved in counterfeiting.
The defendants argued that the jury’s verdict was not supported by substantial evidence because Luxottica failed to establish that the proprietors of the mall knew of specific acts of direct infringement. While expressing skepticism that knowledge of specific infringing acts was necessary (as opposed to more general knowledge of a pattern of infringement), the court concluded that it need not decide the issue because the defendants had constructive knowledge of specific acts. The raids by law enforcement and letters from Luxottica put the defendants on notice that their subtenants may have been selling counterfeit Luxottica products, and they could have learned of specific instances of infringement through an investigation. The court rejected the defendants’ argument that they could only have been held liable for contributory infringement if Luxottica had expressly informed them of specific instances of infringement.
The defendants also argued that the court erred in instructing the jury that the defendants could have evicted the subtenants without resorting to legal proceedings, claiming that in fact they lacked the legal right to do so. The court rejected this argument as well, noting that AMM’s subleases expressly provided that the subtenant would be in breach of its lease either (a) if AMM received a verified written complaint that a subtenant was selling counterfeit goods, or (b) if a subtenant failed to comply with trademark law. The panel held that the search warrants obtained by law enforcement to conduct the raids represented verified written complaints, and further held that the jury could have reasonably concluded that the raids, the letters from Luxottica, and photographic evidence of the counterfeit eyewear provided clear evidence that the subtenants were violating trademark law.
The decision suggests the kinds of circumstances where landlords can be secondarily liable for their tenants’ repeated trademark infringement.
Walmart hit with $95.5 million dollar trademark damages.
In February, a North Carolina federal jury found that Walmart should pay $95.5 million to a smaller chain for trademark infringement in Variety Stores v. Wal-Mart Stores, but the case appears far from over.
Variety Stores operated more than 300 discount stores in the Midwest and South and claimed it had used the “Backyard” mark on law, garden, and grilling eqiupment since the 1990s. Variety had a federal registration for the mark “The Backyard” in connection with lawn and garden equipment and supplies, but also used the “Backyard” and “Backyard BBQ” marks in connection with grills and grilling supplies in addition to lawn and garden goods.
In 2010, Walmart considered a number of brand names for its own line of grills and grill supplies, including “Grill Works,” “Backyard Barbecue,” and “Backyard BBQ.” A branding director at Walmart testified that the legal team advised the branding team not to use any of those marks, and that Walmart knew about Variety’s federally registered “The Backyard” lawn and garden mark, but not the other brands. Walmart began using the “Backyard Grill” mark in 2011, and filed a trademark application with the PTO. Variety filed an opposition in 2012 and eventually sued in 2014. In 2016, the judge granted Variety partial summary judgment and awarded $32.5 million, but the Fourth Circuit vacated, holding that the judge had granted summary judgment on issues that should have been submitted to a jury.
After a three-day trial, the jury found that Walmart had willfully infringed Variety’s mark. After the district court denied Walmart’s request for an interlocutory appeal, it held a two-day trial on damages, and the jury nearly tripled the original award. The jury awarded $45.5 million in royalties as well as $50 million in profits from Walmart’s “Backyard Grill” brand.
Walmart then requested a new trial, saying the judge erred in its instructions on willfulness, should not have used the same jurors for the infringement and damages trials, and allowed improper evidence on damages. But the district court denied the request—and awarded Variety $4 million in fees. Walmart has appealed again, so it is not clear whether the significant verdict will stand.
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