Lahoti v. Vericheck Inc., No. 08-35001 (9th Cir., Nov. 16, 2009)
Opinion

On November 16th, the Ninth Circuit held that the district court’s finding that the mark “VeriCheck” was an inherently distinctive, legally protectable mark was based in part on erroneous legal reasoning and in part on valid reasoning. Accordingly, it vacated the lower court’s award of summary judgment in favor of the defendant and remanded. However, the Ninth Circuit affirmed the district court’s finding that the counterclaim defendant acted in bad faith. The court noted that it is proper for a court to consider the fact that the PTO has allowed others to register the mark at issue without requiring a showing of secondary meaning as weighing in favor of a finding of inherent distinctiveness.

The Ninth Circuit held that because the district court did not rely exclusively on the proper legal standard, its finding that Disputed Mark was distinctive must be vacated — even if there may have also existed proper legal grounds for finding the mark distinctive. The court also held that Lahoti acted at least “partially in bad faith” by gambling that the district court would agree with his interpretation of trademark law. He knew or should have known that he would risk cybersquatting liability if his gamble failed.

BNA and Michael Atkins, a Seattle trademark lawyer, provide relevant overviews of the case.

VeriCheck, Inc. (“VeriCheck”), a Georgia corporation that provides electronic financial transaction processing services, had unsuccessfully attempted to secure the vericheck.com domain name in 1999. David Lahoti claimed that in anticipation of future business pursuits, he registered a number of domain names with the “veri-” prefix, acquiring the vericheck.com domain name in 2003. After a failed negotiation in 2004 between Vericheck and Lahoti, VeriCheck filed an arbitration complaint pursuant to the Uniform Domain-Name Dispute-Resolution Policy in 2006. Although the arbitrator ordered the transfer of the Domain Name to VeriCheck, Lahoti sought a declaratory judgment that he did not violate the Lanham Act’s cybersquatting or trademark infringement provisions. Vericheck counterclaimed that Lahoti’s actions violated the Lanham Act, the Anti-Cybersquatting Consumer Protection Act (“ACPA”), the Washington Consumer Protection Act (“WCPA”), and Washington common law.

The Ninth Circuit reasoned that the proper standard of appellate review was for “clear error,” and it held that the district court’s decision that the “VeriCheck” mark was a distinctive, legally protectable mark under the ACPA and federal trademark law was based in part on reasoning contrary to federal trademark law and based in part on reasoning that could support the district court’s conclusion. Accordingly, because the district court did not rely exclusively on the proper legal standard, the appellate court vacated and remanded the judgment to the extent it determined the Disputed Mark was distinctive.

The appellate court also held that the record supported the district court’s summary judgment determination that Lahoti was motivated by a bad faith. Not only did he intend to profit from his use of the Disputed Mark, but also he was a repeat cybersquatter who has been admonished by other judicial bodies for cybersquatting. The court reasoned that Lahoti’s failed defenses in these other cases made it unlikely that he legitimately believed that his use of the Domain Name was wholly lawful in this case.

This case is significant because it maintains that the issue of whether a mark is suggestive or descriptive is a fact-intensive question that poses a difficult decision in many close cases. This case falls in line with a series of cases that have been reluctant to allow for the ACPA safe harbor defense that protects registrants who “believed and had reasonable grounds to believe that the use of the domain name was a fair use or otherwise lawful.” 15 U.S.C. 1125(d)(1)(B)(ii).

Facebook, Inc. v. Power Ventures, Inc.
By Gary Pong – Edited by Eric Engle

Facebook, Inc. v. Power Ventures, Inc., Case No. 08-cv-05780-JF (N.D. Cal. Oct. 22, 2009)
Order (Hosted by SPAM NOTES)

The United States District Court for the Northern District of California has granted a motion by Facebook to dismiss counter-claims and strike affirmative defenses in its ongoing case against Power Ventures (Power.com). In his order, United States District Judge Jeremy Fogel wrote that Power.com’s answer and counter-claim relied on legal conclusions which were not directly supported by factual allegations. Judge Fogel went on to note that antitrust claims, like those made by Power.com, “require a ‘higher degree of particularity in the pleadings.’” The order gives Power.com 30 days to amend its pleading.

TechCrunch provides an overview of the issues involved in this case. The Financial Times and Eric Goldman’s Technology & Marketing Law Blog comment on the decision.

Power.com is a service that aggregates various social networking sites so that users can access them all via Power.com. The service promotes to users that they can have “all [their] friends in just one place.” Power.com had allowed users to integrate their Facebook accounts into the service until Facebook filed suit on December 30, 2008. In its complaint (hosted and discussed by the New York Times), Facebook alleges, among other things, that Power.com had violated Facebook’s terms of use, infringed upon Facebook’s copyright and trademark, and violated the Digital Millennium Copyright Act (”DMCA”).

In response, Power.com filed a motion to dismiss (hosted by and discussed by SPAM NOTES) that was subsequently denied. It then filed an answer and counter-claim (hosted by Power.com and discussed by SPAM NOTES) against Facebook. In the counter-claim, Power.com alleges that Facebook engaged in monopolistic and anti-competitive behavior by placing restraints on Power.com’s ability to manipulate users’ Facebook data even when their consent was given. The present order by Judge Fogel gives Power.com 30 days to support its claims against Facebook with facts.

Whether or not Power.com ultimately prevails may have far-reaching effects on social networking sites and the personal data they amass, since one of Facebook’s greatest assets is the personal information it has collected on its over 300 million users. Facebook has an undeniable interest in keeping this information from potential competitors such as Power.com. In such an environment, it may be difficult for a new competitor to reach critical mass and to obtain enough users for the network effect to take hold. At the same time, users are very concerned about their privacy and Facebook has faced vocal criticism in the past whenever it instituted policies that users felt were threatening (e.g. Facebook Beacon). It would be even more difficult for Facebook to protect its users’ privacy if the data was shared with third-parties. With this in mind, it may not be hyperbole to say that the outcome of this case could affect a population the size of America.

Back to Drawing Board for Pa. State Legislature in Protecting Trademark Holders
By Brittany Blueitt – Edited by Stephanie Weiner

Commonwealth of Pennsylvania v. Omar, No. J-162A-B-2008 (Pa. Oct. 5, 2009)
Majority Opinion (Baer, J.)
Concurring Opinion (Castille, J.)
Dissenting Opinion (Eakin, J.)
Dissenting Opinion (Greenspan, J.)

On October 5, the Supreme Court of Pennsylvania affirmed two consolidated Centre County Court of Common Pleas decisions dismissing criminal trademark counterfeiting charges on the ground that Pennsylvania’s Trademark Counterfeiting Statute, 18 Pa. Cons. Stat. § 4119, is unconstitutionally vague and overbroad.  The court held that the statute is unconstitutional because it criminalizes a substantial amount of speech protected by the First Amendment of the United States Constitution.  Commonwealth v. Omar, No. J-162A-B-2008, slip op. at 10 (Pa. Oct. 5, 2009).

IP Spotlight provides an overview of the case. CNBC features an extended analysis of the decision.  The Madisonian declares the decision overly formalistic.

The Centre County Court of Common Pleas had previously held the statute unconstitutional in Commonwealth v. Garrity, No.1999-2264 (Pa. March 27, 2000), on the ground it punishes a substantial amount of constitutionally protected speech. The Trademark Counterfeiting Statute criminalizes conduct by a person who “knowingly manufactures, uses, displays, advertises, distributes, offers for sale, sells or possesses with intent to sell or distribute any items or services bearing or identified by a counterfeit mark.”  The statute defines “counterfeit mark” broadly to include any “unauthorized reproduction or copy of intellectual property,” and defines “intellectual property” as “any trademark, service mark, trade name, label, term, device, design or word adopted or used by a person to identify that person’s goods or services.” 18 Pa. Cons. Stat. § 4119.

In both Commonwealth v. Omar and Commonwealth v. O’Connor, the trial court dismissed charges brought against the defendants under the Trademark Counterfeiting Statute for possession of counterfeit Nike sneakers and distribution of hats bearing the Penn State logo, respectively, based on the Garrity decision.  The Commonwealth appealed both dismissals, which were consolidated for decision by the Pennsylvania Supreme Court.

Justice Baer, writing for the Supreme Court, reasoned that a statute is unconstitutionally overbroad where it punishes a substantial amount of lawful, constitutionally protected activity as well as illegal activity. The court refused to narrow the statute, finding that its words are “clear and free from all ambiguity and thus “the letter of it is not to be disregarded under the pretext of pursuing its spirit.”  Taking particular issue with the prohibition of any “use” of such a mark, the court concluded that the statute unconstitutionally prohibits protected speech, such as the use of the words “Nike” or “Penn State” on a protest sign, or even their use in the court’s own opinion.

Justices Eakin and Greenspan wrote separate dissenting opinions. Justice Greenspan argued that the court “has an obligation to interpret a statute in a constitutional manner wherever possible.” Finding the statute to be ambiguous, the dissent urged that the court must consider not only the plain language of the statute, but also the legislative intent underlying it. The intent of the Statute is to “prevent individuals from deceptively utilizing a recognized mark in the context of a sale or distribution” and not to criminalize “the mere use of a recognized word or phrase.” Finally, Justice Greenspan noted that both Omar and O’Connor had illegally violated Nike and Penn State’s trademarks and to overturn their convictions based on the overbreadth of the Statute “has an aura of injustice.”

Chief Justice Castille concurred in the opinion, noting that the primary divide between the majority and dissenting opinions was that both Omar and O’Connor were engaged in the precise illegal activity that the Statute was designed to prohibit. The Chief Justice noted, however, that the United States Supreme Court has directed that, in the First Amendment arena, individuals may assert a facial attack against a statute without demonstrating that his or her own conduct was protected.

EU Court Advisor Supports Google Keyword Searches in Trademark Suit

On September 22, Reuters reported that an advocate general to the European Court of Justice, the EU’s highest court, stated that Google did not infringe trademark rights of luxury goods maker Louis Vuitton (LVMH). Google sells keywords that use the company’s trademarks, but Advocate General Poiares Maduro concluded that trademark protections do not extend to search advertising keywords because they are not considered a product sold to the public. ZDNet’s Richard Koman argues that this decision does not account for brand confusion arising from keyword searches, and demonstrates the court’s “misunderstanding of the Web as something tangential to ‘real’ commerce.” Although the Luxembourg-based court follows the opinions of its advocates general in most cases, the judges will give their final judgment at a later date.

Facebook Shuts Down Beacon Ad Software as Part of Lawsuit Settlement

Ars Technica reports that on September 18, Facebook announced it will shut down its controversial Beacon ad software as part of a settlement for a class-action privacy suit. The Beacon software, launched in November 2007, allowed off-Facebook activities to be published in users’ news feeds without their explicit consent. After over a year of legal disputes regarding the software, Facebook decided to settle with complaining users, agreeing to discontinue Beacon and offering $9.5 million to create a foundation that would “fund projects and initiatives that promote the cause of online privacy, safety, and security.” Facebook’s director of policy communications said that the company has “learned a great deal from the experience.” The settlement proposal still awaits a district court judge’s approval.

FCC Proposes Net Neutrality Rules for Internet Service Providers

The New York Times reports that on September 12, the chairman of the Federal Communications Commission proposed new regulations regarding net neutrality for Internet service providers. The proposal would bar providers from blocking or slowing Internet traffic on the basis of content. Consumer advocates of the policy say networks should not be able to deter users from accessing lawful Internet content or applications by restricting bandwidth. Wired’s Dylan Tweeny warns that the proposed rules may be difficult to enforce, stifle overall service due to capacity limitations, and decrease innovation in a market that has flourished without government intervention. The rules will formally be proposed in an open FCC meeting in October.

On August 31, the Court of Appeals for the Federal Circuit (”CAFC”) reversed and remanded the Trademark Trial and Appeal Board (”TTAB”) decision, which ruled that fraud is committed when a registrant or applicant makes material misrepresentations it knows or should have known to be false or misleading.  The CAFC held the TTAB applied the should-have-known standard too broadly and thus ruled a registrant or applicant must have specific intent to deceive the U.S. Patent and Trademark Office in order to fraudulently acquire a trademark.  The evidence supporting the registrant’s or applicant’s intent to deceive must be clear and convincing.  The CAFC ruling significantly limits, if not overturns, Medinol v. Neuro Vasx, Inc., 67 U.S.P.Q.2d 1205 (T.T.A.B. 2003), in which the TTAB adopted the should-have-known standard.

The TTABlog provides an overview of the case.  Allen’s Trademark Digest, in addition to providing a detailed history of trademark fraud, criticizes the decision and asserts that the Bose holding implies that registrants and applicants have no duty of candor.  Furthermore, the article asserts the CAFC ruling is contrary to the Lanham Act and the Trademark Law Revision Act (”TLRA”) statutory definitions of “use.”

The dispute in Bose concerns Bose’s opposition against the Hexawave trademark application.  Bose alleged Hexawave would likely create confusion with Bose’s registered trademarks, including Wave.  Hexawave counterclaimed for cancellation of the Wave mark and asserted Bose fraudulently renewed the Wave mark because its general counsel knew or should have known Wave products were no longer manufactured.  Bose’s general counsel signed an affidavit of continued use and a renewal application thereby claiming the Wave mark was still used in commerce.  The general counsel stated he believed the products were technically in commerce because Bose still repaired Wave products and shipped the products back to customers.

In holding as it did, the CAFC reasoned that the should-have-known standard is not applicable and the TTAB “erroneously lowered the fraud standard to a simple negligence standard.” The court imposes a high standard to prove an intent to deceive in which there is “no room for speculation.” Although the court did not find fraud, it held that Bose’s registration must be revised to “reflect commercial reality” and remanded the case to the TTAB for appropriate proceedings.

The CAFC clarifies that negligence is not sufficient to infer fraud.  Bose likely marks the end of the should-have-known standard created in Medinol.  This decision will make it more difficult for trademark “use” fraud claims to prevail.

Paris Hilton Obtains Small Victory in Ninth Circuit

WSJ Blogs reports that the Ninth Circuit gave Paris Hilton the green light on August 31 to proceed in her lawsuit against Hallmark for its use of her image and the phrase “That’s Hot” in a birthday greeting card. The court made note of the similarities between the card and Hilton’s appearance on the television show “The Simple Life.” In support of Hilton, the court stated that she “has at least some probability of prevailing on the merits before a trier of fact.” The case name is Hilton v. Hallmark Cards.

Cable Companies No Longer Capped at 30% Market Share

The Washington Post reports that on August 28, the Court of Appeals for the D.C. Circuit in Comcast v. FCC invalidated an FCC rule that capped the market share of cable companies at 30%. The FCC supported the rule because it believed that cable companies with market share larger than 30% would harm consumers. The court rejected the FCC’s rule in part because it failed to show how consumers would be harmed by the large cable companies in the current market, given the competition between cable, satellite, and fiber optic providers.

Texas Links DNA to Criminal Records

WSJ Blogs reports that on September 1, a new law took effect in Texas will link DNA evidence to sexual assault suspects’ criminal records. The link will be maintained regardless of whether the statute of limitations has passed or the suspect has been tried. The law’s supporters want to ensure harsher penalties to these suspects should they face legal troubles in the future, as the record would be available to parole boards and prosecutors. Critics of the law, including the ACLU, fear the potential abuse of due process rights.

Florida Bar Wants Access to Certain Applicant Facebook Profiles

The Florida Board of Bar Examiners will now be requesting access to the Facebook profiles of certain applicants on a case-by-case basis. The Board has identified a number of categories of applicants that it will require access from, including persons with a history of certain types of legal experience or substance abuse. The Citizen Media Law Project notes many of the privacy concerns related to the Bar’s decision.

Senators Urge FCC to Carefully Examine Exclusive Cell Phone Deals

On June 16, Ars Technica reported that senators wrote a letter to the FCC voicing concern over exclusivity agreements between service providers and phone manufacturers. The four senators who signed the letter – Senators John Kerry (D-MA), Roger Wicker (R-MS), Byron Dorgan (D-ND), and Amy Klobuchar (D-MN) – expressed particular concern as to whether the deals restrict consumer choice regarding handsets and geographic regions. They also noted that the agreements may disadvantage competing smaller carriers and discourage new innovation. According to the letter, the “Senate Committee on Commerce, Science and Transportation will convene a hearing this week to examine issues confronting wireless consumers” and decide if legislative action is necessary. Although the iPhone’s exclusivity agreements have garnered the most attention, the letter considers all cell phone carriers.

Microsoft Files Suit After Finding Evidence of Click Fraud

On June 16, the New York Times reported that Microsoft sued three individuals and several corporations for $750,000 in damages for click fraud – manipulating clicks on online advertisements. After noticing suspicious spikes in traffic from auto insurance and World of Warcraft web advertisements, Microsoft began an investigation that eventually uncovered an alleged click fraud manipulation scheme. Microsoft’s complaint alleges that the defendant directed traffic to his competitors’ Web sites so they would pay for the clicks and exhaust their advertising budgets. Jeremy Fain, a vice president of Interactive Advertising Bureau, said that although there is much precedent for mail and wire fraud, there is little regarding internet fraud. He went on to say that this case may “create more of a legal precedent, and more of a legal library of cases to draw from in the future.”

EU Seizure of Indian Drugs Hinders Medicine Dispersal

According to a recent report by Intellectual Property Watch, an increase in European seizures of Indian medicines believed to infringe intellectual property rights has triggered concerns that there is a strategic pattern in enforcement. On June 16, Spicy IP reported that India has recently protested to the TRIPS Council, expressing strong disapproval of EU’s controversial regulations and demanding more transparency of the various seizures. In May, German officials held about 3 million pounds of Amoxicillin on suspicion of a trademark infringement, delaying shipment to the Pacific by 4 weeks. “These random seizures seriously impact our ability to service the healthcare needs of people living in developing countries in a timely manner,” according to a drug supplier spokesperson. The EU claims that it is merely trying to reduce the “fast growing and dangerous” problem of counterfeits in developing countries.

By Jad Mills – Edited by Caitlyn Ross
AFL Philadelphia LLCl v. Krause, June 4, 2009, No. 09-614.
Slip Opinion hosted by Exclusive Rights.

On June 4, 2009, Judge Baylson of the Eastern District of Pennsylvania denied Philadelphia Soul’s motion to dismiss defendant Joe Krause’s counterclaims for trademark infringement and misappropriation of name in AFL Philadelphia LLC v. Krause. The judge allowed both counterclaims to go forward because Krause had sufficiently alleged that his name had acquired the necessary “secondary meaning” for trademark protection under the Lanham Act.

Ex©lusive Rights and Shannon Duffy provide summaries of the case, paying particular attention to Judge Baylson’s inclusion of Bon Jovi song references in the opinion. An earlier post by Ex©lusive Rights summarizes the ongoing Pennsylvania State Court litigation between the same parties. 

Philadelphia Soul, an arena football league (AFL) team partially owned by Jon Bon Jovi, sued Joseph Krause in federal court after Krause filed suit in state court for almost $125,000 in unpaid commissions. Philadelphia Soul had terminated Krause and other staff members after AFL suspended the 2009 season. Among other things, Philadelphia Soul alleged that Krause infringed its copyright and trademark by making and selling championship rings using the team’s logo. Krause counterclaimed for Lanham Act violations and for misappropriation of his name based on an email sent out to season ticket holders by Philadelphia Soul discussing the season suspension. The email indicated that it came from “Joe Krause [mailto: jkrause@philadelphiasoul.com].”

Before analyzing the elements of the Lanham Act claim, the court applied the 5 factor Conte test to determine whether Krause had prudential standing under the Lanham Act. The court held that 4 of the factors favored prudential standing and that the fifth factor was neutral. Although the court recognized that “the nature of [Krause's] injury [was] somewhat remote from the type of injury that Congress sought to protect in the Lanham Act,” it found that Krause’s pleadings justified prudential standing because the Act protects against harm to one’s commercial reputation and goodwill. Judge Baylson found that Krause pled damage to his commercial reputation by alleging that Philadelphia soul had “diverted some of their reputational damage to Defendant by associating him with their actions.”

The court held that Krause had sufficiently pled all three elements of the Lanham Act claim. First, Krause’s name was a protectable mark because it had acquired “secondary meaning” by becoming synonymous in the public mind with the sports and entertainment industry. The secondary meaning was evidenced by the length of time in which Krause’s favorable reputation was used, the extent and number of sales under Krause’s directorship, Philadelphia Soul’s use of his name to send the email, and because the email caused actual confusion among recipients. Second, Philadelphia Soul admitted that Krause owned his own name. Third, the court found that Krause had sufficiently pled a likelihood of confusion because consumers viewing the email would probably assume that the email was associated with Krause. 

The court also held that Krause had sufficiently pled misappropriation of name. Although Judge Baylson found that Krause did plead that Philadelphia Soul appropriated Krause’s name for commercial benefit, he held that misappropriation of name, in contrast with the right of publicity, does not require commercial benefit. Misappropriation of name takes place even when the defendant “makes use of the plaintiff’s name or likeness for his own purposes and benefit, even though the use is not a commercial one, and even though the benefit sought to be obtained is not a pecuniary one.”

This case suggests that an individual may demonstrate that her name has achieved legally protected distinctiveness through secondary meaning by being publicly viewed as synonymous with a specific industry, as opposed to being synonymous with a specific business. 

Google Sued for Use of Trademarked Terms in Adwords Program

A class action was filed against Google on May 11, 2009 in federal court in Texas challenging its use of trademarked terms in its adwords program. The New York Times covered the case and surrounding issues. Ars Technica analyzes Google’s new AdWords policy.

ACLU Challenges Constitutionality of Gene Patents

The ACLU filed suit in the Southern District of New York challenging the patenting of genes and genetic tests as unconstitutional. The New York Times reported on the suit and the ACLU’s plaintiff. Patently-O provides further analysis and links to the ACLU blog and the complaint.

Rescuecom v. Google
Second Circuit, April 3, 2009, 06-4881-cv
Opinion (hosted by EFF)

On April 3, 2009, the Court of Appeals for the Second Circuit vacated the District Court for the Northern District of New York’s dismissal of a trademark infringement suit against Google by Rescuecom, Corp., a computer repair firm.

At issue was Google’s AdWords program, which allows advertisers to purchase ads based on the appearance of another (often competing) company’s name in search terms, thus allowing the purchaser’s ads to appear in the search results alongside links to the searched-for company. Also in dispute was Google’s Keyword Suggestion Tool, which recommends potential keywords to advertisers for use in the AdWords program. The key issue was whether Google’s use of Rescuecom’s trademark in both programs constitutes a “use in commerce” under § 1127 of the Lanham Act.

Ars Technica explains that, having distinguished away precedent, the court determined that Google was appropriating trademarked terms. Google’s claim – that it was only using these terms internally as part of its ad-placing algorithm – was dismissed as disingenuous because its Keyword Suggestion Tool was specifically suggesting trademarks to potential ad buyers. The Wall Street Journal Law Blog notes that this may add some clarity to the jumbled law on the use of keywords.

Rescuecom alleged that it was trademark infringement for Google to allow Rescuecom competitors to purchase advertisements that would appear when a user conducted a search for the keyword “rescuecom,” and to recommend purchase of the term “rescuecom” to the company’s competitors. A federal judge dismissed the case in 2006, accepting Google’s argument that its use of Rescuecom’s trademark was internal and not an infringing “use in commerce.” The district court relied heavily for its finding on a 2005 decision, 1-800 Contacts v. WhenU. In that case, the Second Circuit ruled that an adware program that triggered ads from competing companies that appeared in a separate popup window when a user visited certain corporate websites did not constitute trademark infringement. The district court in this case found that 1-800 controlled and required dismissal of Rescuecom’s infringement claims. The dismissal was hailed as a victory for Google and other search engines, for which keyword advertising is a lucrative business.

Reversing the district court, the Second Circuit found that Google’s use was “in commerce” and remanded the case for further proceedings. Judge Pierre Leval, writing for the Second Circuit, found that the district court had misapplied circuit precedent. The Second Circuit distinguished 1-800 on the basis that in that case ads were triggered by a corporate URL rather than by a trademarked product or service name, and they appeared in a separate window. These features, the appeals court ruled, limited any confusion on the part of consumers, who might otherwise mistake the advertised brand for the trademarked one.

Google’s programs, by contrast, market the trademark itself to advertisers and display links to competitor websites on the same page, next to the searched-for brand. These differences, the court found, were significant enough that 1-800 did not require dismissal. The court determined that remanding for trial was appropriate to determine whether Google’s programs actually constitute trademark infringement by causing trademark confusion among those performing searches.

Trademark law is designed to protect consumers by preventing companies from selling their products under false pretenses. The core issue in this case is whether choosing a competitor’s trademark as an advertising keyword is likely to confuse consumers. It is unclear whether Google will win on the merits in the district court. The trial will undoubtedly be expensive, but, if Google were to prevail, it would be worth every dollar to the company to protect the revenue that online advertising generates.