September–October, 2017 Vol. 107 No. 5

Adios! to the Irreparable Harm Presumption in Trademark Law Anne Gilson LaLonde and Jerome Gilson

Geographical Indications: The United States’ Perspective D. Peter Harvey

Foundational Objectives of Laws Regarding Trademarks and Unfair Competition Tony Bortolin

What Insurance Coverage Remains for Trademark Infringement Claims After Years of Policy Language Changes? David A. Gauntlett

Internet Surveys in Intellectual Property Litigation: Doveryai, No Proveryai Himanshu Mishra and Ruth M. Corbin

Book Review: Constructing Intellectual Property, by Alexandra George Alfred C. Frawley

Book Review: European Trade Mark Law: A Commentary, by Annette Kur and Martin Senftleben, with a contribution by Verena von Bomhard Edward Vassallo

Book Review: International Trademark Classification: A Guide to the Nice Agreement, by Jessie N. Roberts Jane F. Collen

INTERNATIONAL TRADEMARK ASSOCIATION Powerful Network Powerful Brands

655 Third Avenue, New York, NY 10017-5646 Telephone: +1 (212) 642-1733 email: wknox@inta.org Facsimile: +1 (212) 768-7796 OFFICERS OF THE ASSOCIATION JOSEPH FERRETTI ....................................................................................................................... President TISH L. BERARD ................................................................................................................. President Elect DAVID LOSSIGNOL ............................................................................................................... Vice President AYALA DEUTSCH ................................................................................................................. Vice President TIKI DARE .................................................................................................................................. Treasurer ZEEGER VINK .............................................................................................................................. Secretary MAURY M. TEPPER, III .................................................................................................................. Counsel ETIENNE SANZ DE ACEDO ..................................................................................... Chief Executive Officer

The Trademark Reporter Committee

EDITORIAL BOARD EDITOR-IN-CHIEF, CHAIR STAFF EDITOR-IN-CHIEF KATHLEEN E. MCCARTHY WILLARD KNOX

Senior Editors JESSICA ELLIOTT CARDON

GLENN MITCHELL ELISABETH KASZNAR FEKETE RAFFI V. ZEROUNIAN FABRIZIO MIAZZETTO PAMELA CHESTEK CHIKAKO MORI

Staff Editor Staff Editor BEVERLY HARRIS JOEL L. BROMBERG

Editors TSAN ABRAHAMSON MARIA BARATTA MARTIN J. BERAN DANIEL R. BERESKIN STEFANIA BERGIA LANNING BRYER SHELDON BURSHTEIN ROBERT CAMERON JANE F. COLLEN THEODORE H. DAVIS JR. ANNE DESMOUSSEAUX MEGHAN DILLON THOMAS F. DUNN SCOT DUVALL CLAUS M. ECKHARTT SHEJA EHTESHAM KAREN L. ELBURG MATTHEW EZELL NEMESIO FERNANDEZ-PACHECO SALVADOR FERRANDIS ALFRED FRAWLEY ALEX GARENS ALEXANDRA GEORGE DANIEL GLAZER ANDREW J. GRAY IV LESLEY MCCALL GROSSBERG

ANN LAMPORT HAMMITTE GUY HEATH ANNE HIARING HOCKING JANET L. HOFFMAN GANG HU DOMINIC HUI AHMAD HUSSEIN BRUCE ISAACSON AGLIKA IVANOVA E. DEBORAH JAY FENGTAO JIANG HE JING MARIA JOSE JIRON BENDANA SIEGRUN D. KANE SUSAN J. KERI MIKE KEYES ROLAND KUNZE JOI MICHELLE LAKES SCOTT LEBSON NELS LIPPERT MARCUS LUEPKE J. THOMAS MCCARTHY NANCY A. MILLER GEORGE W. MOXON JOHN M. MURPHY PAUL MUSSELL SADAF NAKHAEI

SAURABH NANDREKAR AMANDA NYE JENIFER DEWOLF PAINE JEREMY B. PENNANT NEAL PLATT MICHIEL RIJSDIJK RACHEL RUDENSKY JEREMY SCHACHTER MATTHEW R. SCHANTZ MARTIN SCHWIMMER JENNIFER SICKLER AARON SILVERSTEIN GIULIO ENRICO SIRONI WENDI E. SLOANE JERRE B. SWANN, JR. SCOTT THOMPSON CHINASA UWANNA ANJALI VALSANGKAR EDWARD E. VASSALLO MARTIN VIEFHUES CHARLES WEBSTER JORDAN WEINSTEIN JOHN L. WELCH JOSEPH WELCH BRYAN K. WHEELOCK JOSEPH YANG

Advisory Board MILES J. ALEXANDER WILLIAM M. BORCHARD CLIFFORD W. BROWNING LANNING G. BRYER SANDRA EDELMAN ANTHONY L. FLETCHER ARTHUR J. GREENBAUM

ROBERT M. KUNSTADT THEODORE C. MAX JONATHAN MOSKIN VINCENT N. PALLADINO JOHN B. PEGRAM ALLAN S. PILSON

ROBERT L. RASKOPF PASQUALE A. RAZZANO SUSAN REISS PIER LUIGI RONCAGLIA HOWARD J. SHIRE JERRE B. SWANN, SR. STEVEN M. WEINBERG

The views expressed in The Trademark Reporter are those of the individual authors and do not necessarily reflect those of INTA. The Trademark Reporter (ISSN 0041-056X) is published electronically six times a year by the International Trademark Association, 655 Third Avenue, New York, NY 10017-5646 USA. INTA, the INTA logo, INTERNATIONAL TRADEMARK ASSOCIATION, POWERFUL NETWORK POWERFUL BRANDS, THE TRADEMARK REPORTER, and inta.org are trademarks, service marks, and/or registered trademarks of the International Trademark Association in the United States and certain other jurisdictions.

The Trademark Reporter®

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Vol. 107 September–October, 2017 No. 5

TABLE OF CONTENTS

ARTICLES

Adios! to the Irreparable Harm Presumption in Trademark Law Anne Gilson LaLonde and Jerome Gilson .............................. 913

Geographical Indications: The United States’ Perspective D. Peter Harvey ....................................................................... 960

Foundational Objectives of Laws Regarding Trademarks and Unfair Competition Tony Bortolin ........................................................................... 980

What Insurance Coverage Remains for Trademark Infringement Claims After Years of Policy Language Changes? David A. Gauntlett .................................................................. 1032

Internet Surveys in Intellectual Property Litigation: Doveryai, No Proveryai Himanshu Mishra and Ruth M. Corbin .................................. 1097

BOOK REVIEWS

Constructing Intellectual Property, by Alexandra George Alfred C. Frawley .................................................................... 1122

European Trade Mark Law: A Commentary, by Annette Kur and Martin Senftleben, with a contribution by Verena von Bomhard Edward Vassallo ...................................................................... 1124

International Trademark Classification: A Guide to the Nice Agreement, by Jessie N. Roberts Jane F. Collen .......................................................................... 1126

This issue of The Trademark Reporter (TMR) should be cited as 107 TMR ___ (2017).

Vol. 107 TMR 913

The Trademark Reporter®

ADIOS! TO THE IRREPARABLE HARM PRESUMPTION

IN TRADEMARK LAW∗

By Anne Gilson LaLonde∗∗ and Jerome Gilson∗∗∗

CONTENTS

Authors’ Note ................................................................................. 915

I. Introduction .......................................................................... 915

II. The Downfall of the Irreparable Harm Presumption in Trademark Law .................................................................... 916

A. Irreparable Harm Basics ................................................ 916

B. Former Reliance on the Presumption ............................ 918

C. Why the Presumption Existed ........................................ 920

D. eBay ................................................................................. 922

E. Winter .............................................................................. 924

F. The Current State of the Presumption .......................... 924

G. Should eBay and Winter Even Be Applied to Trademark Cases? .......................................................... 927

III. A Nation of Laws and Some Appallingly Heedless Courts .. 929

IV. Presumptions and Inferences ............................................... 932

V. Plaintiff’s Case for Preliminary Injunctive Relief—The Basics .................................................................................... 935

∗ Adapted and reprinted from Gilson on Trademarks with permission. Copyright 2017 Matthew Bender & Company, Inc., a LexisNexis company. All rights reserved. ∗∗ Author, Gilson on Trademarks. Professor Member, International Trademark Association. ∗∗∗ Original author, Gilson on Trademarks; Shareholder in Brinks Gilson & Lione; former International Trademark Association Director; Reporter of INTA Trademark Review Commission (forerunner of Trademark Law Revision Act of 1988); INTA Counsel; and recipient of INTA President’s Award for Dedicated and Distinguished Service.

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A. Harm ............................................................................... 936

1. Groundwork for Showing Reduction in Goodwill or Reputation .............................................................. 937

2. Reduction in Market Share, Sales, or Customers ...... 939

3. Inferior Quality of Defendant’s Goods or Services or Customer Dissatisfaction ....................................... 940

4. Parallels Between Current Case and One Finding Irreparable Harm ....................................................... 942

B. Impending Nature of Harm ............................................ 943

C. Lack of Redress with Award of Money ........................... 944

D. Special Cases .................................................................. 945

1. Counterfeiting ............................................................. 945

2. Default ........................................................................ 946

3. Holdover Franchisees ................................................. 948

VI. Defendant’s Case Against Preliminary Injunctive Relief—The Basics ................................................................ 949

A. Plaintiff’s Irreparable Harm Is Speculative and Its Evidence Is Cursory, Conclusory, or Unsupported ........ 950

B. Excessive Delay .............................................................. 953

C. Plaintiff’s Injuries Could Be Compensated by Money Damages .......................................................................... 956

D. Competition Between the Parties Is Too Indirect .......... 957

E. Mootness ......................................................................... 958

VII. Conclusion ............................................................................. 959

Vol. 107 TMR 915

AUTHORS’ NOTE After we wrote this article, the INTA Board of Directors

called for an amendment to the Lanham Act to include a rebuttable presumption of irreparable harm. In a resolution passed May 20, 2017, it proposed that the Act should be amended to provide that:

when a claimant seeks injunctive relief under Section 34 of the Act, a rebuttable presumption of irreparable harm shall apply where there has been a finding of liability, or in the case of a motion for a preliminary injunction, a finding of probable success on the merits of the claim.

The Board noted the uncertainty that Lanham Act claimants face because of the divergent views of the various circuits, as well as the lack of clarity over just what evidence can support a claim of irreparable harm. Without the presumption, cautions the Board resolution, “a subset of Lanham Act claimants are likely to be denied meaningful relief despite prevailing on the merits of their claims.”

We fully support the resolution and hope that such an amendment will soon become law.

I. INTRODUCTION Whatever happened to the irreparable harm presumption in

trademark law? After all, federal courts in the United States had long held that a trademark owner seeking a preliminary injunction only had to prove that it was likely to succeed on the merits. It did not have to prove separately that the harm was irreparable. Harm was presumed. But just over a decade ago, the Supreme Court set a different and ominous course in motion.

While we question the legitimacy of this change, a court today will probably expect separate proof of irreparable harm when preliminary relief is sought.

In this article, we cover the presumption of irreparable harm, past and present, explain the complications inherent in losing it, and discuss plaintiffs’ and defendants’ strategies in light of the current status of the presumption.

We conclude that the presumption is almost extinct, that losing it entirely would be a palpable setback to trademark law and the

916 Vol. 107 TMR public interest, and that a Lanham Act amendment would both restore and strengthen it.

II. THE DOWNFALL OF THE IRREPARABLE HARM PRESUMPTION IN TRADEMARK LAW

In this section, we start with the fine print on irreparable harm and its place in injunctive relief overall in United States trademark law. Then we cover the pre-2006 era, during which federal courts commonly presumed that a trademark owner would be irreparably harmed by infringement. Next, we discuss the intervening events of two Supreme Court opinions and why those are thought to severely undermine or even eliminate the presumption of irreparable harm in trademark infringement cases. After an analysis of the (spoiler alert) waning state of the presumption in trademark cases today, we conclude with a note on whether the Supreme Court in fact meant to call it into question at all.

A. Irreparable Harm Basics Preliminary injunctions and temporary restraining orders,

bedrocks of the law of equity, preserve the status quo until a court or jury can decide the case on the merits.1 Their effect (“temporary” and “preliminary”) is obviously short term. And a court’s accompanying findings of fact and conclusions of law are not binding in a later trial on the merits.2 Still, if granted, such injunctions dramatically block infringement and often result in prompt settlement or summary termination of the entire dispute. A defendant ordered to change its mark preliminarily probably will not resume using it months later, and persuading a court after trial to depart from its preliminary ruling is the quintessential long shot.

The Lanham Act states that a court “shall have power to grant injunctions, according to the principles of equity and upon such terms as the court may deem reasonable, to prevent the violation of any right of the registrant of a mark registered in the Patent and Trademark Office or to prevent a violation under subsection (a), (c), or (d) of section 43.”3 Courts exercise their discretion in deciding

1. See, e.g., University of Tex. v. Camenisch, 451 U.S. 390, 395 (1981) (“The purpose of a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held.”). 2. Id. 3. 15 U.S.C. § 1116(a). See generally 3 Anne Gilson LaLonde, Gilson on Trademarks § 14.02[1] on injunctive relief.

Section 43(a) covers infringement of unregistered trademarks or trade dress, establishes a federal law of unfair competition, and provides for civil actions against those engaging in false advertising. 15 U.S.C. § 1125(a). See 2 Gilson on Trademarks § 7.02 for a discussion of actions available under Section 43(a) and 3 Gilson on Trademarks § 11.03[2][a][ii] for a discussion of federal unfair competition law.

Vol. 107 TMR 917 whether to grant or deny such relief, consistent with “well-established principles of equity.”4

A preliminary injunction or temporary restraining order is “an extraordinary remedy never awarded as of right,”5 available only “upon a clear showing that the plaintiff is entitled to such relief.”6 At the core is also proof of irreparable harm, without which a plaintiff is lost.7 To put it in context, according to the Supreme Court, traditional equity doctrine requires that a party seeking preliminary injunctive relief is likely to (a) succeed on the merits, (b) suffer irreparable harm in the absence of preliminary relief, (c) prevail in the balancing of equities, and (d) show that an injunction is in the public interest.8

Although this article focuses on preliminary injunctive relief and its particular challenges, courts considering permanent injunctions must also find that a plaintiff has suffered or will suffer irreparable harm.9 A permanent injunction requires a party to show actual success on the merits rather than a likelihood, but the meaning of “irreparable harm” is the same in both contexts.10 Where relevant, therefore, we also cite permanent injunction cases.

Section 43(c) enables the owner of a famous trademark to sue for dilution of that mark by tarnishment or blurring. 15 U.S.C. § 1125(c). See 2 Gilson on Trademarks § 5A.01 et seq. for more on dilution law.

Section 43(d) protects mark owners when their mark has been appropriated in a domain name with the bad faith intention to profit from its goodwill. 15 U.S.C. § 1125(d). See 2 Gilson on Trademarks § 7A.06 for a discussion of the cyberpiracy cause of action. 4. eBay, Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (2006). 5. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 24 (2008). 6. Id. at 22. 7. E.g., Ferring Pharms., Inc. v. Watson Pharms., Inc., 765 F.3d 205, 219 (3d Cir. 2014) (“Absent a showing of irreparable harm, a plaintiff is not entitled to injunctive relief, even if the other three elements are found.”); Swarovski Aktiengesellschaft v. Bldg. #19, Inc., 704 F.3d 44, 55 (1st Cir. 2013) (holding that a district court must make an affirmative finding on irreparable harm in order to issue a preliminary injunction).

See also Fed. R. Civ. P. 65(b)(1)(A) (before court can grant temporary restraining order, immediate and irreparable harm must be shown by either affidavit or verified complaint); 13 Moore’s Federal Practice § 65.22[1][b] (“A preliminary injunction will not be granted unless the applicant shows that irreparable harm will result in the absence of such relief.”). 8. Winter, 555 U.S. at 20. 9. To obtain permanent injunctive relief, the Supreme Court holds that a plaintiff must show it has suffered an irreparable injury, legal remedies are inadequate, an equitable remedy is warranted given the balance of hardships between the parties, and a permanent injunction would not disserve the public interest. eBay, 547 U.S. at 391. 10. Amoco Production Co. v. Gambell, 480 U.S. 531, 546 n.12 (1987) (“The standard for a preliminary injunction is essentially the same as for a permanent injunction with the exception that the plaintiff must show a likelihood of success on the merits rather than actual success.”); Flexible Lifeline Sys. v. Precision Lift, Inc., 654 F.3d 989, 996 (9th Cir. 2011) (“Nor does the fact that eBay concerned a permanent injunction rather than a preliminary injunction sufficiently distinguish the cases to result in a different outcome.”); 13 Moore’s Federal Practice § 65.05[3] (“As opposed to preliminary injunctions, permanent injunctions ordinarily may be rendered only after a valid adjudication of the merits of the action.”).

918 Vol. 107 TMR

But when can harm be irreparable? When it cannot be repaired. That is, when a court could not make a plaintiff whole if it succeeds at trial.11 A court will not grant equitable relief if legal relief—money damages—would be adequate. Thus, an injury that can be calculated in dollars is not irreparable.12 Also, harm that is too remote or speculative is not “irreparable.”13 It must be “likely” and not merely “possible.”14 But a court need not wait for actual injury; it can, of course, enjoin wrongful conduct to prevent threatened or imminent injury.15

B. Former Reliance on the Presumption Federal courts agreed for years that irreparable harm was

presumed in meritorious trademark cases. When a plaintiff sought a preliminary injunction and showed it would likely succeed at trial on the merits, the courts presumed that, without injunctive relief, the plaintiff also was likely to suffer irreparable harm.16 As the

11. Id. at § 65.22[1][b] (“In general, irreparable injury is an injury for which the court could not compensate the movant should the movant prevail in the final decree. Thus, lost income or other economic loss that is calculable and compensable by monetary damages ordinarily will not be considered an irreparable injury.”) (footnote omitted). See also, e.g., Kraft Foods Group Brands LLC v. Cracker Barrel Old Country Store, Inc., 735 F.3d 735, 740 (Fed. Cir. 2013) (Irreparable means “not fully compensable or avoidable by the issuance of a final judgment (whether a damages judgment or a permanent injunction, or both) in the plaintiff’s favor. For if the harm can be fully repaired in the final judgment, there is no reason to hurry the adjudicative process.”) (citations omitted). 12. 1 Moore’s Federal Practice at § 2.03[3] (“[A] court may not grant equitable relief unless it first determines that the party seeking equitable relief has no adequate legal remedy.”). 13. Id. at § 65.22[1][b] (“Alleged harm that is remote or speculative will not be considered irreparable; rather, the movant must demonstrate that the threatened harm is imminent.”). 14. Winter, 555 U.S. at 20-22. 15. Courts require a preliminary injunction movant to prove that “it will suffer” irreparable injury if the injunction is denied. E.g., Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC, 562 F.3d 1067, 1070 (10th Cir. 2009); Enrique Bernat F., S.A. v. Guadalajara, Inc., 210 F.3d 439, 442 (5th Cir. 2000). See also 13 Moore’s Federal Practice §§ 65.22[1][a] (describing factor as “[l]ikelihood that movant will suffer irreparable injury if the request for preliminary injunction is denied.”), 65.22[c] (“A preliminary injunction will not be granted in the absence of some actual or threatened violation of a legal right.”).

Cf. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 826 (9th Cir. 2011) (“Because a likely injury is far less certain than an actual injury, plaintiffs need not prove the latter to establish the commercial injury necessary for Lanham Act standing.”). 16. In order by circuit, see, e.g., I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 33 (1st Cir. 1998) (“In the trademark context, ‘irreparable harm may be shown even in the absence of actual injury to plaintiff’s business based on plaintiff’s demonstration of a likelihood of success on the merits on its claim.’”) (citation omitted); Genesee Brewing Co. v. Stroh Brewing Co., 124 F.3d 137, 142 (2d Cir. 1997) (“In the context of trademark and unfair competition injunctions, the requirement of irreparable harm carries no independent weight. . . . [A] showing of likelihood of confusion . . . establishes irreparable harm.”); Kos Pharms., Inc. v. Andrx Corp., 369 F.3d 700, 726 (3d Cir. 2004) (“As we have already found that [plaintiff] has shown a likelihood of success, we hold it is entitled to a presumption that it will suffer irreparable harm absent an injunction.”); Scotts Co. v. United Indus. Corp., 315 F.3d 264, 273

Vol. 107 TMR 919 Third Circuit declared in 1998, “once the likelihood of confusion caused by trademark infringement has been established, the inescapable conclusion is that there was also irreparable injury.”17 The Seventh Circuit went as far as calling the presumption “well-established” in trademark cases, “even absent a showing of business loss.”18 The Fifth Circuit, a renegade, occasionally disavowed the presumption and required that a plaintiff separately prove irreparable harm.19 (Still, even the sole court to disavow the presumption later fell under its spell20 and suggested that it might be valid.21)

(4th Cir. 2002) (“In Lanham Act cases involving trademark infringement, a presumption of irreparable injury is generally applied once the plaintiff has demonstrated a likelihood of confusion, the key element in an infringement case.”); Circuit City Stores, Inc. v. CarMax, Inc., 165 F.3d 1047, 1056 (6th Cir. 1999) (“The law of this Circuit holds that no particular finding of . . . irreparable harm is necessary for injunctive relief in trademark infringement or unfair competition cases.”); Eli Lilly & Co. v. Natural Answers, Inc., 233 F.3d 456, 469 (7th Cir. 2000) (“Irreparable harm is generally presumed in cases of trademark infringement and dilution.”); Coca-Cola Co. v. Purdy, 382 F.3d 774, 789 (8th Cir. 2004) (“A showing that confusion is likely supports a strong presumption of irreparable harm.”); GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1204 n.4 (9th Cir. 2000) (“In a trademark infringement claim, ‘irreparable injury may be presumed from a showing of likelihood of success on the merits.’ This presumption effectively conflates the dual inquiries of this prong into the single question of whether the plaintiff has shown a likelihood of success on the merits.”) (citations omitted); SCFC ILC, Inc. v. VISA USA, Inc., 936 F.2d 1096, 1100-01 (10th Cir. 1991) (“Irreparable injury is frequently presumed where a trademark is wrongfully appropriated by another.”); McDonald’s Corp. v. Robertson, 147 F.3d 1301, 1310 (11th Cir. 1998) (holding that, in trademark infringement cases, “a sufficiently strong showing of likelihood of confusion . . . may by itself constitute a showing of . . . [a] substantial threat of irreparable harm”) (citation omitted).

The D.C. Circuit did not have occasion to opine on the issue, but one of its district courts did. See Malarkey-Taylor Assocs. v. Cellular Telecoms. Indus. Ass’n, 929 F. Supp. 473 (D.D.C. 1996) (“Trademark infringement raises a presumption of irreparable harm.”). 17. Pappan Enters., Inc. v. Hardee’s Food Sys., Inc., 143 F.3d 800, 805 (3d Cir. 1998). See also, e.g., Am. Bd. of Psychiatry & Neurology, Inc. v. Johnson-Powell, 129 F.3d 1, 11 (1st Cir. 1997) (“[T]rademark infringement results in irreparable harm because the attendant loss of profits, goodwill, and reputation cannot be satisfactorily quantified, and, thus, the trademark owner cannot adequately be compensated.”). 18. Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 16 (7th Cir. 1992). 19. Sunbeam Prods. Inc. v. West Bend Co., 123 F.3d 246 (5th Cir. 1997); Allied Marketing Group, Inc. v. CDL Marketing, Inc., 878 F.2d 806 (5th Cir. 1989); Southern Monorail Co. v. Robbins & Myers, Inc., 666 F.2d 185, 187-88 (5th Cir. 1982). See also Paulsson Geophysical Serv., Inc., v. Sigmar, 529 F.3d 303, 312 (5th Cir. 2008) (“This Court has avoided ‘expressly adopting this presumption of irreparable injury.’”) (citation omitted).

See generally 3 Gilson on Trademarks § 14.02[10][e] for more on the Fifth Circuit’s preliminary injunction standard. 20. Abraham v. Alpha Chi Omega, 708 F.3d 614, 627 (5th Cir. 2013). 21. Emerald City Mgmt., LLC v. Kahn, 624 Fed. Appx. 223 (5th Cir. 2015) (unpublished) (declining to consider validity of presumption).

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C. Why the Presumption Existed A presumption is a rule of law holding that the finding of one

fact allows a court to assume that another fact exists, until or unless the presumed fact is rebutted by evidence.22 Legal presumptions are useful when there is insufficient evidence or it is difficult or impracticable for a court to draw a definite conclusion.23 The presumption of irreparable harm was ready-made for, if not inherent in, trademark infringement cases.24

Where a court found that confusion was likely to be proved at trial, it recognized that harm to the trademark owner was as clear as the underlying rationale in support of the finding of infringement. The First Circuit articulated it well in 1992:

By its very nature, trademark infringement results in irreparable harm because the attendant loss of profits, goodwill, and reputation cannot be satisfactorily quantified and, thus, the trademark owner cannot adequately be compensated. Hence, irreparable harm flows from an unlawful trademark infringement as a matter of law.25

22. Black’s Law Dictionary 1185 (6th ed. 1990) (“A presumption is a rule of law, statutory or judicial, by which finding of a basic fact gives rise to existence of presumed fact, until presumption is rebutted. A legal device which operates in the absence of other proof to require that certain inferences be drawn from the available evidence.”) (citation omitted). See infra § IV for more on presumptions and inferences. 23. Mark P. Gergen, John M. Golden & Henry E. Smith, The Supreme Court’s Accidental Revolution? The Test for Permanent Injunctions, 112 Colum. L. Rev. 203, 234 (2012) (“Filters that point toward and away from injunctions can limit error and save a lot of effort. Particularly when administrative costs and limitations are considered, overall decisionmaking can be improved through use of presumptions and defenses that mimic the direction expected for fully-informed judgments attentive to accepted goals such as discouraging opportunism.”). 24. Dilution, false advertising, and cybersquatting cases are beyond the scope of this article. See 3 Gilson on Trademarks § 14.02[3][b][ii]. 25. Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 640 (1st Cir. 1992). That circuit has since noted that eBay may have put this holding in doubt, but did not decide the issue. Swarovski Aktiengesellschaft, 704 F.3d 44.

See also, e.g., Lone Star Steakhouse & Saloon, Inc. v. Alpha of Virginia, Inc., 43 F.3d 922, 939 (4th Cir. 1995) (“Infringement gives rise to irreparable injury, in that plaintiff has lost control of its business reputation to this extent, there is substantial likelihood of confusion of the purchasing public, there may be no monetary recovery available, and there is an inherent injury to the good will and reputation of the plaintiff.”) (internal quotation marks and citation omitted); Sandra Rierson, IP Remedies After eBay: Assessing the Impact on Trademark Law, 2 Akron Intel. Prop. J. 163, 175 (2008), available at http://ssrn.com/abstract=1135405 (“When a competitor places a trademark holder’s mark (or a confusingly similar replication of it) on the competitor’s inferior goods, thereby generating a likelihood of confusion on the part of the consumer, one would expect such conduct to have a real impact on (1) the consumer’s opinion of the trademark holder’s goods; and (2) the sales of those goods.”).

Vol. 107 TMR 921 And loss of reputation or goodwill may be devastating, even with bold corrective advertising.

The classic presumption also assumed that injury to reputation or goodwill cannot easily be quantified or adequately compensated with money damages.26 It is often next to impossible to prove such evanescent injury at the preliminary injunction stage.27 Consumer confusion, particularly that generated by intentional infringement, would doubtlessly erode market share to an unquantifiable degree.28

Some, deriding it as unfair, have criticized the presumption as a policy matter. One commentator argued that it improperly allowed courts to bypass a stringent analysis of plaintiffs’ injuries and reasons they could not be remedied with damages.29 Further, requiring proof of specific irreparable harm “also prevents courts from considering harms that are distant or conjectural, or that are insubstantial, such as a plaintiff’s psychic dissatisfaction with the defendant’s noncompliance with the law.”30 Another scholar thought that, in trademark cases, “the overall level of liability is too high,” and questioning the presumption has “triggered a reexamination of expansive harm theories in particular by focusing courts on the issue of irreparable harm, which has allowed them to make a good

26. Cf. Anthony DiSarro, A Farewell to Harms: Against Presuming Irreparable Injury in Constitutional Litigation, 35 Harv. J.L. & Pub. Pol’y 743, 783-84 (2012) (stating that in constitutional cases, eliminating the presumption of harm generally would not change outcomes because the abridgement of rights cannot be redressed with an award of damages; “The validity of this observation is not diminished simply because the presumption is eliminated.”). 27. See, e.g., Ty, Inc. v. Jones Group Inc., 237 F.3d 891, 902 (7th Cir. 2001) (holding that injuries from trademark infringement “are presumed to be irreparable because ‘it is virtually impossible to ascertain the precise economic consequences of intangible harms, such as damage to reputation and loss of goodwill, caused by such violations’”) (citation omitted); Omega Importing Corp. v. Petri-Kine Camera Co., 451 F.2d 1190, 1195 (2d Cir. 1971) (holding that “if an infringer’s product is of poor quality, or simply not worth the price, a more lasting but not readily measurable injury may be inflicted on the plaintiff’s reputation in the market”). 28. See, e.g., Dialogo, LLC v. Santiago-Bauza, 425 F.3d 1, 4 (1st Cir. 2005) (“Irreparable—or at least unquantifiable—injury may be fairly likely where two businesses are vying for the same customers using the same trademark or two marks that can be confused with one another. There, every customer diverted to a defendant may be an undetectable loss, even a permanent one, to the plaintiff.”); Tough Traveler v. Outbound Prods., 60 F.3d 964, 967-68 (2d Cir. 1995) (holding that proof of “loss of sales due to infringement is . . . notoriously difficult”). 29. DiSarro, supra note 26, at 761 (“Presuming irreparable harm lets courts off the hook . . . .”). 30. Id. at 753-54 (footnotes omitted).

922 Vol. 107 TMR start on the problem.”31 Yet another went so far as to declare that the presumption violated a defendant’s right to due process.32

We respectfully disagree. Arguing for removal of the presumption ignores a fundamental fact: In most, if not all, meritorious trademark cases, likelihood of confusion will perforce damage the plaintiff’s reputation and goodwill. Moreover, the presumption has proved to be a workable shorthand, and is well within the statutory power to grant injunctive relief “according to the principles of equity and upon such terms as the court may deem reasonable,”33 and in any event it remains rebuttable by evidence contravening a finding of irreparable harm.34

D. eBay The trademark bar began to question the irreparable harm

presumption in 2006, soon after the Supreme Court decided the patent case eBay v. MercExchange.35 The petitioner had challenged a rule frequently applied in patent law: If patent infringement is proved then, absent exceptional circumstances, an injunction will issue. Prior to eBay, the general rule was that patent owners were entitled to permanent injunctive relief almost automatically upon a showing of infringement.36

MercExchange owned a business method patent for an electronic marketplace facilitating the sale of goods between individuals and sued online auction house eBay for patent infringement. A jury found the patent valid and infringed, but the district court denied MercExchange’s motion for a permanent injunction. However, the Court of Appeals for the Federal Circuit reversed and applied the general rule.

The Supreme Court emphatically rejected it, finding it antithetical to well-established principles of equity. It held that the

31. Rebecca Tushnet, What’s the Harm of Trademark Infringement?, 49 Akron L. Rev. 627, 645 (2016), available at http://ideaexchange.uakron.edu/akronlawreview/vol49/iss3/1. See also Rierson, supra note 25, at 165 (“Particularly in cases which reflect a broader, propertized version of trademark law, application of eBay’s mandate that courts review the merits of a request for injunctive relief, rather than rely upon formulaic assumptions to support the award of such relief, would be an improvement over the status quo.”). 32. Aurelia Hepburn-Briscoe, Note and Comment, Irreparable Harm in Patent, Copyright, and Trademark Cases after eBay v. Mercexchange, 55 How. L.J. 643, 673 (2012) (stating that the presumption “is counter to a cornerstone of our nation’s jurisprudence—due process”). 33. 15 U.S.C. § 1116(a). 34. See Peter J. Karol, Trademark’s eBay Problem, 26 Fordham Intell. Prop. Media & Ent. L.J. 625, 636 (2016) (“Although . . . the pre-eBay trademark presumption . . . was powerful and almost universal, it was never absolute or automatic. It was, that is, just a legal presumption always capable of being rebutted.”) (footnote omitted). 35. eBay, 547 U.S. 388. 36. See, e.g., Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908).

Vol. 107 TMR 923 lower courts must first apply the standard four-part test37 before granting a permanent injunction. Barring exceptional circumstances, it stated, neither the Patent Act nor principles of equity allowed for an automatic injunction. The Court concluded that grant or denial of permanent injunctive relief “is an act of equitable discretion” that does not brook categorical treatment.38 It summarized: “[T]he decision whether to grant or deny injunctive relief rests within the equitable discretion of the district courts, and . . . such discretion must be exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.”39

Still, two concurring justices suggested that courts in patent cases could nevertheless be guided by the former presumption. Chief Justice Roberts emphasized the long tradition of granting injunctive relief after a finding of patent infringement. He stated that courts need not “writ[e] on an entirely clean slate” in exercising their equitable discretion, and suggested that courts could still follow established standards when making their decisions.40 Quoting Justice Holmes, he also poetically reminded judges that “a page of history is worth a volume of logic.”41

Justice Kennedy agreed with the majority that a finding of patent infringement without more should not dictate a remedy, but maintained that the past pattern of enjoining infringers “almost as a matter of course . . . simply illustrates the result of the four-factor test” in typical patent infringement cases.42 Justice Kennedy echoed Chief Justice Roberts’ theme, commenting that the “lesson of the historical practice . . . is most helpful and instructive” when similar cases arise. If the facts of a case “present considerations quite unlike earlier cases,” he wrote, then the presumption may not be appropriate.

In sum, in concurrences joined by seven Justices, the message was clear: While irreparable harm and an injunction should not necessarily be linked, upon a finding of a likelihood to prevail on the merits courts should consider the time-honored practice of granting

37. eBay, 547 U.S. at 391 (“According to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.”). 38. Id. at 391. See also id. at 393 (holding that “traditional equitable principles do not permit such broad classifications”). 39. Id. at 394. 40. Id. at 395 (Roberts, C.J., concurring). 41. Id., quoting New York Trust Co. v. Eisner, 256 U.S. 345, 349 (1921). 42. Id. at 396 (Kennedy, J., concurring).

924 Vol. 107 TMR injunctive relief in a new case having substantial parallels to the earlier. This “page of history” of course suggests that the standard for finding irreparable harm is not stringent, and lower courts need not ignore the reality that courts have commonly granted injunctions in the past.

E. Winter Further calling into question the irreparable harm

presumption, the Supreme Court held in 2008 that the Ninth Circuit had erred in requiring no more than a “possibility” of irreparable harm in preliminary injunction cases.43 For a preliminary injunction to issue, said the Court, a plaintiff must show a “likelihood” of irreparable harm, not just a possibility. The case, Winter v. NRDC, involved the National Environmental Policy Act rather than intellectual property law, but it has been influential nonetheless. Following Winter, the Ninth Circuit held (in another non-trademark decision) that “[t]o the extent that our cases have suggested a lesser standard, they are no longer controlling, or even viable.”44 While Winter did not address the presumption, it highlighted the weight of the burden of proving irreparable harm.45

F. The Current State of the Presumption Have we not seen the descent of the irreparable harm

presumption in trademark cases? The once-flourishing presumption, whether in preliminary or permanent injunctions, is clearly imperiled.46 The eBay and Winter decisions have definitively eliminated reliance on the presumption in some circuits and sent it down a steep decline in others.47 43. Winter, 555 U.S. at 20-22. 44. Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009) (footnote omitted). 45. See Jeffrey M. Sanchez, Comment, The Irreparably Harmed Presumption? Why the Presumption of Irreparable Harm in Trademark Law Will Survive eBay and Winter, 2011 B.Y.U. L. Rev. 535, 544 (2011) (“[L]ike in eBay, the Winter Court sent a strong message that an injunction test that minimized the importance of demonstrating irreparable harm did not square with the notion of injunctive relief as an extraordinary equitable remedy.”). 46. See 3 Gilson on Trademarks § 14.02[3][b][ii] on the current state of irreparable harm and the presumption. 47. See Jiarui Liu, Copyright Injunctions After eBay: An Empirical Study, 16 Lewis & Clark L. Rev. 215, 216 (2012) (“The seminal decision of eBay v. MercExchange has fundamentally changed the landscape of patent litigation . . . .”); Gergen, Golden & Smith, supra note 23, at 206 (“For an opinion that claims merely to apply generally acknowledged principles, eBay has become a remarkable legal juggernaut. In federal courts throughout the country, and for violations of almost any kind of statutory, regulatory, or judge-made law, the four-factor test from eBay has overrun and abrogated prior judicial approaches, all in the name of restoring traditional equity practice.”).

See also Ferring Pharms., 765 F.3d at 212-17 (relying on eBay and Winter in eliminating the presumption); Herb Reed Enters., LLC v. Fla. Entm’t Mgmt., Inc., 736 F.3d 1239, 1248-

Vol. 107 TMR 925

A plurality of circuits, in the preliminary injunction context in trademark cases, has faced the question head-on and found the presumption wanting. The Third, Ninth, and Eleventh have conclusively held that a general presumption of irreparable harm no longer survives even where the plaintiff has proved it is likely to succeed at trial.48 The Ninth Circuit will no longer “collapse[] the likelihood of success and the irreparable harm factors.”49 The Third Circuit currently requires a “clear showing” of likely irreparable harm for an injunction to issue.50 And in an unpublished decision, the Eleventh Circuit found that “a presumption of irreparable harm cannot survive.”51 Additionally, the First Circuit declared that eBay “has threatened the continued validity” of the irreparable harm presumption in trademark cases.52

But why are the courts not moving more swiftly toward uniformity? The reasons vary. Some circuits spotted the issue but avoided taking a stand by ruling on other grounds. Some lower courts had found irreparable harm without relying on the presumption, so a decision was unnecessary.53 In other cases, the

49 (9th Cir. 2013) (same), cert. denied, 135 S. Ct. 57 (2014); Flexible Lifeline Sys. v. Precision Lift, Inc., 654 F.3d 989, 996 (9th Cir. 2011) (“If we harbored any doubts about the applicability of eBay in the preliminary injunction context, they have been dispelled by the Supreme Court’s decision in Winter.”) (copyright case). 48. Commodores Entm’t Corp. v. McClary, 648 Fed. Appx. 771 (11th Cir. 2016) (per curiam) (unpublished); Ferring Pharms., 765 F.3d at 216-17; Herb Reed Enters., 736 F.3d at 1249-50. 49. Id. at 1251. 50. Ferring Pharms., 765 F.3d at 217. See also id. at 206 (concluding that, in light of eBay and Winter, “a party bringing a claim under the Lanham Act is not entitled to a presumption of irreparable harm when seeking a preliminary injunction and must demonstrate that irreparable harm is likely”). 51. Commodores Entm’t Corp., 648 Fed. Appx. 771. See also North Am. Medical Corp. v. Axiom Worldwide, Inc., 522 F.3d 1211, 1228 (11th Cir. 2008) (stating in dicta that “a strong case can be made that eBay’s holding necessarily extends to the grant of preliminary injunctions under the Lanham Act”).

Two weeks after the Commodores Entertainment decision, the Eleventh Circuit oddly declined to decide whether the presumption continued. Hoop Culture, Inc. v. Gap Inc., 648 Fed. Appx. 981 (11th Cir. 2016) (unpublished). 52. Swarovski Aktiengesellschaft, 704 F.3d at 54 (no finding of confusion at district court level; holding that argument about presumption “does not apply in the absence of a finding of confusion”). See also People’s Fed. Sav. Bank v. People’s United Bank, 672 F.3d. 1, 9 n.11 (1st Cir. 2012) (stating in dicta that “there is a looming question as to whether this presumption can co-exist with the Supreme Court’s recent holding in eBay”); Voice of the Arab World, Inc. v. MDTV Med. News Now, Inc., 645 F.3d 26, 31 (1st Cir. 2011) (finding that the “traditional equitable principles” in eBay apply but finding it unnecessary to decide whether presumption of irreparable harm is consistent with those principles). 53. Emerald City Mgmt., 624 Fed. Appx. 223 (“We need not consider the validity of that presumption . . . because the record before us supports a finding of a substantial threat of irreparable harm.”); U.S. Polo Ass’n v. PRL USA Holdings, Inc., 511 Fed. Appx. 81 (2d Cir. 2013) (unpublished) (lower court had made factual finding of harm that was “not simply the product of a legal presumption”); Mercado-Salinas v. Bart Enters. Int’l, 671 F.3d 12, 19 n.7 (1st Cir. 2011) (“We need not decide here whether eBay precludes a presumption of

926 Vol. 107 TMR preliminary injunction evidence would have rebutted any such presumption,54 there was no finding of likely confusion,55 or there was no finding of harm.56

Nevertheless, most district courts actually grappling with the issue of irreparable harm have held that eBay fundamentally altered the rules in trademark cases.57 These include courts in several of the remaining circuits: the First,58 Second,59 Fourth,60 Seventh61 and Eighth.62

A handful of lower courts have defied the trend, making a specific finding that courts may nevertheless continue to presume irreparable harm in trademark cases where confusion is likely. The Middle District of North Carolina, in 2011, confined eBay to permanent injunctive relief in patent and copyright cases.63 Although it clearly swam upstream, the court found no reason to “discard the commonly applied presumption of irreparable harm in

irreparable harm because [the plaintiff] has demonstrated enough irreparable harm that the district court did not abuse its discretion in granting the preliminary injunction.”); Paulsson Geophysical Servs., 529 F.3d at 313 (finding no need to rule on the presumption because the facts “support a finding of a substantial threat of irreparable injury”). 54. Novus Franchising, Inc. v. Dawson, 725 F.3d 885, 895 n.3 (8th Cir. 2013) (delay rebutted any possible inference of irreparable harm); Lorillard Tobacco Co. v. Engida, 213 Fed. Appx. 654 (10th Cir. 2007) (unpublished) (insufficient showing of harm). 55. Swarovski Aktiengesellschaft, 704 F.3d at 54-55 (“Whether or not the presumption of irreparable harm remains viable in this context, it is difficult to see how irreparable harm could be established without a finding of confusion, and so the district court’s decision did not include adequate findings to support its grant of the injunction . . . .”). 56. Voice of the Arab World, Inc., 645 F.3d at 36 n.9 (remanding to district court for failure to conduct fact-finding on irreparable harm; “[W]e adopt no general or categorical rule as to whether a plaintiff may demonstrate irreparable harm in these types of cases.”). 57. Many more remain unaware of the potential change in the law, however. See infra § III. 58. Concordia Partners, LLC v. Pick, 2015 U.S. Dist. LEXIS 86214 (D. Me. 2015) (declining to follow presumption where First Circuit questioned its continued validity). 59. Juicy Couture, Inc. v. Bella Int’l, Ltd., 2013 U.S. Dist. LEXIS 34846 (S.D.N.Y. 2013) (holding that “irreparable harm may not be presumed upon a showing of likelihood of success on the merits”). 60. VeriSign, Inc. v. XYZ.COM, LLC, 2015 U.S. Dist. LEXIS 157471 (E.D. Va. 2015) (“Plaintiff claims that irreparable harm to their brand and reputation is presumed, and injunctive relief is appropriate. This presumption is inaccurate. The Supreme Court twice rejected an irreparable harm presumption.”) (false advertising case), aff’d on other grounds, 848 F.3d 292 (4th Cir. 2017). 61. Nat’l Fin. Partners Corp. v. Paycom Software, Inc., 2015 U.S. Dist. LEXIS 74700 (N.D. Ill. 2015) (“The Court finds the Ninth and Third Circuits’ reasoning persuasive and concludes that [the plaintiff] must show a likelihood of irreparable harm to be entitled to a preliminary injunction.”). 62. See, e.g., KTM N. Am., Inc. v. Cycle Hutt, Inc., 2013 U.S. Dist. LEXIS 67209 (D.S.D. 2013); Southeast X-Ray, Inc. v. Spears, 2013 U.S. Dist. LEXIS 32141 (W.D. Ark. 2013). 63. Rebel Debutante LLC v. Forsythe Cosmetic Grp., Ltd., 799 F. Supp. 2d 558 (M.D.N.C. 2011).

Vol. 107 TMR 927 preliminary injunction proceedings involving a trademark infringement claim.”64

G. Should eBay and Winter Even Be Applied to Trademark Cases?

The answer is no, and the reasons are many. The most compelling is that the Supreme Court in eBay was completely silent on the subject of trademarks, the Lanham Act, and the public policy, practices, and underpinnings of trademark law. It also ignored the law’s decades-old presumption of irreparable harm.

The decision in eBay was, pure and simple, a patent case, but from there the Court took a giant, ill-advised leap beyond into the “traditional rules of equity.” But because of the vast gulf between patent and trademark law and practice,65 the Court may well have shunned trademark law to avoid writing an entirely separate opinion. We can infer that it left the subject for another day.

Courts relying on eBay in trademark disputes rely on its dictum, a catchall clause that, on its face, seemed to apply universally: Equitable discretion must be “exercised consistent with traditional principles of equity, in patent disputes no less than in other cases governed by such standards.”66 The Court chose only one other example—copyrights—noting that it had “consistently rejected invitations to replace traditional equitable considerations with a rule that an injunction automatically follows a determination that a copyright has been infringed.”

But should the trademark law presumption be swept in? The answer is that it should not.67 64. Id. at 580. See also Commodores Entm’t Corp. v. McClary, 2014 U.S. Dist. LEXIS 147021 (M.D. Fla. 2014) (rejecting claim that eBay defeated the presumption), aff’d but rev’d on this ground, 648 Fed. Appx. 771 (“In light of the Supreme Court’s holding in eBay, a presumption of irreparable harm cannot survive.”); Pond Guy, Inc. v. Aquascape Designs, Inc., 2014 U.S. Dist. LEXIS 85504 (E.D. Mich. 2014) (restricting application of eBay to patent cases).

Some lower courts have expressed doubt as to the application of the presumption but ultimately did not answer the question of whether it continued to be viable. E.g., T-Mobile US, Inc. v. Aio Wireless LLC, 991 F. Supp. 2d 888, 928 (S.D. Tex. 2014) (“It is . . . unclear whether the presumption applied in a patent infringement case such as eBay may be distinguishable from presuming harm in a case based on unfair competition under the Lanham Act.”); Petro Franchise Sys., LLC v. All Am. Props., 607 F. Supp. 2d 781, 794 (W.D. Tex. 2009) (stating that “eBay does not necessarily foreclose a presumption of harm”); Nat’l League of Junior Cotillions, Inc. v. Porter, 2007 U.S. Dist. LEXIS 58117 (W.D.N.C. 2007) (noting that eBay came after a full trial on the merits and on a motion for permanent injunction, and may apply only to patent cases as well). 65. Who can forget the centuries-old and time-tested maxim expressio unius est exclusio alterius? When one or more things of a class are expressly mentioned, others of the class are excluded by implication. Black’s Law Dictionary 581. 66. eBay, 547 U.S. at 394. 67. See Petro Franchise Sys., 607 F. Supp. 2d at 794 (concluding that eBay did not necessarily end the presumption of harm and noting that “[a] conclusive determination that

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Chief Justice Roberts and Justice Kennedy, concurring, clearly saw the importance of precedent. Going forward, equitable principles may be balanced without “writing on an entirely clean slate,” Chief Justice Roberts cautioned in his eBay concurrence.68 He went on to quote the Supreme Court from 2005: “[L]imiting discretion according to legal standards helps promote the basic principle of justice that like cases should be decided alike.”69 And “history may be instructive in applying [the four-factor] test,” according to Justice Kennedy’s eBay concurrence.70 Both concurrences—joined by seven justices in total—inform us that it would be a mistake, particularly if done unintentionally, to jettison a long-settled principle of trademark law equity.

Moreover, because trademark law peculiarities and policies differ so greatly, it makes no sense to apply patent law principles to trademark cases.71 Thus, we disagree with courts that have ignored eBay’s patent context to conclude that the trademark law presumption of irreparable harm has vanished.72 After all, the nature of harm caused by trademark infringement differs markedly from that caused by patent infringement.73 In the latter, money damages often suffice to make a plaintiff whole, as if it had licensed its patent.

But in trademark cases, money damages often cannot make a plaintiff whole. Injury to its goodwill and reputation from consumer confusion may well be incalculable.74

[all other] equitable factors automatically [weigh in favor of injunctive relief] when success on the merits is established is quite far from a mere presumption that a single factor—irreparable harm—should usually follow when likelihood of confusion is established”). 68. eBay, 547 U.S. at 395 (Roberts, C.J., concurring). 69. Id., quoting Martin v. Franklin Capital Corp., 546 U.S. 132, 139 (2005). 70. Id. at 396 (Kennedy, J., concurring). 71. Mark A. Lemley, Did eBay Irreparably Injure Trademark Law? 92 Notre Dame L. Rev. 1795, 1796 (2017) (“The purposes of trademark law—and whom it benefits—should lead us to treat trademark injunctions differently than patent and copyright injunctions.”). 72. For more on why the presumption in trademark law should survive eBay, see, for example, Gergen, Golden & Smith, supra note 23, at 219-20; Sanchez, supra note 45, at 555-65; J. Thomas McCarthy, Are Preliminary Injunctions Against Trademark Infringement Getting Harder to Achieve? 14 Intel. Prop. L. Bull. 1 (2009); David H. Bernstein & Andrew Gilden, No Trolls Barred: Trademark Injunctions After eBay, 99 TMR 1037, 1038 (2009) (“This article . . . concludes that eBay should not be used to eviscerate the normal presumption of irreparable harm that attaches upon a showing of liability in trademark cases.”). See also Lemley, supra note 71, at 1813-14 (arguing that eBay could be applied in trademark cases to avoid overreaching by plaintiffs, but cautioning against “rote application of the eBay factors [to keep them] from interfering with the legitimate purposes of trademark law”). 73. For analysis of the differences among patents, trademarks and copyrights, see 1 Gilson on Trademarks § 1.05. 74. See supra § II.C.

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III. A NATION OF LAWS AND SOME APPALLINGLY HEEDLESS COURTS

Stare decisis, the familiar Latin maxim meaning “to stand by decisions and not disturb the undisturbed,” is a powerful common law doctrine that ideally ensures legal consistency and predictability. And, of course, legal questions decided by the United States Supreme Court are binding on the lower courts. But during our research we came upon a startling discovery.

Even a decade after eBay, the lower courts—in fact most of them—are still relying on the presumption of irreparable harm in trademark cases. What’s more, a few district courts in circuits that have expressly rejected the continued existence of the presumption have unexpectedly applied it anyway.75

This sounds like an outcome to be celebrated, given the utility of the irreparable harm presumption. Unfortunately, it is not. Why? Because these courts are not deliberating over whether eBay applies and then deciding to keep the presumption. They are not confused about the law and whether it makes sense to follow eBay in the trademark context.

No, they are simply unaware of the eBay game changer. Judges or their law clerks and counsel, possibly new to trademark litigation, are simply pulling up outdated boilerplate and citing reflexively to the obsolete presumption. For a while, it would have been understandable for courts deciding trademark infringement cases not to contend with the implications of a Supreme Court patent case. But eBay has been around for over a decade and many of the lower courts are simply not paying attention.

For example: • In a November 2016 opinion reviewing a permanent

injunction, the Eighth Circuit cited cases from 1980 and 1987 in support of its statement that “a finding that likelihood of confusion exists results in a presumption that a threat of irreparable harm exists.”76

• In an unpublished 2014 permanent injunction opinion, citing a 1991 case from its circuit, the Sixth Circuit declared that,

75. See, e.g., Way Int’l v. Church of the Way Int’l, 2017 U.S. Dist. LEXIS 13736 (N.D. Ala. 2017); True Mfg. Co. v. Boys, 2016 U.S. Dist. LEXIS 167687 (M.D. Fla. 2016); FN Herstal, S.A. v. Clyde Armory, Inc., 2016 U.S. Dist. LEXIS 131996 (M.D. Ga. 2016); Sream, Inc. v. Lavingia, 2016 U.S. Dist. LEXIS 106540 (C.D. Cal. 2016); Fruit Flowers, LLC v. Jammala, LLC, 2015 U.S. Dist. LEXIS 130748 (D.N.J. 2015) (not for publication); U.S. Soo Bahk Do Moo Duk Kwan Fed’n, Inc. v. Tang Soo Karate School, Inc., 2015 U.S. Dist. LEXIS 107955 (M.D. Pa. 2015). 76. Warner Bros. Entm’t, Inc. v. X One X Prods., 840 F.3d 971, 982 (8th Cir. 2016). See also Community of Christ Copyright Corp. v. Devon Park Restoration Branch of Jesus Christ’s Church, 634 F.3d 1005, 1012 (8th Cir. 2011) (affirming a permanent injunction and stating that “in trademark law, injury is presumed once a likelihood of confusion has been established”).

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in trademark infringement cases, “a likelihood of confusion or possible risk to the requesting party’s reputation satisfies the irreparable injury requirement.”77

• The Fifth Circuit, quoting a 2001 edition of the McCarthy treatise, stated in 2013 in a permanent injunction case: “All that must be proven to establish liability and the need for an injunction against infringement is the likelihood of confusion—injury is presumed.”78 That court even relied on eBay’s four-factor test.

• The Seventh Circuit, in an opinion by the estimable Judge Posner, not even citing eBay, relied on the presumption in a 2013 preliminary injunction trademark appeal.79 If, said the court, the plaintiff has “a strong likelihood of prevailing in the full trial,” the balance of harms is equal or in the plaintiff’s favor, and the plaintiff could not fully recoup its costs at final judgment, “the injunction should be issued.”

• In 2009, omitting mention of eBay, the Ninth Circuit stated that irreparable harm may be presumed in a preliminary injunction case from a showing of likelihood of confusion.80

District courts, in case after case, feature statements like the following, from a 2015 opinion from the Northern District of Illinois: “The Seventh Circuit has ‘clearly and repeatedly held that damage to a trademark holder’s goodwill can constitute irreparable injury for which the trademark owner has no adequate legal remedy.’”81 Or this, from a 2015 opinion from the Middle District of Florida, citing 1991 and 2014 cases: “Once a plaintiff establishes a likelihood of success on the merits of a trademark infringement claim, a presumption of irreparable harm arises.”82

The number of courts reflexively honoring the presumption a decade after eBay is, frankly, astonishing. It is surely not the case that they delved into this complex issue and declined to extend eBay 77. Lucky’s Detroit, LLC v. Double L, Inc., 533 Fed. Appx. 553 (6th Cir. 2013) (unpublished), citing Wynn Oil Co. v. Am. Way Serv. Corp., 943 F.2d 595, 608 (6th Cir. 1991). 78. Abraham, 708 F.3d at 627, quoting McCarthy on Trademarks and Unfair Competition § 30:2 (4th ed. 2001). 79. Kraft Foods Group Brands, 735 F.3d at 740. 80. Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH, 571 F.3d 873, 877 (9th Cir. 2009) (“Because the court found a likelihood of success on the merits, it reasonably presumed irreparable injury.”). That court has since found the presumption no longer applies. Herb Reed Enters., 736 F.3d at 1251. 81. Luxottica USA LLC v. P’ships & Unincorporated Ass’ns Identified on Schedule “A,” 2015 U.S. Dist. LEXIS 78961 (N.D. Ill. 2015), citing Re/Max N. Cent., Inc. v. Cook, 272 F.3d 424, 432 (7th Cir. 2001). 82. Delta Air Lines, Inc. v. Doe, 2015 U.S. Dist. LEXIS 166859 (M.D. Fla. 2015), citing Fantasia Distrib., Inc. v. Southern Wholesale, LLC, 2014 U.S. Dist. LEXIS 19884 (M.D. Fla. 2014) and BellSouth Adver. & Publ’g Corp. v. Real Color Pages, Inc., 792 F. Supp. 775, 784 (M.D. Fla. 1991).

Vol. 107 TMR 931 into the trademark context without mention of the case. They were plainly unaware of the question altogether. So they fell back on boilerplate language that they had always relied upon in trademark cases. This footnote, listing courts overlooking eBay, is limited to one case per district court jurisdiction from the last few years; otherwise, it could easily occupy multiple pages.83 Some courts have even noted that the presumption was eliminated or questioned, and then blithely went on to apply it, citing pre-eBay cases in their circuits.84

This situation complicates the case law in the area even further, and renders absurd any hope in the near term for a nationally uniform body of trademark injunction law, unless it is established by amending the Lanham Act.

Courts and litigators throughout the country are thus faced with a confusing mishmash of presumption case law in trademark cases. The muddle may mean that sensible legal conclusions are tainted because they were adopted in opinions that incorrectly rely on the presumption. For example, a pre-eBay opinion explicitly relying on the presumption may say that loss of control of reputation without more constitutes irreparable harm. A post-eBay opinion erroneously relying on the presumption may say that loss of market share demonstrates irreparable harm. Should these holdings be

83. See, e.g., Way Int’l, 2017 U.S. Dist. LEXIS 13736; Hydreon Corp. v. JC Bros., 2016 U.S. Dist. LEXIS 160545 (D. Minn. 2016); Novus Franchising, Inc. v. Brockbank, 2016 U.S. Dist. LEXIS 122655 (D. Utah 2016); Vesta Corp. v. Vesta Mgmt. Servs., 2016 U.S. Dist. LEXIS 136588 (S.D. Tex. 2016); Acushnet Co. v. 168GOLFSHOP, 2016 U.S. Dist. LEXIS 122335 (S.D. Fla. 2016); AAA v. AAA Locksmith, Inc., 2016 U.S. Dist. LEXIS 50365 (M.D. Fla. 2016); Intelligent Office Sys., LLC v. Virtualink Can., Ltd., 2016 U.S. Dist. LEXIS 20374 (D. Colo. 2016); Beats Elecs., LLC v. Deng, 2016 U.S. Dist. LEXIS 10485 (E.D. Cal. 2016); JS IP, LLC v. Great Neck Pavilion Assocs. LLC, 2016 U.S. Dist. LEXIS 16551 (E.D.N.Y. 2016); Diesel S.P.A. v. Doe, 2016 U.S. Dist. LEXIS 2720 (S.D.N.Y. 2016); Elder Care Providers of Ind., Inc. v. Home Instead, Inc., 2015 U.S. Dist. LEXIS 122367 (S.D. Ind. 2015); Mon Cheri Bridals v. P’ships & Unincorporated Ass’ns Identified on Schedule “A,” 2015 U.S. Dist. LEXIS 72511 (W.D.N.C. 2015); Coldwell Banker Real Estate LLC v. DC Prop. & Loans, Inc., 2014 U.S. Dist. LEXIS 152504 (N.D. Cal. 2014); Howard v. Laws, 2014 U.S. Dist. LEXIS 111092 (D.N.J. 2014); Epic Sys. Corp. v. Neil Silver, 2014 U.S. Dist. LEXIS 80640 (W.D. Wisc. 2014); Legacy Inv. & Mgmt., LLC v. Susquehanna Bank, 2014 U.S. Dist. LEXIS 26349 (D. Md. 2014); AARP v. Sycle, 991 F. Supp. 2d 224 (D.D.C. 2013); Portfolio Recovery Assocs. v. Portfolio Recovery Grp., LLC, 2013 U.S. Dist. LEXIS 150998 (E.D. Va. 2013); TYR Sport, Inc. v. TYR Natural Spring Water, Inc., 2013 U.S. Dist. LEXIS 81574 (D. Conn. 2013); Neuros Co. v. KTurbo, Inc., 2013 U.S. Dist. LEXIS 56095 (N.D. Ill. 2013). 84. Choice Hotels Int’l, Inc. v. Zeal, 135 F. Supp. 3d 451, 471 (D.S.C. 2015) (noting the elimination of the presumption but applying it anyway) (“The plaintiff has established likelihood of confusion and actual confusion, and the defendant has done nothing to rebut the presumption of irreparable injury. Accordingly, the Court finds that the plaintiff has suffered an irreparable injury.”), citing Lone Star Steakhouse & Saloon, 43 F.3d at 939; TracFone Wireless, Inc. v. Clear Choice Connections, Inc., 102 F. Supp. 3d 1321, 1333 (S.D. Fla. 2015) (“[T]his presumption has been called into question by the Supreme Court’s decision in eBay. . . . However, ‘a sufficiently strong showing of likelihood of confusion may by itself constitute a showing of a substantial threat of irreparable harm.’”), quoting McDonald’s Corp., 147 F.3d at 1310.

932 Vol. 107 TMR disregarded by later courts because of what is now seen as an incorrect standard?85

But courts need not discard all analysis from pre-eBay cases or those post-eBay cases that do not embrace the new standard. Governed by specific facts, they have been exercising their equitable discretion for decades. The presumption is nominatively gone, true, but the underlying reasons remain.86 Harm to reputation from the unauthorized use of a confusingly similar trademark has not simply vanished,87 and it is not suddenly incorrect to say that consumer confusion typically causes a loss of goodwill and control over one’s reputation.88

Nonetheless, the eBay and Winter avalanche may induce courts to begin reviewing with fresh eyes the types and extent of harm endured by a trademark owner. They must, for a time, tread a fine line when citing cases under the old standard, and should begin making their own way and defining infringement in terms of irreparable harm.

IV. PRESUMPTIONS AND INFERENCES

Likelihood of confusion does not mean there is irreparable harm, unless it does. This section tackles that conundrum.

The days when a trademark owner with a strong infringement case could obtain a preliminary injunction just for the asking are over. The irreparable harm presumption in most jurisdictions is moribund, and a growing number of courts now require more, maybe even much more, than likely success on the merits to establish irreparable harm. In fact, to some courts, it may not even matter that the infringement is egregious or intentional or that a large percentage of consumers is likely to be confused.

Take, for example, the severe language in the Ninth Circuit’s Herb Reed opinion.89 In the nine states comprising the Ninth along 85. See PolyPortables LLC v. Endurequest Corp., 2016 U.S. Dist. LEXIS 149986 (E.D. Cal. 2016) (rejecting irreparable harm analysis of cases that followed the presumption). 86. See supra § II.C. 87. See, e.g., 7-Eleven, Inc. v. Sodhi, 2016 U.S. Dist. LEXIS 15733 (D.N.J. 2016) (“Although there is no longer any sort of presumption of harm in trademark infringement cases, the same harm that typically flows from the unauthorized use of a trademark still exists, namely harm to reputation.”). 88. See infra § IV. 89. See Karol, supra note 34, at 685 (“[I]t is fair to say that in regions such as the Ninth Circuit, where eBay has been understood to put the burden on prevailing trademark plaintiffs to show irreparable harm and justify injunctive relief, those prevailing plaintiffs have the presumptive entitlement to neither money nor an injunction even where they have met all of the elements for liability.”).

Vol. 107 TMR 933 with Guam and the Northern Mariana Islands, this is the law: “[T]o establish irreparable injury, a trademark owner must do more than merely demonstrate that a trademark has been infringed or that consumers have been confused.”90 Under that precedent, evidence of confusion may be relevant only to the merits, not to the harm analysis.91 One court found evidence of underlying actual confusion in the irreparable harm context to be “nothing more than a regurgitation of consumer confusion evidence, which is the exact type of evidence explicitly rejected by the Ninth Circuit in Herb Reed. Irreparable harm is no longer presumed or proven by a mere showing of consumer confusion.”92

But other, more enlightened courts still tacitly recognize that likely confusion means more or less what it did pre-eBay: that irreparable harm is likely as well.93 In its opinion rejecting the presumption, for example, even though the district court had 90. Herb Reed Enters., 736 F.3d at 1250.

See also Cerule, LLC v. Stemtech Healthsciences, Inc., 2016 U.S. Dist. LEXIS 112741 (D. Ore. 2016) (holding that “the Ninth Circuit specifically rejected the argument that a showing of infringement supported a finding of irreparable harm”); Pom Wonderful LLC v. Pur Beverages LLC, 2015 U.S. Dist. LEXIS 176834 (C.D. Cal. 2015) (holding that “the mere possibility that plaintiff’s product will be associated with defendant’s product and that product may be of lesser quality, standing alone, is insufficient to show a likelihood that plaintiff’s reputation and goodwill will be irreparably harmed”); Active Sports Lifestyle USA, LLC v. Old Navy, LLC, 2014 U.S. Dist. LEXIS 45575 (C.D. Cal. 2014) (stating that trademark infringement, by itself, does not constitute irreparable harm and the existence of intangible harms such as loss of goodwill must be shown by evidence). 91. Herb Reed Enters., 736 F.3d at 1250 (noting that an email from a potential customer showing source confusion “simply underscores consumer confusion, not irreparable harm”). See also Cafe Found., Inc. v. Seeley, 2016 U.S. Dist. LEXIS 44121 (N.D. Cal. 2016) (also finding that evidence of a misdirected email “goes to consumer confusion rather than irreparable harm”). 92. Williams v. Green Valley RV, Inc., 2015 U.S. Dist. LEXIS 103409 (C.D. Cal. 2015) (denying motion for preliminary injunction). 93. E.g., Boulan South Beach Master Ass’n v. Think Props., LLC, 617 Fed. Appx. 931 (11th Cir. 2015) (unpublished) (finding error in lower court refusal to grant injunction after finding likelihood of confusion) (“Our precedent recognizes such confusion as an injury that ordinarily warrants injunctive relief.”); UBU/Elements, Inc. v. Elements Pers. Care, Inc., 2016 U.S. Dist. LEXIS 110544 (E.D. Pa. 2016) (finding likely confusion and holding that “[t]his confusion in the marketplace demonstrates the harm necessary to justify injunctive relief”); Reynolds Consumer Prods., Inc. v. Handi-Foil Corp., 2014 U.S. Dist. LEXIS 98059 (E.D. Va. 2014) (“While under eBay a finding of irreparable harm on its own does not automatically trigger injunctive relief, [courts have] continued to find that irreparable harm is generally applied once the plaintiff has demonstrated a likelihood of confusion, the key element of an infringement case.”); Mrs. U.S. Nat’l Pageant, Inc. v. Miss U.S. of Am. Org., LLC, 875 F. Supp. 2d 211, 226-27 (W.D.N.Y. 2012) (“Although irreparable harm may not be presumed upon a showing of a likelihood of success, . . . it will often be the case that a party’s demonstration of a likelihood of success on a trademark claim will also show a threat of irreparable harm.”); Coryn Group II, LLC v. O.C. Seacrets, Inc., 868 F. Supp. 2d 468, 497 (D. Md. 2012) (“A finding of infringement does not create a presumption of irreparable injury, but infringement often threatens irreparable injury to a senior user’s goodwill.”); Marks Org., Inc. v. Joles, 784 F. Supp. 2d 322, 334 (S.D.N.Y. 2011) (holding that, even without the presumption, “a particularly strong likelihood of confusion should weigh in favor of finding irreparable injury”).

934 Vol. 107 TMR applied the presumption the Eleventh Circuit found no error. The district court had also made a “factual finding” of likely consumer confusion.94 The court of appeals concluded that the fact that the district court relied on confusion evidence to support its finding of irreparable harm “does not violate eBay.” In a later opinion, oddly declining to decide on the existence of the presumption when it had already eliminated it, the Eleventh Circuit hedged: “All of this is not to say that a presumption of irreparable harm or something like it will never be an appropriate exercise of the district court’s equitable discretion.”95 In other words, courts can still grant injunctions under the Lanham Act “according to the principles of equity and upon such terms as the court may deem reasonable.”96

The Second Circuit similarly upheld a finding of irreparable harm where the defendant had effectively taken over control of the plaintiff’s reputation and consumer goodwill: “While a similar finding might be made in many infringement cases, it is a factual finding nonetheless, and not simply the product of a legal presumption. Accordingly, we identify no abuse of discretion in the district court’s irreparable-harm finding.”97

The post-eBay Seventh Circuit omits mention of the presumption donnybrook, finding that likelihood of confusion could cause a trademark owner to be “badly hurt.”98 The court reasoned that a mark’s reputation for quality, based on an investment in quality control, customer service and advertising, generates repeat purchases and word-of-mouth recommendations. Thus, “consumers will be willing to pay a higher price in exchange for a savings in search costs and an assurance of consistent quality.” If quality falters, consumers become disinclined to pay for those products, and the company “no longer earns a sufficient return on its expenditures 94. Commodores Entm’t Corp., 2014 U.S. Dist. LEXIS 147021, aff’d, 648 Fed. Appx. 771. 95. Hoop Culture, Inc., 648 Fed. Appx. 981. See also Uber Promotions, Inc. v. Uber Techs., Inc., 162 F. Supp. 3d 1253, 1262 (N.D. Fla. 2016) (“[W]hile it was perhaps inappropriate in the past to presume irreparable harm, that practice was grounded upon the sound principle that the harm associated with trademark infringement is typically irreparable in nature. So while a court must, in each trademark infringement case, make a finding of irreparable harm before an injunction may issue, that finding will often be made due to the nature of the harm.”) (citation omitted). 96. 15 U.S.C. § 1116(a). 97. U.S. Polo Ass’n, 511 Fed. Appx. 81. See also Groupe SEB U.S., Inc. v. Euro-Pro Operating LLC, 774 F.3d 192, 205 n.8 (3d Cir. 2014) (“Although we no longer apply a presumption, the logic underlying the presumption can, and does, inform how we exercise our equitable discretion in this particular case.”). 98. Kraft Foods Group Brands, 735 F.3d at 739. See also Mark P. McKenna, Testing Modern Trademark Law’s Theory of Harm, 95 Iowa L. Rev. 63, 71 (2009) (“Consumers have an interest . . . in being able to rely on information about who is responsible for the quality of the goods or services with which a mark is used. Because some uses of a mark for non-competing goods convey this sort of quality information, claims against non-competitive uses are warranted, even if mark owners are not significantly harmed, when the contested use creates confusion about responsibility for quality.”).

Vol. 107 TMR 935 on promoting the trademark to justify them.” The court looked separately at irreparable harm without noting the presumption issue, finding that infringement would impact the plaintiff’s “valuable goodwill and control.”99

Even though some courts find that likely confusion does not cause likely irreparable harm, can a court award injunctive relief based on irreparable harm without it? Of course not. In fact, likelihood of confusion evidence is essential to, and is indeed a component of, a finding of irreparable harm. One district court was flatly wrong when it interpreted Herb Reed as rejecting the claim that a showing of infringement supports a finding of irreparable harm.100 Such a showing obviously supports a finding of irreparable harm, and a lack of evidence of likely confusion indicates that there is no irreparable harm.101

An inference is a deduction based on evidence and reasoning, such as the inference that a person sprinting from a bank robbery with a bag of cash is a robber. A court can infer irreparable harm from confusion without presuming that it exists. By contrast, a presumption is an idea that is assumed to be true but is not known for certain, such as that of a defendant’s innocence in a criminal trial. Sensibly, the Third Circuit reasoned that eliminating the presumption “does not bar drawing fair inferences from facts in the record. . . . [C]ourts considering whether to grant injunctive relief must exercise their equitable discretion in a case-by-case, fact-specific manner. A critical aspect of fact-finding in this and other contexts is drawing reasonable inferences from facts in the record.”102

V. PLAINTIFF’S CASE FOR PRELIMINARY INJUNCTIVE RELIEF—THE BASICS For the critical finding of irreparable harm, the plaintiff

should—and in some courts must—show actual or prospective harm that lies beyond likelihood of confusion. The harm must be caused by the defendant and be immediate and irreparable. Plaintiffs

99. Kraft Foods Group Brands, 735 F.3d at 740. 100. Cerule, LLC, 2016 U.S. Dist. LEXIS 112741. 101. E.g., Baltic Linen Co. v. Anichini, Inc., 2016 U.S. Dist. LEXIS 37294 (E.D.N.Y. 2016) (no showing of likelihood of confusion, therefore no demonstration of irreparable harm); Peoples Fed. Sav. Bank v. People’s United Bank, 750 F. Supp. 2d 217, 227 (D. Mass. 2010) (“[T]he fact that Peoples United has been using its name to operate the former . . . branches for more than three months with scant evidence of consumer confusion . . . suggests that harm is neither imminent nor irreparable.”), aff’d, 672 F.3d 1. 102. Groupe SEB U.S., 774 F.3d at 205.

936 Vol. 107 TMR should no longer assume that a judge will apply the presumption of irreparable harm.103

Experienced counsel who have sought many an injunction are familiar with what follows. Nevertheless, the rules of the injunctive relief game are changing and more may be required than counsel has previously presented. Perhaps too much more—some of the following evidence may be unavailable, nonexistent, or too costly to obtain. At any rate, whether this is a refresher or new information, we offer a primer on current case law.

A. Harm A plaintiff seeking a preliminary injunction should show loss of

reputation and goodwill, loss of control over reputation and goodwill, and loss of customers or market share. Courts, including the strict Ninth Circuit, have stated that a finding of loss of control over reputation and goodwill itself may be sufficient grounds for a finding of irreparable harm.104

How does a trademark owner, at the early stages, go about it? Short of a survey, there is ordinarily no direct evidence of either an injured reputation or a loss of control. Infringement harms are typically shown by inference and indirect evidence. There is also the

103. For a cautionary tale for plaintiffs, see Joseph Paul Corp. v. Trademark Custom Homes, Inc., 2016 U.S. Dist. LEXIS 126206 (N.D. Tex. 2016). In that case, the plaintiff had maintained the existence of the presumption in its motion, and the defendants responded by explaining that such a rule no longer existed. The court refused to allow the plaintiff to present evidence of irreparable harm for the first time in its reply brief. 104. E.g., OTR Wheel Eng’g, Inc. v. West Worldwide Servs., 602 Fed. Appx. 669 (9th Cir. 2015) (unpublished) (“Loss of control over business reputation and damage to goodwill are cognizable irreparable harms in the trademark infringement context.”); Herb Reed Enters., 736 F.3d at 1250 (“Evidence of loss of control over business reputation and damage to goodwill could constitute irreparable harm.”); CFE Racing Prods. v. BMF Wheels, Inc., 793 F.3d 571, 595-96 (6th Cir. 2015) (Irreparable harm “exists in a trademark case when the party seeking the injunction shows that it will lose control over the reputation of its trademark . . . because loss of control over one’s reputation is neither ‘calculable nor precisely compensable.’”), quoting Juicy Couture, Inc., 930 F. Supp. 2d at 503; Mercado-Salinas, 671 F.3d at 23 (finding irreparable harm where defendant’s use of mark impaired plaintiff’s ability to market its own goods); Paulsson Geophysical Servs., 529 F.3d at 313 (finding substantial threat to plaintiff’s goodwill and value of its trademark where plaintiff had lost control of quality of product associated with its mark); Kos Pharms., 369 F.3d at 726 (“Grounds for irreparable injury include loss of control of reputation, loss of trade, and loss of goodwill.”); Re/Max N. Cent., Inc., 272 F.3d at 432 (“The most corrosive and irreparable harm attributable to trademark infringement is the inability of the victim to control the nature and quality of the defendants’ goods.”); Microsoft Corp. v. BH Tech, Inc., 2016 U.S. Dist. LEXIS 120162 (C.D. Cal. 2016) (“A plaintiff’s loss of control over its business reputation due to a defendant’s unauthorized use of its protected mark during the pendency of an infringement action constitutes irreparable harm.”).

Vol. 107 TMR 937 dilemma of proceeding without delay when such injury may take significant time to occur or detect.

The following sections cover concrete factual showings that may convince a court to infer that, without injunctive relief, the plaintiff will indeed suffer irreparable harm. Such advocacy showings include actual and likely confusion, investment in reputation, loss of market share, the questionable quality of the defendant’s products, counterfeiting, defendant’s default, and defendant as holdover franchisee.

Of course, framing these in the context of wrongful intent or other inequity is crucial. Invoking a compelling atmosphere of injustice, if not overdone, can lead the court to understand what is at stake. A court can be convinced by the equities and disposed to infer that the plaintiff will suffer harm that is irreparable. Courts should still be sympathetic to such plaintiffs, recognizing that confusion will cause loss of goodwill and future business, which can alone constitute irreparable harm.105 But mere argument on the point of irreparable harm may not suffice, because conclusory statements are generally unpersuasive.106

1. Groundwork for Showing Reduction in Goodwill or Reputation

The first step in proving harm to a trademark’s reputation is building it up.107 Courts, which often single out the plaintiff’s efforts in making a name for itself, may well bend over backwards to

105. E.g., Dynamic Aviation Grp., Inc. v. Dynamic Int’l Airways, 2016 U.S. Dist. LEXIS 39248 (W.D. Va. 2016) (The rule that loss of goodwill and future business is irreparable “holds true in the context of trademark infringement claims, as violation of a trademark ‘can result in irreparable harm where there is an inherent injury to the goodwill and reputation of the plaintiff.’”) (citation omitted). 106. See, e.g., Csi Entm’t v. Anthem Media Grp., Inc., 2016 U.S. Dist. LEXIS 180749 (E.D.N.Y. 2016) (finding that plaintiff “never substantiated [its] conclusory belief [of lack of control] with any demonstrative evidence of loss of sales, goodwill, or customer confusion”); Maaco Franchising, LLC v. Ghirimoldi, 2015 U.S. Dist. LEXIS 98336 (W.D.N.C. 2015) (statement that infringement will “seriously erode and damage” plaintiff’s “goodwill, commercial reputation, name, logo, and marks, and will continue to cause confusion, mistake, and deception among the consuming public” was not enough to show irreparable harm); Alzheimer’s Found. of Am., Inc. v. Alzheimer’s Disease & Related Disorders Ass’n, Inc., 2015 U.S. Dist. LEXIS 84172 (S.D.N.Y. 2015) (“[C]onclusory statements of loss of reputation will not justify an irreparable harm finding.”).

For more case law and the defendant’s point of view on this issue, see infra § VI.A. 107. E.g., Groupe SEB U.S., 774 F.3d at 204-05 (describing testimony of plaintiff’s marketing director that its allegedly infringed product had a “strong reputation among retailers and consumers as the premier . . . brand on the market” and that plaintiff had made substantial investments in “advertising, promotion and product development”); Brandywine Prod. Group Int’l v. Universal Distrib. Ctr. LLC, 2016 U.S. Dist. LEXIS 132195 (D.N.J. 2016) (not for publication) (chastising the plaintiff for failing to provide “evidence of the reputation or brand loyalty it argues is likely to sustain irreparable harm,” such as customer feedback from reviews or surveys or evidence the product was featured in trade publications).

938 Vol. 107 TMR protect the value of a business reputation created by blood, sweat, tears, and marketing.108

Evidence of efforts made to build and sustain a mark’s reputation echoes the types of evidence mark owners show to demonstrate secondary meaning.109 This could include:

• consumer surveys; • advertising expenditures and types and extent of advertising

to which the relevant public has been exposed, together with any agency supporting data on ad campaigns’ effectiveness;

• the length, manner, and exclusivity of use of the mark; • sales success under the mark and establishment of the

particular products in the marketplace; • expansion of the business, past, present, and future; • unsolicited and solicited press coverage mentioning the mark

and the source; • numbers of purchasers of the trademarked products; • geographic areas of sales and advertising; • attempts by others to imitate or infringe the mark; • enforcement against other infringers; and • proof of the defendant’s intentional copying.

A sterling reputation among consumers, coupled with proof of likely confusion, can lead a court to infer harm to that reputation.

Reputational harm won the day in a case brought by the Benihana chain of Japanese restaurants against a rebellious franchisee that was serving hamburgers.110 The chain proved that its reputation was for higher-end cuisine, such as steak and seafood, and that hamburgers would sully its image. The Second Circuit upheld a finding that the chain would “suffer substantial harm to its reputation” from sale of the unauthorized product, harm that was “not calculable nor precisely compensable.” 108. E.g., Luxottica Grp. S.p.A. v. Light in the Box Ltd., 2016 U.S. Dist. LEXIS 144660 (N.D. Ill. 2016) (allegation that plaintiff spends “millions of dollars annually to advertise, promote, and market” its branded products “indicates that Plaintiffs’ marks have significant economic value as source identifiers, which would be undermined by Defendant’s sale of allegedly counterfeit” goods); Adidas Am., Inc. v. Skechers USA, Inc., 149 F. Supp. 3d 1222, 1248-49 (D. Ore. 2016) (infringement undermines investment of millions of dollars of marketing through advertising, social media campaigns, product placement, media coverage); Toyo Tire & Rubber Co. v. Kabusikiki Kaisha Tokyo Nihoon Rubber Corp., 2015 U.S. Dist. LEXIS 146294 (D. Nev. 2015) (citing number of years of sales and dollar amount of annual sales, as well as investment in marketing and promotional activities); Nat’l Fin. Partners Corp., 2015 U.S. Dist. LEXIS 74700 (“If a company spends significant time and resources promoting its trademark, that is a strong indication that the mark has significant economic value as a source identifier. Any infringement that impedes that identifying function will cause significant harm.”). 109. See 1 Gilson on Trademarks § 2.06 for a full discussion of secondary meaning. 110. Benihana, Inc. v. Benihana of Tokyo, LLC, 784 F.3d 887 (2d Cir. 2015).

Vol. 107 TMR 939

And a healthcare services provider proved reputational harm from the resemblance between its logo and the defendant’s, which the court termed “jaw-droppingly similar.”111 The Second Circuit found irreparable harm where the defendant displayed its logo in advertising-laden educational programs shown in doctor’s offices. The plaintiff objected that this use could hinder its own solicitation of funds for medical research and clinical trials: To preserve its reputation, and its ability to receive grants, the plaintiff had to avoid any appearance of partiality from accepting advertisements. The court agreed that defendant’s transmissions could cause “serious harm” to the plaintiff’s reputation.112

2. Reduction in Market Share, Sales, or Customers To prove loss of market share, the plaintiff should begin with

its revenue stream, likely under seal, and the amount of revenue generated by sales of the infringed product.113 Then, plaintiff should ideally introduce any data marking a decline in such sales since the infringement began.114 Courts may view a lack of such evidence negatively, even if the parties’ goods have not co-existed for long.115 A component of this proof is, of course, evidence of the scale of the defendant’s infringing activity.116 111. Guthrie Healthcare Sys. v. ContextMedia, Inc., 826 F.3d 27, 48 (2d Cir. 2016). 112. See also OTR Wheel Eng’g, Inc., 602 Fed. Appx. 669 (finding irreparable harm from “nonquantifiable injury” to goodwill where defendant’s sales of allegedly infringing product to plaintiff’s main customer led customer to believe plaintiff had leaked confidential information to defendant). 113. E.g., Brandywine Prod. Group Int’l, 2016 U.S. Dist. LEXIS 132195 (failure to explain the percentage of revenue from the infringed product leaves the court with “no basis for estimating the likely extent of [the plaintiff’s] injury relative to the size of the company”); Plant Food Sys. v. AgroSource, Inc., 2016 U.S. Dist. LEXIS 124185 (S.D. Fla. 2016) (noting plaintiff’s failure to introduce evidence of its profits before defendant’s infringing activity began). 114. E.g., Csi Entm’t, 2016 U.S. Dist. LEXIS 180749 (finding that plaintiff “failed to produce profit or loss statements or business plans revealing any damages it suffered, despite [defendant’s] strenuous requests”); Smart Vent Prods. v. Crawl Space Door Sys., 2016 U.S. Dist. LEXIS 108052 (D.N.J. 2016) (criticizing plaintiff for “point[ing] to no evidence of lost sales, business, or the like”). 115. See Am. Beverage Corp. v. Diageo N. Am., Inc., 936 F. Supp. 2d 555, 614-15 (W.D. Pa. 2013) (denying relief where plaintiff failed to show “a measurable decrease in the [its] sales . . . correspond[ing] to sales increases for the defendant”); Grout Shield Distribs., LLC v. Elio E. Salvo, Inc., 824 F. Supp. 2d 389, 403 (E.D.N.Y. 2011) (no irreparable harm found in opinion written in November 2011 because plaintiff did not show reduced sales since defendant’s product went on the market in January 2011).

Compare Boulan South Beach Master Ass’n, 617 Fed. Appx. 931 (clarifying that it is not necessary for trademark owners to show “that the viability of their business would be seriously threatened” without an injunction). 116. E.g., Brandywine Prod. Group Int’l, 2016 U.S. Dist. LEXIS 132195 (sale of infringing products at single location insufficient to show irreparable harm); Conair Corp. v. Barbar, Inc., 2014 U.S. Dist. LEXIS 90869 (M.D. Fla. 2014) (finding no irreparable harm where “volume of Defendants’ sales is de minimis”).

940 Vol. 107 TMR

However, because many market factors are usually at work, proving that infringement caused any decrease in the plaintiff’s sales may well prove daunting. In one case, for example, the plaintiff claimed that a 40% sales drop was due to the defendant’s infringement. But the court noted that the plaintiff’s sales had “fluctuated widely from year to year,” and the drop could “be attributable to the fluctuations in the market and not necessarily from the entry of [the other product] into the marketplace.”117 On the other hand, where the parties compete directly, proving causation may not be as difficult, particularly in the case of lost market share.118

Even non-consumer confusion may be relevant.119 The Second Circuit found irreparable harm where a defendant’s use of a confusingly similar logo could affect the employment decisions of those the plaintiff sought to recruit.120 In another case, where both parties promoted triathlons, defendant’s use of an infringing mark impaired the plaintiff’s ability to secure sponsorships.121

3. Inferior Quality of Defendant’s Goods or Services or Customer Dissatisfaction

Where defendant’s goods are substandard, loss of reputation or goodwill may be dispositive.122 For example, complaints or critical reviews on review sites such as Yelp, on sites where the goods might be purchased such as Amazon, or on the plaintiff’s or defendant’s social media platforms could well be persuasive. Misdirected consumer complaints are also vital.123 Where there could be safety 117. Suja Life, LLC v. Pines Int’l, Inc., 2016 U.S. Dist. LEXIS 147014 (S.D. Cal. 2016). 118. E.g., Groupe SEB U.S., 774 F.3d at 205 (citing evidence that parties’ steam irons competed and were sold side-by-side on store shelves); Get in Shape Franchise, Inc. v. TFL Fishers, LLC, 167 F. Supp. 3d 173, 202-03 (D. Mass. 2016) (finding that a competing fitness studio that violated a non-compete clause would likely harm the former franchisor’s goodwill and ability to open its own local fitness studio).

See also McKenna, supra note 98, at 68 (“[T]he harm to producers from confusion about the source of competing goods is relatively clear: a competing NIKE shoe company could use consumer confusion to divert customers who otherwise would have bought shoes from Nike, Inc.”) (emphasis in original). 119. For more on non-purchaser confusion, see 2 Gilson on Trademarks § 5.14[3]. 120. Guthrie Healthcare Sys., 826 F.3d at 48. 121. New York City Triathlon, LLC v. NYC Triathlon Club, Inc., 704 F. Supp. 2d 305 (S.D.N.Y. 2010). 122. E.g., Starbucks Corp. v. Heller, 2014 U.S. Dist. LEXIS 165801 (C.D. Cal. 2014) (finding irreparable harm based on the “perceived association” between the plaintiff’s marks and the defendant’s counterfeit goods of lower quality).

Quality of the defendant’s goods is a factor in the likelihood of confusion determinations of two circuits, the Second and Fourth. For more, see 2 Gilson on Trademarks § 5.12. 123. See, e.g., Hand & Nail Harmony, Inc. v. ABC Nail & Spa Prods., 2016 U.S. Dist. LEXIS 82147 (C.D. Cal. 2016) (customer complaints expressed confusion and described the poor quality of defendant’s counterfeit products).

Vol. 107 TMR 941 issues, the quality of the defendant’s products is, of course, even more important.124

A disparity between the defendant’s low-end products and the plaintiff’s high-end ones can also generate irreparable harm. Where defendant’s inexpensive shoes were likely to cause confusion with the plaintiff’s premium brand, for example, the court declared that that confusion would “harm [plaintiff’s] reputation and goodwill—harm that is not compensable by money damages.”125 Similarly, a court found irreparable harm when confusion would generate a belief that plaintiff’s premium brand hair care products were sold as mass market.126 And where a store selling indoor gardening supplies had established an anti-marijuana reputation, a court found that consumer confusion with a pro-marijuana supplier would irreparably harm its goodwill.127

Customer dissatisfaction about the defendant’s business that spills over to the plaintiff’s reputation ranks high in evidentiary persuasiveness. For example, complaints to the plaintiff in one case about annoying robocalls from the defendant were damning, posing a threat to the plaintiff’s reputation and goodwill and establishing irreparable harm.128

But where the defendant’s products are of reasonably good quality, a court may well be less sympathetic. In one case, though there had been actual confusion, consumers’ comments about the plaintiff’s and defendant’s products were uniformly positive. Thus, there was no harm to the plaintiff’s goodwill or loss of customers.129 In fact, positive reviews of one defendant’s product led a court to 124. E.g., Dynamic Aviation Grp., Inc., 2016 U.S. Dist. LEXIS 39248 (plaintiff aviation company could be associated with defendant’s aircraft accidents, which could “irrevocably affect [its] reputation in the airline industry”); AstraZeneca AB v. Camber Pharms., Inc., 2015 U.S. Dist. LEXIS 156272 (D. Del. 2015) (defendant’s sale of purple pills likely to create false impression that they are generic equivalent to plaintiff’s purple pills; “Such identity of source, sponsorship or affiliation . . . puts at risk [the plaintiff’s] reputation in the event of quality or safety issues with [the defendant’s] generic.”). 125. Adidas Am., Inc., 149 F. Supp. 3d at 1249. 126. Moroccanoil, Inc. v. Zotos Int’l, Inc., 2017 U.S. Dist. LEXIS 12513 (C.D. Cal. 2017). 127. Titaness Light Shop v. Sunlight Supply, Inc., 2014 U.S. Dist. LEXIS 12326 (D. Nev. 2014). 128. Life Alert Emergency Response, Inc. v. LifeWatch, Inc., 601 Fed. Appx. 469 (9th Cir. 2015) (unpublished). 129. San Miguel Pure Foods Co. v. Ramar Int’l Corp., 625 Fed. Appx. 322 (9th Cir. 2015) (unpublished). The harm a plaintiff suffers from loss of reputation stems directly from an inability to control its own good name; the fact that defendant currently has a good reputation does nothing to remedy plaintiff’s loss of control.

But see Zino Davidoff SA v. CVS Corp., 571 F.3d 238, 243 (2d Cir. 2009) (“Where the alleged infringer has interfered with the trademark holder’s ability to control quality, the trademark holder’s claim is not defeated because of failure to show that the goods sold were defective. That is because the interference with the trademark holder’s legitimate steps to control quality unreasonably subjects the trademark holder to the risk of injury to the reputation of its mark.”).

942 Vol. 107 TMR make the bizarre suggestion that plaintiff could benefit from any source confusion.130

Surprisingly, some courts refuse to find irreparable harm even where there is a double whammy—both confusion and inferiority of the defendant’s products.131 District courts in the Ninth Circuit, due to Herb Reed, appear to be more skeptical of loss of control arguments, and one such opinion stands out:

The plaintiff lacks control over the quality of a third party’s product in every trademark infringement case. As a result, the mere possibility that plaintiff’s product will be associated with defendant’s product and that product may be of lesser quality, standing alone, is insufficient to show a likelihood that plaintiff’s reputation and goodwill will be irreparably harmed.132

In that case, failure to prove either that the defendant’s product was of poor quality or that the public perceived it to be of poor quality meant failure to prove danger to reputation and goodwill.

4. Parallels Between Current Case and One Finding Irreparable Harm

In some circuits, at least, plaintiffs would do well to point courts to the parallels between their case and earlier cases in which courts found irreparable harm. The First and Eleventh Circuits hearken back to yesteryear where current cases “are so similar to past cases ‘that a presumption of irreparable injury is an appropriate exercise of its discretion in light of the historical traditions.’”133

This reference to prior cases recalls Chief Justice Roberts’ concurrence in eBay, where he emphasized that courts need not

130. Kotori Designs, LLC v. Living Well Spending Less, Inc., 120 U.S.P.Q.2d 1800 (M.D. Fla. 2016). The court conducted some factual research on its own, apparently: “A brief internet search revealed that the ‘Living Well Planner’ has been reviewed quite favorably. Hence, Plaintiff may stand to benefit if consumers purchase—and enjoy —Defendants’ planner, but mistakenly believe it is Plaintiff’s competing product.” 131. E.g., Brandywine Prod. Group Int’l, 2016 U.S. Dist. LEXIS 132195 (no irreparable harm where plaintiff did not show that consumers blamed the plaintiff for any of the defendant’s product failures). 132. Pom Wonderful LLC, 2015 U.S. Dist. LEXIS 176834.

See also TPW Mgmt., LLC v. Yelp Inc., 2016 U.S. Dist. LEXIS 147884 (N.D. Cal. 2016) (following Pom Wonderful and holding that accepting plaintiff’s claims on its potential loss of control over its mark and reputation “would necessarily collapse the likelihood of confusion and the irreparable harm analyses, in direct contravention to the law in the Ninth Circuit”); Purdum v. Wolfe, 2014 U.S. Dist. LEXIS 5480 (N.D. Cal. 2014) (no evidence of inferior quality or manufacturing by defendant so harm from loss of control is no more than “speculative”). 133. Swarovski Aktiengesellschaft, 704 F.3d at 55, citing North Am. Med. Corp., 522 F.3d at 1228.

Vol. 107 TMR 943 ignore the past in exercising their equitable discretion.134 While he may have been referring generally to the historical tradition rather than to specifically comparing the facts in one case to those in another, plaintiffs can invoke his cautionary language in urging courts to look back to their past application of the legal standards.

But the Ninth Circuit has held firm, holding that “citation to a different case with a different record does not meet the standard of showing ‘likely’ irreparable harm.”135 In that circuit, then, plaintiffs will have difficulty convincing a court that similar precedent should hold sway.

B. Impending Nature of Harm A key irreparable harm factor in a preliminary injunction

motion is urgency.136 Is the damage so imminent that the court should grant relief immediately and not wait until a final decision? The plaintiff can emphasize the defendant’s encroachment in the market, customer complaints about the defendant, and any reduction in profits or market share caused by the defendant. If it is unclear how an injunction would stop harm, an explanation to the court is imperative.137 It is essential to avoid delay in requesting preliminary relief, as delay undercuts or contradicts claims of urgency.138

A request for a temporary restraining order is a different animal. It is relatively rare in trademark litigation and usually seen in only the most dire of situations.139 Even a brief delay before filing seems unthinkable to a court when a plaintiff seeks this accelerated emergency relief.140 134. eBay, 547 U.S. at 395 (Roberts, C.J., concurring). See § II.D supra for more on eBay and § IV supra for more on presumptions and inferences. 135. Herb Reed Enters., 736 F.3d at 1250. 136. E.g., Csi Entm’t, 2016 U.S. Dist. LEXIS 180749 (“[C]laims of irreparable harm sufficient to support injunctive relief must be real, actual, and imminent, not remote or speculative.”); Dynamic Aviation Grp., Inc., 2016 U.S. Dist. LEXIS 39248 (“Irreparable harm must be ‘actual and imminent’ and not ‘remote’ or ‘speculative.’”) (citation omitted). 137. Buzz Bee Toys, Inc. v. Swimways Corp., 20 F. Supp. 3d 483, 513 (D.N.J. 2014) (denying injunctive relief where, despite list of possible harms, “[p]laintiff has not shown that these events are likely to occur without an injunction”). 138. See infra § VI.B for more on delay. 139. Lee v. Haj, 2016 U.S. Dist. LEXIS 21378 (E.D. Cal. 2016) (“Parties facing the threat of immediate and irreparable harm generally seek a temporary restraining order as quickly as possible.”) (citing cases where application filed simultaneously with complaint or the next day); Karimi v. Poker Media Sys. SAS, 2013 U.S. Dist. LEXIS 99767 (D. Nev. 2013) (“Temporary restraining orders are a mechanism for the court to deal with real, immediate, and serious risks and injuries. Plaintiff’s delay in protecting his alleged interests demonstrates that this situation does not warrant immediate ex parte relief.”). 140. E.g., Phyllis Schlafly Revocable Trust v. Cori, 2016 U.S. Dist. LEXIS 155409 (E.D. Mo. 2016) (plaintiff filed action on October 19, 2016 and moved for a TRO on November 3, 2016) (While “not dispositive . . . , Plaintiffs’ delay in filing their emergency motion further supports the Court’s finding that there is no risk of immediate harm.”); KB Wellbore

944 Vol. 107 TMR

One risky area is settlement negotiations, and even a plaintiff’s settlement proposal may backfire. One plaintiff, before filing suit, would have allowed the defendant to phase out use of the objectionable trademark over a several-month period. The court found the proposal “wholly inconsistent with—and therefore fatal to—a claim of imminent irreparable harm, absent an injunction.”141

C. Lack of Redress with Award of Money The plaintiff should explain why the harm from infringement

cannot be compensated in money damages.142 An award may come too late to repair the plaintiff’s reputation, damages may be too difficult to quantify, and the defendant may not be able to afford to pay a judgment.

Most courts realize that a dollar amount for harm to goodwill and lessening of customers cannot be calculated accurately.143 An automobile repair business infringed the American Automobile Association triple-A mark, and was enjoined because the plaintiff would lose control over its reputation. The court noted that “loss of control over one’s reputation is neither calculable nor precisely compensable.”144 In an antitrust case, the Sixth Circuit disposed of the argument that lost profits were simple to calculate and remedy: “[T]o the extent there is a realistic prospect of lost sales and market share, these losses would harm [plaintiff’s] goodwill and competitive position in ways that would be hard to compensate and that would support a preliminary injunction. It is appropriate to use a preliminary injunction to avoid harms to goodwill and competitive position.”145

Solutions, LLC v. Sweatt, 2016 U.S. Dist. LEXIS 51789 (N.D. Tex.) (magistrate judge recommendation) (plaintiff learned of defendant’s use of mark on January 4, 2016, and moved for a TRO on February 17, 2016) (delay “appears to indicate that Plaintiff is not experiencing the type of urgency which would warrant the issuance of a TRO”), adopted by 2016 U.S. Dist. LEXIS 50725 (N.D. Tex. 2016); Dahl v. Swift Distrib., Inc., 2010 U.S. Dist. LEXIS 35938 (C.D. Cal. 2010) (26-day delay between filing complaint and moving for TRO implies a lack of urgency). 141. Kotori Designs, LLC, 120 U.S.P.Q.2d 1800. The plaintiff had put the settlement proposal into evidence, waiving any evidentiary objections under Federal Rule of Evidence 408. 142. See infra § VI.C for more case law and argument on this issue from the defendant’s side. For more on monetary relief in trademark cases, see 3 Gilson on Trademarks § 14.03. 143. See Uber Promotions, Inc., 162 F. Supp. 3d at 1276 (Harm from reverse confusion “is usually deemed irreparable because loss of reputation, goodwill, etc. is not easy to quantify and can’t readily be remedied with money damages or a post-trial injunction. It seems clear that if [plaintiff] is harmed by confusion between now and the time of trial, that harm will be difficult, if not impossible, to quantify, and will thus be irreparable.”) (citation omitted). 144. AAA, Inc. v. Limage, 2016 U.S. Dist. LEXIS 114778 (E.D.N.Y. 2016). 145. Collins Inkjet Corp. v. Eastman Kodak Co., 781 F.3d 264, 279 (6th Cir. 2015).

Vol. 107 TMR 945

In deciding whether harm is irreparable, a court can also consider the defendant’s inability to pay damages.146 Evidence tending to prove that fact could include annual reports, public tax filings, financial news, or declarations showing capital deficiencies or impending insolvency.147 Showing that the defendant was culpable of concealing assets can also buttress a finding of irreparable harm.148

D. Special Cases 1. Counterfeiting

A finding of counterfeiting—trademark infringement that could be criminal—is almost certain to trigger a finding of irreparable harm.149 Courts routinely find that knock-off products, without more, damage the plaintiff’s reputation and consumer confidence as well. Complaints to the trademark owner about those products would almost be conclusive of such harm. In such a case,

146. Tushnet, supra note 31, at 637 (“The irreparable harm argument is most persuasive when the defendant lacks the resources to pay any significant monetary damages.”); Douglas Laycock, The Death of the Irreparable Injury Rule, 103 Harv. L. Rev. 687, 716 (1990) (“Damages are no remedy at all if they cannot be collected, and most courts sensibly conclude that a damage judgment against an insolvent defendant is an inadequate remedy.”). 147. E.g., Cerule, LLC, 2016 U.S. Dist. LEXIS 112741 (no proof of assertion that defendant would be unable to satisfy a judgment; no irreparable harm); Smart Vent Prods., 2016 U.S. Dist. LEXIS 108052 (self-serving, unsubstantiated affidavit speculating about defendants’ financial position does not meet irreparable harm standard); Tecnimed SRL v. Kidz-Med, Inc., 763 F. Supp. 2d 395, 412 (S.D.N.Y. 2011) (information in defendant’s S.E.C. filing stating that auditors “have expressed substantial doubt about [its] ability to continue as a going concern”; irreparable harm found).

See also Castle Creek Tech. Partners v. Cellpoint Inc., 2002 U.S. Dist. LEXIS 23760 (S.D.N.Y. 2002) (non-trademark case finding irreparable harm where plaintiff “provided ample and specific evidence that [the defendant] is at the brink of insolvency, and that by the conclusion of the litigation, [it] may be in no position to satisfy a money judgment or an injunction”). 148. Microsoft Corp. v. Premier Selling Techs., 2015 U.S. Dist. LEXIS 39012 (W.D. Wash. 2015) (Where defendants went “to great lengths to hide themselves and the[ir] assets,” the fact that plaintiff was unlikely to obtain monetary relief was found to be “further evidence of irreparable harm.”). 149. E.g., Excelled Sheepskin & Leather Coat Corp. v. Oregon Brewing Co., 2016 U.S. Dist. LEXIS 133568 (S.D.N.Y. 2016); River Light V, L.P. v. Zhangyali, 2016 U.S. Dist. LEXIS 111301 (N.D. Ill. 2016) (“Plaintiffs have established that infringement occurred, and the harm to its brand from the sales of counterfeit goods is irreparable—the confusion caused by knock-off products in the stream of commerce damages the value of the brand and cannot be compensated by money alone.”); Mycoskie v. 2016tomsshoessaleoutlet.us, 2016 U.S. Dist. LEXIS 95963 (S.D. Fla. 2016) (finding “immediate and irreparable injury” where the defendant owned websites advertising and selling counterfeit goods); Chanel, Inc. v. Matos, 133 F. Supp. 3d 678, 689 (D.N.J. 2015) (“[H]aving established that Defendant’s use of Plaintiff’s exact Marks creates a clear case of confusion, and that Defendant’s counterfeited products of inferior quality arguably diminish [Plaintiff’s] reputation, irreparable injury becomes ‘the inescapable conclusion.’”) (citation omitted).

For more on counterfeiting, see 2 Gilson on Trademarks § 5.19.

946 Vol. 107 TMR regardless of whether eBay changes the presumption, “common sense confirms that Defendant’s sale of goods that look nearly identical to Plaintiffs’ creates a risk of irreparable harm by devaluing Plaintiffs’ brands.”150 Counterfeiting inevitably endangers the plaintiff’s goodwill151 and can poison relationships with its distributors.152

2. Default Where the defendant fails to answer a complaint and defaults,

the plaintiff’s well-pleaded fact allegations on liability are deemed

150. Luxottica Grp., 2016 U.S. Dist. LEXIS 144660.

See also, e.g., Levi Strauss & Co. v. Sunrise Int’l Trading Inc., 51 F.3d 982, 986 (11th Cir. 1995) (“There is no doubt that the continued sale of thousands of pairs of counterfeit jeans would damage [the plaintiff’s] business reputation and decrease its legitimate sales.”); Bulgari, S.P.A. v. Zou Xiaohong, 2015 U.S. Dist. LEXIS 140606 (N.D. Ill. 2015) (holding that Defendant’s “sale of counterfeit BVLGARI branded products [online] poses unmistakable peril to Bulgari’s goodwill, and therefore constitutes an irreparable injury that the available legal remedies are inadequate to compensate for”); Hand & Nail Harmony, Inc. v. Guangzhou Cocome Cosmetics Co., 2014 U.S. Dist. LEXIS 137221 (D. Nev. 2014) (“The irreparable harm to Plaintiffs [from defendant’s sale of counterfeits] will occur in the form of loss of control over its intellectual property rights, loss of consumer goodwill, loss of sales, and interference with Plaintiffs’ ability to exploit their trademarks. The Plaintiffs clearly have no connection to and thus control over the marketing and distribution of these counterfeit products by the Defendants.”); Bikinvention 2 CC v. Squirt, LLC, 2014 U.S. Dist. LEXIS 61310 (D. Colo. 2014) (“Common sense dictates that the counterfeit Squirt [bicycle chain lubricant], which is alleged to be of an inferior quality, will diminish the Squirt brand in ways that Plaintiff will find difficult to correct.”); CJ Prods. LLC v. Snuggly Plushez LLC, 809 F. Supp. 2d 127, 145 (E.D.N.Y. 2011) (not relying on the presumption) (“Injecting the market with counterfeit products will not only result in lost sales, but will impair plaintiffs’ reputation achieved through considerable time and effort. This type of harm cannot be redressed by monetary damages available at law.”). 151. Luxottica Grp., 2016 U.S. Dist. LEXIS 144660 (“Defendant’s sale of allegedly counterfeit goods poses an obvious risk to the goodwill that Plaintiffs have built up over the decades, which constitutes irreparable harm.”); Mitchell Grp. USA, LLC v. Nkem Udeh, 2014 U.S. Dist. LEXIS 143001 (E.D.N.Y. 2014) (“[I]t has been recognized that counterfeiting specifically may . . . lead to irreparable harm. . . . The Court finds that there is irreparable injury to the Plaintiffs because Defendants have engaged in the act of selling goods bearing marks that are almost identical to Plaintiffs’ marks, but not identical in composition or in warnings to consumers.”); Sanrio Co. v. J.I.K. Accessories, 2012 U.S. Dist. LEXIS 55280 (N.D. Cal. 2012) (finding that sale of counterfeits will result in “monetary harm from reduced sales” and harm to goodwill, especially “given that many of the counterfeit items have high levels of lead, which could result in consumers who believed they purchased genuine products having a poorer opinion of Plaintiff’s products”). 152. E.g., Hand & Nail Harmony, Inc. v. Guangzhou Shun Yan Cosmetics Co., 2015 U.S. Dist. LEXIS 93744 (D. Nev. 2015) (“Defendant’s resumption of its counterfeiting activities would have irreversibly harmful effects on the goodwill associated with the . . . marks and the . . . goods. This is especially so when consumers mistakenly believe that Defendant’s Counterfeit Merchandise of inferior and even unusable or harmful quality originated from [plaintiff]. Moreover, Defendant’s resumption of its counterfeiting activities would irreparably harm [plaintiff’s] relationships with its distributors and purchasers, who end up competing with unauthorized purchasers that acquire product from unauthorized distributors of Counterfeit Merchandise.”) (citations omitted).

Vol. 107 TMR 947 admitted, and courts almost always find irreparable harm.153 Courts assume from a default that confusion is likely when the complaint alleges it. Courts will also probably assume that, without acting, the infringement will continue and generate irreparable harm.154 Courts may further find harm from the inaction of an uncooperative defendant, including its likely failure to pay money damages.155

Few district courts in default cases raise questions about the presumption. Well-pleaded allegations of fact lead to a likelihood of success on the merits, and the vast majority of courts go on to find that irreparable harm is presumed, perhaps because there is no defendant bringing eBay to the court’s attention. Still, even defaulted allegations of irreparable harm and continuing

153. 13 Moore’s Federal Practice § 55.32[1][a] (“The effect of an entry of default, if not set aside, is to establish the liability of the defaulting party as a basis for default judgment. . . . On a motion for default judgment, the well-pleaded facts in the complaint relating to liability are taken as true.”). See also, e.g., Choice Hotels Int’l, Inc. v. Hosp., LLC, 2012 U.S. Dist. LEXIS 94515 (W.D. Mich.) (magistrate judge) (allegation that unauthorized use of plaintiff’s marks resulted in irreparable harm; default judgment and allegations deemed admitted), adopted at 2012 U.S. Dist. LEXIS 93933 (W.D. Mich. 2012). 154. E.g., Microsoft Corp., 2016 U.S. Dist. LEXIS 120162 (defendant’s failure to appear suggests it will continue to infringe absent judicial intervention); Mister Softee, Inc. v. Konstantakakos, 2016 U.S. Dist. LEXIS 84034 (E.D.N.Y. 2016) (“Defendants’ defaults give rise to the inference that defendants are willing to continue infringing plaintiffs’ . . . Mark, leading to the conclusion that plaintiffs have no adequate remedy at law.”); Las Vegas Sands Corp. v. Unknown Registrants, 2016 U.S. Dist. LEXIS 60117 (D. Nev. 2016) (“Several district courts have granted injunctions in the default judgment context by accepting as true the facts alleged in plaintiffs’ complaints, including facts establishing irreparable injury.”); Toyo Tire & Rubber Co., 2015 U.S. Dist. LEXIS 146294 (finding fact of irreparable harm “especially true” given defendant’s failure to acknowledge case); Krevat v. Burgers to Go, Inc., 2014 U.S. Dist. LEXIS 131256 (D.N.J. 2014); Ashland Inc. v. Randolph, 2013 U.S. Dist. LEXIS 153316 (S.D. W. Va. 2013); Otels, Inc. v. Altun, 2012 U.S. Dist. LEXIS 114584 (E.D. Va. 2012) (accepting allegation that defendant uses a similar mark for same type of business, targeting same potential customers, and will continue to infringe; following presumption); Coach, Inc. v. O’Brien, 2011 U.S. Dist. LEXIS 135988 (S.D.N.Y. 2011) (The defendant’s “default constitutes an admission of liability as to the trademark infringement claim, . . . such that [the plaintiff] has established a likelihood of confusion from which irreparable harm is presumed.”). 155. Hydreon Corp., 2016 U.S. Dist. LEXIS 160545 (though following the presumption, finding irreparable harm “also present because Plaintiff’s ability to accurately assess the magnitude of the losses from infringing conduct has been stymied by Defendant’s failure to appear”); Hand & Nail Harmony, Inc., 2014 U.S. Dist. LEXIS 137221 (“[B]ecause many of the Defendants appear to have no presence in the United States, it may be difficult or impossible for Plaintiffs to enforce a monetary judgment. In fact, none of the Defendants has responded to the summons to attend a hearing or responded to motions. There is little reason to believe at this time that Defendants will pay heed to any money damages awarded.”).

See supra § V.C for more on the role of a defendant’s finances in the decision whether to grant irreparable harm.

948 Vol. 107 TMR infringement may prove unpersuasive,156 and a court may yet require a showing of harm from the plaintiff.157

3. Holdover Franchisees Courts usually hold that a terminated or expired franchisee

continuing to use the franchisor’s trademarks has infringed and is causing irreparable harm.158 Such uses, usually in violation of a franchise or trademark license agreement, harm not only the franchisor but also legitimate franchisees and deceived consumers. A terminated franchisee may also have highly confidential business information that is placed at risk.159 Where the holdover continues to operate under the trademarks and name, irreparable harm is usually clear-cut.160

Customer complaints of poor holdover quality are particularly damning evidence of harm, as are the franchisor’s low quality ratings made during inspections.161 In one typical case, a district 156. E.g., SPFM, L.P. v. Felix, 2016 U.S. Dist. LEXIS 138940 (W.D. Tex. 2016); Zeltiq Aesthetics, Inc. v. Sun Serenity Spa, 2016 U.S. Dist. LEXIS 17826 (E.D. Cal. 2016); MGM Resorts Int’l v. Unknown Registrant of www.imgmcasino.com, 2015 U.S. Dist. LEXIS 128394 (D. Nev. 2015) (“[A] default judgment does not relieve Plaintiff of its burden to provide factual allegations for the Court to take as true. Merely stating that Plaintiff has suffered irreparable harm is not a demonstration of irreparable harm as required by the Ninth Circuit.”). 157. E.g., Zeltiq Aesthetics, Inc., 2016 U.S. Dist. LEXIS 17826 (putting plaintiff to its proof of irreparable harm in context of default judgment); Century 21 Real Estate, LLC v. Destiny Real Estate Props., 101 U.S.P.Q.2d 1423 (N.D. Ind. 2011). 158. See 2 Gilson on Trademarks § 6.04[4][e]. See also, e.g., U.S. Structures, Inc. v. J.P. Structures, Inc., 130 F.3d 1185, 1190 (6th Cir. 1997) (“Common sense compels the conclusion that a strong risk of consumer confusion arises when a terminated franchisee continues to use the former franchisor’s trademarks.”); Maaco Franchising, LLC v. Boensch, 2016 U.S. Dist. LEXIS 123203 (W.D.N.C. 2016) (finding that continued unauthorized use of franchise trademarks “threatens [the franchisor], its authorized franchisees, and the consuming public generally with immediate and irreparable harm”); Get in Shape Franchise, Inc., 167 F. Supp. 3d at 202-03 (violation of non-compete clause would cause irreparable harm to franchisor’s goodwill without injunction); Choice Hotels Int’l, 135 F. Supp. 3d at 471; Philips Elecs. N. Am. Corp. v. Hope, 631 F. Supp. 2d 705, 711 (M.D.N.C. 2009) (“Loss of permanent relationships with customers and loss of proprietary information may constitute irreparable harm.”); Hollywood Athletic Club Licensing Corp. v. GHAC-CityWalk, 938 F. Supp. 612, 615 (C.D. Cal. 1996) (“In a licensor/licensee case, the reasons for issuing a preliminary injunction for trademark infringement are even more compelling than in the ordinary case.”). 159. Cellairis Franchise, Inc. v. Duarte, 2015 U.S. Dist. LEXIS 147890 (N.D. Ga. 2015) (“Disclosure of confidential information harms plaintiffs’ good will, dilutes their brand value, and discourages potential franchisees from entering their franchise system.”). 160. E.g., Novus Franchising, Inc., 2016 U.S. Dist. LEXIS 122655 (no irreparable harm where former franchisee was using different name and logos and court found them not confusingly similar); ACG Pizza Partners, LLC v. Mykull Enters., 2014 U.S. Dist. LEXIS 119989 (M.D. Ga. 2014) (finding irreparable harm without presumption from holdover franchisee). 161. E.g., IHOP Franchising, LLC v. Hameed, 2015 U.S. Dist. LEXIS 12021 (E.D. Cal. 2015) (failed evaluation by franchisor with multiple quality deficiencies including potential health hazards for customers); IHOP Franchising, LLC v. Tabel, 2014 U.S. Dist. LEXIS 60028 (D. Kan. 2014) (several negative customer complaints, including some indicating they would never go back to any of the chain’s restaurants); 7-Eleven, Inc. v. Kapoor Bros., Inc., 977 F.

Vol. 107 TMR 949 court found irreparable harm where a former ice cream truck franchisee continued to use the franchised marks after termination.162 Consumers of course associated the defendant’s trucks with plaintiffs, and any reduction in quality or sanitation would reflect poorly on them and their legitimate franchisees.

However, even in the holdover context, relief post-eBay is not inevitable.163 In one case, there were seven consumer complaints about a holdover-run convenience store, but several occurred before the defendant breached the franchise agreement.164 Finding no irreparable harm, the court surmised that such complaints were common to similar stores around the country.

The most persuasive evidence in a holdover case is actual confusion, customer complaints and other proof of low quality. On-site interviews of holdover customers or comment cards for them to complete and mail may be productive. However, a franchise agreement provision declaring that a breach automatically constitutes irreparable harm is not likely to help the plaintiff’s case.165 Courts generally do not regard such provisions as determinative.166

VI. DEFENDANT’S CASE AGAINST PRELIMINARY INJUNCTIVE RELIEF—THE BASICS

In defending a motion for preliminary relief in a trademark

case, depending on the jurisdiction, counsel needs to be prepared to Supp. 2d 1211, 1226-27 (M.D. Fla. 2013) (“Even in the absence of such presumptions, [the plaintiff] has established actual confusion and consequent continuing and irreparable harm to its goodwill and reputation by the numerous post-termination customer complaints made against Defendants’ stores because [the plaintiff] cannot control the quality of Defendants’ services and products.”). 162. Mister Softee, Inc., 2015 U.S. Dist. LEXIS 158290 (permanent injunction); Mister Softee, Inc., 2014 U.S. Dist. LEXIS 77434 (preliminary injunction). 163. E.g., Miller Constr. Equip. Sales, Inc. v. Clark Equip. Co., 2016 U.S. Dist. LEXIS 60319 (D. Alaska 2016) (claim that dealership was of low quality insufficient where holdover only lasted six weeks). 164. 7-Eleven, Inc., 2016 U.S. Dist. LEXIS 15733. 165. E.g., Executive Home Care Franchising LLC v. Marshall Health Corp., 642 Fed. Appx. 181 (3d Cir. 2016) (unpublished) (upholding refusal to find irreparable harm even with such a provision in the franchise agreement); Benihana, Inc., LLC, 784 F.3d at 896 (finding irreparable harm but noting that such a provision is not controlling); Laidlaw, Inc. v. Student Transp. of Am., 20 F. Supp. 2d 727, 758 (D.N.J. 1998) (“A contractual provision simply cannot act as a substitute for a finding by this Court that determines whether a preliminary injunction is proper.”).

But see AcryliCon USA, LLC v. Silikal GmbH, 2016 U.S. Dist. LEXIS 22760 (N.D. Ga. 2016) (finding that plaintiff had shown irreparable harm because of contract provision). 166. See. JL Powell Clothing LLC v. Powell, 590 Fed. Appx. 3 (1st Cir. 2014) (unpublished) (vacating district court finding of irreparable harm where it was based solely on the contract between the parties, which provided that “irreparable damage would occur” if there were a breach; remanding for review of issue).

950 Vol. 107 TMR educate the court that the presumption is dead. District court judges nationwide are no more than likely to find the presumption eliminated, but they must so find in the Third, Ninth, and Eleventh Circuits. And under Winter, the plaintiff must not only show that it is likely to win on the merits but also that irreparable harm is probable, not merely possible.167

Now is the time to put the plaintiff to its proof, and in a way that was not possible a decade ago. It is the plaintiff’s burden to prove irreparable harm.168 Mere argument will not suffice, and a finding of likely success on the merits does not automatically lead to preliminary relief.169 The Herb Reed case from the Ninth Circuit is particularly strict on this point.170 This section assumes that the plaintiff has established that it will likely succeed on the merits, and now comes the next step.

As on the plaintiff’s side, experienced counsel will, of course, know these general principles. But the opportunities for resisting a motion for preliminary injunction have certainly expanded, and a look at current case law may help.

A. Plaintiff’s Irreparable Harm Is Speculative and Its Evidence Is Cursory, Conclusory,

or Unsupported Courts cannot base a finding of trademark irreparable harm on

merely speculative injury, or where plaintiff’s evidence is cursory or unsupported.171 This rationale has been key in rejecting claims of

167. Winter, 555 U.S. at 20-22. See § II.E supra. 168. For more on what the plaintiff is seeking to prove, see supra § V. 169. E.g., Oriental Fin. Group, Inc. v. Cooperativa De Ahorro y Credito Oriental, 832 F.3d 15 (1st Cir. 2016) (finding infringement but remanding to lower court to determine whether to grant or deny injunctive relief). 170. Herb Reed Enters., 736 F.3d at 1250-51. 171. E.g., San Miguel Pure Foods Co., 625 Fed. Appx. 322 (“Irreparable harm may not be based on speculative injury.”); Humana Ins. Co. v. Tenet Health Sys., 2016 U.S. Dist. LEXIS 161274 (N.D. Tex. 2016) (defendant vigorously and successfully pressed the “speculative argument” claim and court agreed); Brandywine Prod. Group Int’l, 2016 U.S. Dist. LEXIS 132195 (noting failure to offer evidence of current and imminent harm; “While evidence of intangible harm is often elusive, the law nonetheless requires [the plaintiff] to ‘demonstrate that irreparable injury’ of such nature is likely to flow from the sale of [the defendant’s] products.”) (emphasis in original) (citation omitted); Haas Automation, Inc. v. Denny, 2014 U.S. Dist. LEXIS 89860 (C.D. Cal. 2014) (“Damage to goodwill can constitute irreparable harm. However, Plaintiff has provided no evidence relating to its goodwill or any damages that its goodwill has suffered. In sum, Plaintiff has offered no evidence—such as lost profits or lost goodwill—to show that it has suffered irreparable harm.”); Wahoo Int’l, Inc. v. Phix Doctor, Inc., 2014 U.S. Dist. LEXIS 74927 (S.D. Cal. 2014) (“[B]esides a conclusory statement that Plaintiff will suffer irreparable harm to its reputation and good will, Plaintiff has not

Vol. 107 TMR 951 irreparable harm, a rationale that has proved useful to defendants. In particular, the Ninth Circuit in Herb Reed requires plaintiffs to submit evidence rather than just argument, and many lower courts have relied on that mandate to find proof of irreparable harm lacking. As Herb Reed dictates, where a lower court’s “pronouncements are grounded in platitudes rather than evidence,” and they fail to support likelihood of irreparable harm or inadequacy of damages, they are not grounds for granting an injunction.172 In fact, a district court’s failure to make impressive factual findings may simply “reinsert the now-rejected presumption of irreparable harm based solely on a strong case of trademark infringement.”173

Plaintiffs submitting no evidence at all in support of irreparable harm are, of course, in jeopardy in certain jurisdictions.174 Even with compelling evidence of confusion and a finding of likely success on the merits, deficient evidence associated specifically with the harm factor can be fatal. In one case, a nonprofit foundation offered board member declarations explaining that without an injunction they would lose symposium attendance and the foundation “may have to dissolve.”175 The court dismissed the statements as unsupported and conclusory.

Evidence and arguments speaking to the general dangers of trademark infringement also may not suffice. These should relate explicitly to the risk of harm to that plaintiff from that defendant. Where one damages expert opined that trademarks as a rule fail to provided any evidence to support such a claim. Accordingly, this factor weighs against injunctive relief.”). 172. Herb Reed Enters., 736 F.3d at 1250 (“The district court’s analysis of irreparable harm is cursory and conclusory, rather than being grounded in any evidence or showing offered by [the plaintiff].”). See also, e.g., Zeltiq Aesthetics, Inc., 2016 U.S. Dist. LEXIS 17826 (holding that “the evaluation of whether actual irreparable harm has resulted is based on the evidence presented to the court, and ‘platitudes’ or suggestions of the possibility of harm are insufficient to establish irreparable harm”). 173. Herb Reed Enters., 736 F.3d at 1250. 174. E.g., Suja Life, LLC, 2016 U.S. Dist. LEXIS 147014 (finding no irreparable harm where the plaintiff’s “argument that it will lose control of its goodwill and reputation due to its customers associating [the plaintiff] and [the opposing party] is not supported by any evidence”); 7-Eleven, Inc., 2016 U.S. Dist. LEXIS 15733 (denying injunctive relief where plaintiff failed to provide “a factual basis for why harm is likely to occur”); Sleash, LLC v. One Pet Planet, LLC, 2014 U.S. Dist. LEXIS 113520 (D. Ore. 2014) (The plaintiff “has not offered any evidence showing a likelihood of irreparable harm. Rather than providing any such evidence, [it] argues that such irreparable harm automatically flows from the loss of control of its business and trademark. This argument, however, is inconsistent with Herb Reed as the Court cannot rely on conclusory assertions unsupported by evidence.”); Active Sports Lifestyle USA, LLC, 2014 U.S. Dist. LEXIS 45575 (“[T]he Court may not conclude that the fact of infringement itself constitutes irreparable harm, and the existence of intangible harms such as a loss of goodwill must be shown by evidence. [The plaintiff] has failed to present evidence beyond speculation that it will face a loss of goodwill in the future, or that its inability to fully control the use of marks substantially similar to its own will result in harm.”). 175. Cafe Found., Inc., 2016 U.S. Dist. LEXIS 44121.

952 Vol. 107 TMR recoup their value post-infringement, one court belittled the expert opinion as no more than

a generalized statement concerning the impact infringement has on any trademark. . . . Assuming this is true, then the same is true in every case of infringement, and would warrant entry of a preliminary injunction in every case. This cannot be squared with the rule that a plaintiff must adduce evidence of likely irreparable harm to obtain an injunction.176

It is not surprising that courts often reject declarations that simply characterize the generalized abstract harm from trademark infringement.177

Evidence of harm that does not pinpoint a reduction in customers or profits may also be unconvincing. One plaintiff argued that its Google AdWords costs were increasing and bemoaned the fact that its product did not appear until on the third page of Google search results. The court was unmoved:

If Plaintiff were truly harmed, the Court would expect evidence showing a precipitous drop in visitors to Plaintiff’s website, drops in sales, actual confusion, or any other evidence tending to show that Plaintiff lost goodwill or position in the market. On the face of the evidence submitted, it is not clear that Plaintiff had any goodwill or position in the market . . . to begin with.178

Because various market forces may have contributed, a specific showing of lost market share may not demonstrate irreparable harm either.179 Even a showing of actual confusion may not persuade a court that future diversion of sales or damage to goodwill is likely.180 Where one plaintiff described not only its high-quality products but also the imminent harm from the defendants’ 176. Pom Wonderful LLC, 2015 U.S. Dist. LEXIS 176834. 177. E.g., Hakkasan LV, LLC v. Miller, 2016 U.S. Dist. LEXIS 34649 (D. Nev. 2016); Wenger S.A. v. Fuzhou Hunter Prod. Imp. & Exp. Co., 2015 U.S. Dist. LEXIS 85855 (D. Nev. 2015) (denying motion for preliminary injunction where plaintiff “failed to present any evidence with its motion, apart from declarations containing conclusory statements, showing a likelihood of irreparable harm”); Gatsinaris v. ART Corporate Solutions, Inc., 2015 U.S. Dist. LEXIS 70020 (C.D. Cal. 2015) (“[C]ourts should be wary of granting a preliminary injunction based solely on allegations and conclusory affidavits submitted by plaintiff.”) (citation omitted); Wells Fargo & Co., 2014 U.S. Dist. LEXIS 121444 (“In order to establish harm to its reputation or its goodwill, [the plaintiff] must do more than simply submit a declaration insisting that its reputation and goodwill have been harmed.”). 178. Young v. 3.1 Phillip Lim, LLC, 2016 U.S. Dist. LEXIS 158931 (C.D. Cal. 2016). 179. Aurora World, Inc. v. Ty Inc., 719 F. Supp. 2d 1115, 1169 (C.D. Cal. 2009) (“Loss of sales alone will not support a finding of irreparable injury ‘because acceptance of that position would require a finding of irreparable harm to every’ plaintiff regardless of circumstances.”), quoting Reebok Int’l Ltd. v. J. Baker, Inc., 32 F.3d 1552, 1557 (Fed. Cir. 1994). 180. Spiraledge, Inc. v. SeaWorld Entm’t, Inc., 2013 U.S. Dist. LEXIS 96616 (S.D. Cal. 2013) (misdirected consumer inquiries were not “probative, nonspeculative evidence that [the plaintiff] has lost, or likely will lose, prospective customers or goodwill due to [the defendant’s] use of the . . . mark”).

Vol. 107 TMR 953 counterfeits, the court found that presentation lacking: the plaintiff’s statements were “conclusory” and mere “speculation on future harm.”181

B. Excessive Delay Delay in seeking preliminary relief erodes and sometimes ends

the argument that immediate relief is necessary, suggesting that the plaintiff’s harm cannot be irreparable.182 Indeed, before the presumption was called into question by eBay, courts found that delay alone eliminated it.183 Courts often make broad declarations on this point that defendants can applaud: “In order to demonstrate irreparable harm, a party must show that the harm is certain and great and of such imminence that there is a clear and present need for equitable relief.”184

In measuring the reasonableness of delay, pinning down the precise date when the clock started ticking is critical: When did the plaintiff know or when should it have known of the infringement? A period in which the plaintiff was unaware of the infringement probably will not be held against it. Where the defendant progressively encroached on the plaintiff’s territory, the parties paused to engage in settlement discussions, or the plaintiff spent

181. Wenger S.A., 2015 U.S. Dist. LEXIS 85855 (denying motion for preliminary injunction where plaintiff “failed to present any evidence with its motion, apart from declarations containing conclusory statements, showing a likelihood of irreparable harm”). 182. E.g., Tough Traveler, 60 F.3d at 968 (“[F]ailure to act sooner undercuts the sense of urgency that ordinarily accompanies a motion for preliminary relief and suggests that there is, in fact, no irreparable injury.”). See generally 3 Gilson on Trademarks § 11.08[3][i][ii][D][III] for more on delay in the preliminary injunction context. For more on a plaintiff’s attempt to show the impending nature of irreparable harm, see supra § V.B.

Sandra Edelman has written and co-written an excellent, thorough series analyzing the effect of delay in preliminary injunction cases. See Sandra Edelman & Fara S. Sunderji, Delay in Filing Preliminary Injunction Motions: 2015 Edition, 105 TMR 1012 (2015); Sandra Edelman, Delay in Filing Preliminary Injunction Motions: 2009 Edition, 99 TMR 1074 (2009); Sandra Edelman, Delay in Filing Preliminary Injunction Motions: Update 2002, 92 TMR 647 (2002); Sandra Edelman, Delay in Filing Preliminary Injunction Motions: A Five Year Update, 85 TMR 1 (1995); Robert L. Raskopf & Sandra Edelman, Delay in Filing Preliminary Injunction Motions: How Long Is Too Long? 80 TMR 36 (1990). 183. E.g., Voice of the Arab World, Inc., 645 F.3d at 35 (noting that “such presumption has been held inapplicable in cases where the party seeking injunctive relief excessively delays in seeking such relief”); Tough Traveler, 60 F.3d at 968 (holding the presumption “inoperative if the plaintiff has delayed either in bringing suit or in moving for preliminary injunctive relief”). 184. Novus Franchising, Inc., 725 F.3d at 895. See also, e.g., Spiraledge, Inc., 2013 U.S. Dist. LEXIS 96616 (“An injunction will not issue if the person or entity seeking injunctive relief shows a mere possibility of some remote future injury, or a conjectural or hypothetical injury.”) (citation omitted).

954 Vol. 107 TMR time in a good faith effort to investigate the infringement, a court may find irreparable harm185 but need not.186

The impact of delay in a court setting is highly fact-intensive, but some generalizations are possible. For example, a delay of three or fewer months will probably not result in a court denying a preliminary injunction.187 Delay between four and six months may conclude with relief being denied.188 From seven to twelve months, the split of grant and denial is about half and half.189 Longer than that, “there is still a chance of obtaining expedited preliminary injunctive relief, but the case must be strong on the merits and the equities, and the plaintiff better have a good excuse for the delay.”190

185. 2die4kourt v. Hillair Capital Mgmt., LLC, 2016 U.S. Dist. LEXIS 118211 (C.D. Cal. 2016) (finding irreparable harm despite five-month delay in which plaintiffs attempted to settle matter informally, “which would obviate the need for an injunction”); ADT, LLC v. Capital Connect, Inc., 145 F. Supp. 3d 671, 698-99 (N.D. Tex. 2015) (finding “reasonable explanation” for delay that plaintiff was investigating the claims, wanted to be sure evidence of confused consumers would support a claim of likelihood of confusion, and did not foresee the increase in customer complaints); Institute for Justice v. Media Grp. of Am., LLC, 117 U.S.P.Q.2d 1042 (E.D. Va. 2015) (defendant re-branded to a mark even closer to plaintiff’s after settlement discussions failed, so delay was not evidence that there was no irreparable harm).

Cf. Suja Life, LLC, 2016 U.S. Dist. LEXIS 147014 (delay due to good faith settlement negotiations did not weigh against irreparable harm finding, but other proof of harm was lacking). 186. E.g., Gym Door Repairs, Inc., 2016 U.S. Dist. LEXIS 123139 (delay of seven years since discovery of infringement while plaintiff pursued administrative remedies through state and local government counseled against finding irreparable harm). 187. Edelman & Sunderji, supra note 182, at 1015. 188. Id. See, e.g., Wreal, LLC v. Amazon.com, 840 F.3d 1244, 1248 (11th Cir. 2016) (unexplained five-month delay “fatally undermined any showing of irreparable injury”); Smart Vent Prods., 2016 U.S. Dist. LEXIS 108052 (delay of two to seven months “knocks the bottom out of any claim of immediate and irreparable harm”) (citation omitted); 27-24 Tavern Corp. v. Dutch Kills Centraal, 2015 U.S. Dist. LEXIS 133648 (E.D.N.Y. 2015) (five-month delay undercuts argument of irreparable harm). 189. Edelman & Sunderji, supra note 182, at 1015. See, e.g., Health New Eng., Inc. v. Trinity Health—New Eng., Inc., 2016 U.S. Dist. LEXIS 124946 (D. Mass. 2016) (delay of eleven months in moving for preliminary injunctive relief indicates no immediate need for such relief); Dynamic Aviation Grp., Inc., 2016 U.S. Dist. LEXIS 39248 (ten-month delay reasonable when parties were trying to resolve their dispute) (“[T]he need for urgent relief must be balanced against the ‘goal of voluntary resolution of disputes.’”) (citation omitted); Transcience Corp. v. Big Time Toys, LLC, 50 F. Supp. 3d 441, 458 (S.D.N.Y. 2014) (nine months before filing suit, then four months to move for injunctive relief, constituted too long of a delay). 190. Edelman, supra note 182, at 1077. See also Edelman & Sunderji, supra note 182, at 1014 (“A surprising number of plaintiffs filed a motion for a preliminary injunction where the delay was a year or much longer. One might wonder why so many movants believed that a preliminary injunction might be obtainable when there had been such an extended period of delay in seeking expedited relief.”) (footnote omitted).

Vol. 107 TMR 955

Courts eschewing the presumption may be willing to believe that excessive delay cancels a showing of irreparable harm.191 However, delay-in-injunctive-relief expert Sandra Edelman posits that, in the pre-eBay era, delay was more harmful to plaintiffs than it is today. When plaintiffs could rely on the presumption, plaintiffs did not present as much evidence of actual harm and their delay served to rebut the presumption. After eBay, she posits, courts see delay as “just one element in a multi-factor analysis that can be outweighed by an otherwise strong showing of irreparable harm.”192

Note that, depending on the circuit, the equitable defense of laches as such may or may not relate to a claim of delay in preliminary injunction motions. A laches claim will succeed when the plaintiff has inexcusably delayed in asserting its rights, unfairly causing prejudice to the defendant.193 But the circuits are split on whether a defendant needs to show prejudice from the plaintiff’s delay to avoid a preliminary injunction.194 The Seventh Circuit requires a showing that the defendant detrimentally relied on the plaintiff’s delay,195 but the Second Circuit differentiates between laches and delay in this context, holding that delay without prejudice can still nullify irreparable harm.196 In Herb Reed, the Ninth Circuit examined the defendant’s laches claim separately from the issue of irreparable harm, finding that laches did not foreclose the suit.197

191. Csi Entm’t, 2016 U.S. Dist. LEXIS 180749 (“Because an application for a preliminary injunction now requires a movant to make an actual showing of imminent irreparable injury in the absence of an injunction, delay is an important factor that the Court must consider.”). 192. Edelman & Sunderji, supra note 182, at 1019. 193. See 3 Gilson on Trademarks § 11.08[3][i][ii]. 194. See id. at § 11.08[3][i][ii][D][III]. For more on when laches will prevent the granting of an injunction in a trademark case, see id. at § 11.08[3][i][ii][D] (“A widely-held misconception is that laches will never prevent the granting of an injunction in a trademark case. Actually, although protection of the public from confusion frequently overcomes the affirmative defense of laches in a court action, injunctions are often denied because of laches. . . . Nevertheless, it is true that, in general, laches will bar a plaintiff’s recovery for past damages but will not impede its relief from future violations.”) (footnotes omitted). 195. See, e.g., Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 903 (7th Cir. 2001) (“Whether the defendant has been ‘lulled into a false sense of security or had acted in reliance on the plaintiff’s delay’ influences whether we will find that a plaintiff’s decision to delay in moving for a preliminary injunction is acceptable or not.”); Philip Morris, Inc. v. Allen Distributors, Inc., 48 F. Supp. 2d 844, 854 (S.D. Ind. 1999) (“Delay, in itself, does not preclude the finding of irreparable injury in a trademark case in this circuit.”). 196. E.g., Majorica, S.A. v. R.H. Macy & Co., 762 F.2d 7, 7 (2d Cir. 1985) (holding that delay alone may preclude granting a preliminary injunction motion because delay goes to irreparable harm and not prejudice); Citibank, N.A. v. Citytrust, 756 F.2d 273, 276 (2d Cir. 1985) (holding that “delay alone may justify denial of a preliminary injunction for trademark infringement”). 197. Herb Reed Enters., 736 F.3d at 1246-47.

956 Vol. 107 TMR

C. Plaintiff’s Injuries Could Be Compensated by Money Damages

Where a court can quantify damage in dollar terms, the harm is not considered irreparable.198 But if money damages cannot make the plaintiff whole and restore the status quo, harm is irreparable.

A defendant will argue that the plaintiff’s injuries are curable by an award of damages so that it does not qualify for injunctive relief.199 A court may agree and conclude that “any alleged loss of sales does not constitute irreparable harm because it can be remedied by money damages.”200 Also, another court stated that, as for plaintiff’s “claims of loss of customers and market share, such harms are measurable and are best characterized as economic harms.” The plaintiff also alleged loss of reputation and “erosion of customer trust,” but the court was “not persuaded that any loss of trust from customers, which may result from any consumers affiliating the parties together . . . , cannot be regained.”201

Courts in other contexts have also found lost sales compensable in damages, such as suits to enforce a non-compete clause or for the theft of trade secrets.202 While some courts may be “willing to 198. See supra § V.C for more on a plaintiff’s case in terms of showing its injuries cannot be compensated financially. 199. See Rierson, supra note 25, at 174 (suggesting that “courts should not accept without question the notion that the trademark holder’s goodwill is so ethereal and intangible that damage done to it via infringement is simply incalculable”). See also id. at 175 (“Companies benefitting from goodwill or brand equity as a tangible asset on their balance sheets should not be allowed to skirt the requirements for proving injunctive relief, solely on the theory that they cannot place a price tag on their goodwill.”). 200. Suja Life, LLC, 2016 U.S. Dist. LEXIS 147014. See also Red Robin Int’l, Inc. v. Lehigh Valley Rest. Grp., Inc., 2016 U.S. Dist. LEXIS 22437 (D. Colo. 2016) (“Injuries for which damages are adequate compensation generally are not irreparable injuries.”) (holdover franchisee maintaining good quality services, no injunction issued); Champion-Cain v. MacDonald, 2015 U.S. Dist. LEXIS 92149 (S.D. Cal. 2015) (finding plaintiffs had shown “some degree of harm” from likely confusion but had “not demonstrated harm that cannot be compensated through monetary damages or other corrective relief on a later date”); Wreal LLC v. Amazon.com, Inc., 2015 U.S. Dist. LEXIS 176382 (S.D. Fla. 2015) (“Even if [the plaintiff] were to lose customers in the manner it suggests, then its remedy would be money damages, as the injury is compensable—it is not ‘irreparable.’”), aff’d, 840 F.3d 1244 (11th Cir. 2016); Am. Beverage Corp., 936 F. Supp. 2d at 615 (“Courts have determined that loss of market share is not too ephemeral for monetary damages to be calculated.”). 201. Ebates Performance Mktg. v. Integral Techs., Inc., 2013 U.S. Dist. LEXIS 5267 (N.D. Cal. 2013). 202. Novus Franchising, Inc., 725 F.3d at 895 (“[W]e question whether [plaintiff’s] alleged injuries, i.e., ‘a loss of customers or customer goodwill,’ . . . are truly ‘irreparable’ in the sense that they could not be addressed through money damages if [plaintiff] is successful following a trial on the merits.”) (suit to enforce non-compete clause); ACE Am. Ins. Co. v. Wachovia Ins. Agency Inc., 306 Fed. Appx. 727 (3d Cir. 2009) (unpublished) (Where parties had been operating together under a contract for many years, “given this history, any loss in business, market share or goodwill should be reducible to a monetary figure.”) (loss of goodwill due to asset sale agreement not irreparable); PolyPortables LLC, 2016 U.S. Dist. LEXIS 149986 (characterizing lost sales due to stolen trade secrets as “precisely the type of loss compensable by money damages, and . . . therefore not irreparable”); Gen. Motors Corp. v. Harry Brown’s,

Vol. 107 TMR 957 consider a loss of customers or goodwill as a harm,” the more skeptical judges may insist that the plaintiff “come forward with evidence that such an injury is irreparable by showing that the loss cannot be measured in money damages.”203

Generally speaking, however, most courts finding likely consumer confusion go on to conclude that harm to reputation or goodwill or a loss of control over those intangibles simply cannot be quantified.204 The Eleventh Circuit, for example, overturned a district court that denied a trademark preliminary injunction because the only injury was “economic in nature” and therefore damages could “adequately compensate” the plaintiffs.205 The court of appeals disagreed, concluding that “a remedy at law for consumer confusion or reputational damage is ordinarily inadequate, given the potential difficulty of proof of plaintiff’s damages and the impairment of intangible values.”206 Pre-eBay courts writing before the presumption’s decline also recognized that “it is virtually impossible to ascertain the precise economic consequences of intangible harms, such as damage to reputation and loss of good will.”207

D. Competition Between the Parties Is Too Indirect Law professor Mark McKenna has argued that, as an empirical

matter, “non-competitive uses of a mark are unlikely to impact negatively the mark owner’s reputation for quality.”208 In other words, he posits, consumer confusion will not harm the plaintiff L.L.C., 563 F.3d 312, 319 (8th Cir. 2009) (affirming a district court’s denial of a preliminary injunction where the district court “did not clearly err” by finding harm from “lost customer relationships was equivalent to a claim of lost profits” and “could therefore be compensated” as money damages) (context of plaintiff trying to enjoin car dealership from selling vehicles made by different company). 203. ADT, LLC, 145 F. Supp. 3d at 697. 204. E.g., Emerald City Mgmt., 624 Fed. Appx. 223 (finding confusion and a lack of control over the mark’s goodwill; “Since the damage caused by [the plaintiff’s] loss of control over the . . . mark cannot be quantified, the district court did not clearly err in finding a substantial risk of irreparable harm.”) (not relying on presumption); CFE Racing Prods., 793 F.3d at 596 (Loss of control of reputation is neither “calculable nor precisely compensable.”) (not mentioning presumption); Life Alert Emergency Response, Inc., 601 Fed. Appx. 469 (threat from infringement to plaintiff’s reputation and goodwill “constitutes irreparable harm, as it is not readily compensable”) (not using presumption); Benihana, Inc., 784 F.3d at 896 (upholding district court finding that continued sales by defendant would cause plaintiff “substantial harm to its reputation that is ‘not calculable nor precisely compensable’”) (not mentioning presumption); Kraft Foods Group Brands, 735 F.3d at 741 (holding that “irreparable harm is especially likely in a trademark case because of the difficulty of quantifying the likely effect on a brand of a nontrivial period of consumer confusion”) (not mentioning presumption). 205. Boulan South Beach Master Ass’n, 617 Fed. Appx. 931. 206. Id. (citation and internal quotation marks omitted). 207. Ty, Inc., 237 F.3d at 902. 208. McKenna, supra note 98, at 63.

958 Vol. 107 TMR where it does not compete with the defendant. McKenna relied on brand extension and brand reliance studies, and concluded that “the only sense in which one could confidently conclude that mark owners are likely to be ‘harmed’ by uses for non-competing goods is that the later uses may interfere with the mark owner’s ability to expand into new markets.”209 If a plaintiff has shown likely confusion but the parties are not direct competitors, this argument may be worth exploring.

E. Mootness While mootness is unrelated to irreparable harm,210 the fact

that infringement has ended “is certainly a relevant consideration” in irreparable harm analysis.211 Where a defendant removed false statements from publicly available information and certified to the court that he would not repeat them, the plaintiff could not prove that it would “suffer real, irreparable harm in the absence of an injunction.”212 A defendant, having discontinued an alleged infringement, could also argue that evidence of past harm does not warrant a preliminary injunction covering the future.213

One defendant had sold out of all remaining infringing products two months after the preliminary injunction evidentiary hearing, and had no product sales at the time of the appeal with no plans to resume them. The Eleventh Circuit took this at face value and found this “flatly contradict[ed]” the plaintiff’s claim of irreparable harm.214

In another case, after trial, even though the plaintiff had sold its interest in the contested products, the Tenth Circuit still upheld permanent injunctive relief barring future sales of infringing

209. Id. at 70. 210. Ferring Pharms., 765 F.3d at 219 (“[W]hether a case should be dismissed on mootness grounds is a materially distinct inquiry from a determination as to whether a plaintiff has demonstrated irreparable harm.”). 211. Id. at 219. 212. Id. at 217-18. The defendant also conceded that certain statements he had made were inaccurate, and certified that, in the future, he would only make specified statements about the product’s efficacy.

See also Reynolds v. Banks, 2012 U.S. Dist. LEXIS 91064 (E.D. Mich. 2012) (claim of irreparable harm based on past events “cannot support a request for prospective injunctive relief”). 213. Hoop Culture, Inc., 648 Fed. Appx. 981 (“To the extent that [the plaintiff] has been irreparably harmed by [the defendant’s] past actions, past harm is not a basis for preliminary injunctive relief, which requires a showing of likely future injury if an injunction does not issue.”). 214. Id. See FC Online Mktg., Inc. v. Burke’s Martial Arts, LLC, 2015 U.S. Dist. LEXIS 89415 (E.D.N.Y. 2015) (defendant’s sworn statement promising to take down his website during the pendency of the litigation meant plaintiff could not show irreparable harm).

Vol. 107 TMR 959 products.215 The defendant elicited no sympathy. He was an unapologetic blackguard, stealing plaintiff’s products from a warehouse and reselling them online, deliberately withholding information during discovery, and disobeying court orders. The court of appeals shifted into punishment mode. Although it did not disagree that the plaintiff could no longer show irreparable harm, it found that, “[e]ven so,” an injunction would prevent future harm without significantly burdening the defendant or harming the public interest. In the end, this was a laudable use of equitable discretion.

VII. CONCLUSION Short of legislation, there’s no turning back the sunset of the

irreparable harm presumption. Still, losing the presumption should not also mean losing our deeply engrained understanding of harm in trademark cases. The inherent problems of proof, particularly at the outset, should not entirely stymie trademark owners faced with imminent injury. Defendants will of course play their role and disagree, but judges must also be realistic in their expectations about the evidence that is readily available.

Where a trademark owner is suffering a goodwill-injuring infringement, and the public is indeed likely to be confused, a court need not wear blinders. It may still disregard the legalistic presumption and, based on the plain import of the evidence, instead infer the presence of that harm. It may even take a hint from Chief Justice Roberts, and simply follow the standards established in prior trademark cases. To ignore the prior cases and standards entirely, with facts like these, would result in needless injustice.

But wait. The International Trademark Association has spoken out in favor of a Lanham Act amendment that would restore the irreparable injury presumption to the pantheon of American trademark law. And we can all believe, trust and hope that the sun will come out tomorrow.

215. Klein-Becker USA, LLC v. Englert, 711 F.3d 1153, 1164 (10th Cir. 2013). The case was not moot because the plaintiff retained all interest in the proceeds of the lawsuit.

960 Vol. 107 TMR

GEOGRAPHICAL INDICATIONS: THE UNITED STATES’ PERSPECTIVE

By D. Peter Harvey∗

CONTENTS

I. Introduction ........................................................................ 961

II. Background ......................................................................... 961

A. History........................................................................... 961

B. Economics ...................................................................... 963

C. Politics and Philosophy ................................................. 964

III. U.S. Protections for Geographical Indications ................... 966

A. Certification Marks ....................................................... 967

B. Collective Marks ........................................................... 974

C. Appellations of Origin of Wine ..................................... 975

IV. Author’s Comment .............................................................. 977

V. Conclusion ........................................................................... 979

∗ Founder, Harvey & Company, San Francisco, California, Associate Member, International Trademark Association; former member, INTA Board of Directors; former INTA Counsel. The author sincerely thanks his associates, Jane A. Levich and Caitlin C. Conway, for their assistance in the research for and editing of this article.

Vol. 107 TMR 961

I. INTRODUCTION The policy dispute between holders of geographical indication

(“GI”) rights and trademark rights is not new. Nor is the very animated debate among practitioners, scholars, and treaty negotiators about it.1 The fundamental issues underlying the dispute are historical and doctrinal. Both the debate and the international negotiations around the issue have intensified in recent years, in part because of the enormity of the agribusiness interests involved. Whether GIs should trump trademark rights, or vice versa, and whether and how the two schemes of protection may coexist, are not only issues that affect individual holders of these rights in particular industries and countries. These questions necessarily have significant and growing global trade implications. Reconciling the competing interests and policies that are involved in a rational way is therefore highly desirable.

In Section II, this article examines the history, economics, and politics underlying the competing interests involved in the debate. In Section III, the article then turns to the U.S. protection system for GIs, which is largely a trademark regime. In that section, the article examines first the requirements underlying qualification as a U.S. certification mark, and looks at several examples of registered and common law certification marks. The article then briefly summarizes cases that have upheld the validity of certification marks, as well as those in which protection has been refused because they are generic. The article concludes with brief discussions of collective marks and appellations of origin as further means of protection for geographical indications in the United States.

II. BACKGROUND A. History

The seeds of the conflict between the United States’ position and the European position on geographical indications were sown very early in the history of the United States. Immigrants from Europe to the United States brought with them European methods and styles of manufacture, some of which were unique to specific regions and products. European grape growers, for example, immigrated to the United States at least as early as the 1830s.2 They brought with 1. See, e.g., McCarthy & Devitt, Protection of Geographic Denominations: Domestic and International, 69 TMR 199 (1979); Bendekgey & Need, International Protection of Appellations of Origin and Other Geographical Indications, 82 TMR 765 (1992); Lori E. Simon, Appellations of Origin: The Continuing Controversy, 5 Nw. J. Int’l L. & Bus. 132 (1983).

2. Harm Jan De Blij, Wine: A Geographic Appreciation (1983).

962 Vol. 107 TMR them grape varietals and traditional methods of winemaking from their home countries. They also named their new American-grown wines using the traditional names of their native regions. As a result, European geographical names have been used in the United States for well over a century, and in some cases even longer than that.3

For example, the name “champagne” was used in the United States descriptively as early as 1839 to refer to sparkling wine of the type first developed in the Champagne region of France. California’s Korbel Champagne Cellars began production of champagne in California in the 1890s and quickly achieved international fame.4 Likewise, “chablis” was adopted many decades ago by American winemakers to describe a certain type of wine with specific characteristics. A “California Chablis” won a gold medal at the 1889 Paris exposition. Many similar examples exist of United States winemakers’ use of such descriptive terms as port, angelica, sherry, claret, hock, and burgundy throughout the 1800s.5 As a result of this long descriptive usage in the United States of names that had originated as geographical indications, by the time of Prohibition such names had lost their geographical identity and served primarily to describe to the American consumer certain styles and types of wines.

U.S. regulatory recognition of European geographic names as descriptive, at least with respect to wine, began immediately following the repeal of Prohibition.6 In 1934, the Federal Alcohol Control Administration proposed regulations concerning wine labeling.7 These proposals recognized the acceptance and use of European geographical names by U.S. winemakers.

Regulations later adopted by the federal Alcohol and Tobacco Tax and Trade Bureau (“TTB”) (formerly the Bureau of Alcohol, Tobacco and Firearms) regarding the labeling and advertising of wine adopted the term “semi-generic” for designations that once had purely geographic significance but, because of their long-standing use descriptively as set forth above, became descriptive of a wine

3. See Simon, supra note 1, at 153. 4. See www.korbel.com. 5. Thomas Pinney, A History of Wine in America: From the Beginnings to Prohibition, 249 (1989). 6. See Federal Alcohol Administration Act of 1935: Historical Background, Alcohol and Tobacco Tax and Trade Bureau (TTB), https://www.ttb.gov/trade_practices/historical_bg. shtml. See also Wallace A. Russell, Controls Over Labeling and Advertising of Alcoholic Beverages, 7 Law and Contemporary Problems 645-664 (Fall 1940); Corie Brown, Wine and the Law: A Brief History of U.S. Label Regulations, L.A. Times, Apr. 9, 2008, available at http://www.latimes.com/style/la-fo-wineside9apr09-story.html. 7. Thomas Pinney, A History of Wine in America: From Prohibition to the Present Vol. 2 121 (2005).

Vol. 107 TMR 963 type or style. The TTB regulations permit the use of these terms regardless of the actual origin of the product, so long as the product label indicates its true geographic source:

Semi-generic designations may be used to designate wines of an origin other than that indicated by such name only if there appears in direct conjunction therewith an appropriate appellation of origin disclosing the true place of origin of the wine, and if the wine so designated conforms to the standard of identity, if any, for such wine contained in the regulations in this part . . . .8 In short, under this regulation, U.S. producers may label a wine

with a “semi-generic” name, such as “champagne,” so long as the label also bears an appellation of origin disclosing where the wine was sourced, for example, “California champagne.” Currently, there are sixteen semi-generic names that are also type designations: angelica, burgundy, claret, chablis, champagne, chianti, malaga, marsala, madeira, moselle, port, rhine wine (also known as hock), sauterne, haut sauterne, sherry, and tokay.9 The provisions of 26 U.S.C. § 5388(c), added in 1997, allow the Secretary of the Treasury to add new names to the semi-generic list, but not to remove the names listed by Congress.

B. Economics The persistence of the dispute between owners of geographical

indications rights and trademark owners is explained in large measure by the growing scope of agribusiness interests. As of 2012, there were 1,065 agricultural and foodstuff GIs, 1,561 wine GIs, and 325 spirits GIs were registered in the European Union (“EU”).10 A study for the European Commission estimated the value of GI products in 2010 at €54.3 billion, of which over half was attributable to wines.11 This figure corresponds to around 6 percent of the output of the entire EU food and drink industry. The same study estimated that the value of exports of GI products from Europe in 2010 was €11.5 billion, constituting 15 percent of all extra-EU exports of food and beverages. Roughly half of this figure represents wine and 8. 27 C.F.R. 4.24(b)(1). 9. 26 U.S.C. § 5388(c)(2)(B); 27 C.F.R. 4.23(b)(2); see Brody, “Semi-Generic” Geographical Wine Designations: Did Congress Trip over TRIPs?, 89 TMR 979, 980 (1999). 10. Alan Matthews, Geographical indications (GIs) in the US-EU TTIP negotiations, CAP Reform.eu (June 19, 2014), http://capreform.eu/geographical-indications-gis-in-the-us-eu-ttip-negotiations/. 11. Value of production of agricultural products and foodstuffs, wines, aromatized wines, and spirits protected by a geographic indication (GI), Tender No AGRI-2011-EVAL-04, at 19 (October 2012), available at http://ec.europa.eu/agriculture/external-studies/2012/value-gi/final-report_en.pdf.

964 Vol. 107 TMR another 40 percent spirits. Exports of agricultural and food GI products made up the remaining 10 percent.12

The United States constituted the single largest market for European GI products, and GI products accounted for 30 percent of all U.S. imports of food and beverages from the EU in 2010. Notably, the bulk of these exports was concentrated in a small number of products: champagne and cognac from France, Scotch whiskey from the United Kingdom, and grana padano and parmigiano reggiano cheese from Italy.13

The exporters of GI products have a clear economic interest in preserving their rights in GIs. On the U.S. side of the issue, the challenged U.S. trademark owners—particularly in the wine and spirits and dairy industries—are equally determined to preserve their rights.

C. Politics and Philosophy There are also powerful political and philosophical

underpinnings to the United States’ position on GI products. Geographic terms serve as important sources of consumer information in identifying the source, as well as various other qualities, of certain goods and services, particularly food products and wines and spirits. As J. Thomas McCarthy states:

Disclosure of the geographic origin of some foods and beverages can sometimes indicate to the prospective buyer significant information about the nature and quality of a product . . . . One does not have to be a connoisseur of wine to be interested in whether the wine comes from California, Burgundy, Australia or Chile or even from some specific place within those regions. With a growing world market in foodstuffs, accurate identification of the geographic origin of food and beverages has become of increasing importance.14 Professor McCarthy goes on to note, however, that in some

nations certain geographic terms have become generic names of certain kinds of products. For example, he notes: “Americans do not expect ‘French fries’ to originate in France or ‘Bikini’ bathing suits to come from that Pacific atoll.”15

From a trademark perspective, geographical terms indicating the geographic location or origin of goods and services are not “inherently distinctive” marks.16 A geographic term used merely to 12. Id. 13. Id. at 20. 14. J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, § 14:1 (4th ed. 2014) (hereinafter, “McCarthy”). 15. Id. 16. McCarthy § 14:9.

Vol. 107 TMR 965 indicate the location or origin of goods and services is purely descriptive. It cannot, without more, serve to distinguish one supplier’s goods or services from those of others. The United States Supreme Court recognized this as early as 1871:

[I]t is obvious that the same reasons which forbid the exclusive appropriation of generic names or of those merely descriptive of the article manufactured and which can be employed with truth by other manufacturers, apply with equal force to the appropriation of geographical names, designating districts of country. Their nature is such that they cannot point to the origin (personal origin) or ownership of the articles of trade to which they may be applied. They point only at the place of production, not to the producer . . . .17 Of course, as in the case of other descriptive terms, geographical

terms can achieve trademark—source designating—significance upon the acquisition of secondary meaning. In the Waltham Watch case, for example, a watchmaker located in Waltham, Massachusetts successfully secured injunctive relief against a junior producer of Waltham watches when he established that consumers had come to associate the name WALTHAM WATCH exclusively with him.18 As Justice Oliver Wendell Holmes there stated:

It was found at the hearing that the word “Waltham,” which originally was used by the plaintiff in a merely geographical sense, now, by long use in connection with the plaintiff’s watches, has come to have a secondary meaning as a designation of the watches which the public has become accustomed to associate with the name.19 A second rationale supporting broad usage of geographic terms

by all producers is the notion that descriptive geographical terms are in the public domain. As a matter of accurate consumer information, therefore, sellers should have the right to inform customers of the geographical origin of their goods. This principle is recognized in the Restatement:

That a watch is Swiss, that wine is from California, that maple syrup is from Vermont, or that a dress has been designed in New York or Paris are facts in which consumers are interested and which sellers therefore wish to disclose in a prominent manner. While not all locales are of special importance to consumers, merchants should remain free to indicate their

17. Delaware & Hudson Canal Co. v. Clark, 80 U.S. 311, 324 (1871). 18. American Waltham Watch Co. v. U.S. Watch Co., 173 Mass. 85, 53 N.E. 141 (1899). 19. Id. at 85-86.

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place of business or the origin of their goods without unnecessary risk of infringement.20 There also appears to be a philosophical divide between those

who would protect geographical indications as such, and those who would protect such terms only under a trademark regime such as in the United States. For European GI holders, particularly the French, the concept of terroir conjures significantly more than simply the place of origin of ingredients such as wine grapes. Detailed regulations governing soil conditions, planting and production methods, and how the product is otherwise made distinguish European schemes of geographical indications, particularly appellations d’origine contrôleé (“AOCs”) for wine, from mere designations of the physical source of the goods—as in the case of designated American Viticultural Areas or appellations of origin within the United States.

It is important to note that the fight between trademark holders and GI rights holders is not simply a U.S./EU contest. In Consorzio del Prosciutto di Parma & Salumifico S. Rita SpA v. Asda Stores Ltd. & Hygrade Foods Ltd. (the PARMA ham case), the European Court of Justice enjoined the sale of genuine Parma ham in the U.K. because it was not sliced and packaged in Parma.21 To similar effect is Germany & Denmark v. Commission of the European Communities, which involved the use of FETA for cheese. There, the producers of feta-style cheese made in Denmark and Germany were enjoined by the European Court of Justice from calling their products FETA cheese, notwithstanding the broad use of “feta” to describe a type of cheese generically throughout Europe.22

III. U.S. PROTECTIONS FOR GEOGRAPHICAL INDICATIONS

In contrast to Europe, the United States does not give geographical indications special legal status and a registration system apart from trademark and unfair competition law. In the United States, GIs are protected in one of two ways, either: (1) under trademark law, as geographic certification or collective marks, or (2) as appellations of origin for wine.23 The United States Patent and Trademark Office (“USPTO”) is bound to refuse registration of any mark that is “primarily geographically descriptive” or 20. Restatement Third, Unfair Competition § 14, comment d (1995). 21. See Case C-108/01, Consorzio del Prosciutto di Parma & Salumifico S. Rita SpA v. Asda Stores Ltd. & Hygrade Foods Ltd., 2 C.M.L.R. 21 (2003). 22. Germany & Denmark v. Commission of the European Communities, Cases C-465/02 and C-466/02, Grand Chamber of the ECJ (Oct. 25, 2005), at http://curia.europa.eu/>; and Germany v. Commission of the European Communities (C465/02), 2005 WL 2778558 (2005). 23. McCarthy, § 14:1.50.

Vol. 107 TMR 967 “primarily geographically deceptively misdescriptive” of the goods sold in connection with the mark, with the express exception that “indications of regional origin” may be registered as certification or collective marks.24

A. Certification Marks The Lanham Act, the U.S. federal trademark statute, defines a

“certification mark” as: any word, name, symbol, or device, or any combination thereof—(1) used by a person other than its owner, or (2) which its owner has a bona fide intention to permit a person other than the owner to use in commerce and files an application to register on the principal register established by this Act, to certify regional or other origin, material, mode of manufacture, quality, accuracy, or other characteristics of such person’s goods or services or that the work or labor on the goods or services was performed by members of a union or other organization.25 A key feature distinguishing certification marks from ordinary

trademarks is that they cannot be used by their owner on the identified goods and services. This is referred to as the “anti-use-by-owner rule.”26 Rather, certification marks are owned by one entity, usually a standards-setting and/or certifying entity, and used by others who meet the standards to certify quality, region, or other origin. Three principal categories of certification marks exist, namely, (1) quality certification marks, such as the well-known Underwriters Laboratories “seal of approval,” (2) regional or other geographic origin marks, and (3) “union-label” certification marks attesting that the goods or services were provided by union labor.

Well-known examples of geographical certification marks registered in the United States include the following:

• ROQUEFORT (in stylized font) for cheese, U.S. Reg. No. 571798, to certify that cheese bearing the mark has been “manufactured from sheep’s milk only and has been cured in the natural caves of the Community of Roquefort, Department of Aveyron, France”:

24. Lanham Act, § 2(e), 15 U.S.C. § 1052(e)(2)-(3); id. § 4, 15 U.S.C. § 1054. 25. Lanham Act § 45, 15 U.S.C. § 1127 (emphasis added). 26. See McCarthy, § 19:92.

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• GROWN IN IDAHO (and design) for potatoes, U.S. Reg. No. 2914307, certifying that those potatoes are grown in the State of Idaho and “conform to grade, size, weight, color, shape, cleanliness, variety, internal defect, external defect, maturity and residue level standards promulgated by the certifier”:

• FLORIDA (and design) for citrus fruit and juices, U.S. Reg. No. 1200770, certifying that “the citrus fruit was grown in the state of Florida under specified standards or are processed or manufactured wholly from such citrus fruit”:

• PARMA (and design), U.S. Reg. No. 2014627, for ham made, processed, and packaged in Parma, Italy:

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• STILTON for cheese, U.S. Reg. No. 1959589, certifying that the goods provided are “blue moulded or white cheese produced within the county boundaries of Leicestershire, Derbyshire, and Nottinghamshire, England, with no applied pressure, forming its own crust or coat and made in cylindrical form, from full cream milk produced by English dairy herds”;

• DARJEELING (and design), U.S. Reg. No. 1632726, certifying that the tea consists of “a blend of tea [which] contains at least sixty percent (60%) tea originating in the Darjeeling region of India and meets other specifications established by the issuer”;

• SWISS and SWISS MADE for watches, U.S. Reg. Nos. 3047277 and 3038819, certifying the geographical origin of the watches in Switzerland.

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In addition to the foregoing examples of registered geographical certification marks, the USPTO has recognized that certification mark status may be achieved under the common law. For example, the USPTO’s Trademark Trial and Appeal Board (“TTAB”) held in Institut National Des Appellations d’Origine v. Brown-Forman Corp. that COGNAC was not generic but rather had attained, in the perception of U.S. consumers, distinctive status as a symbol certifying that the brandy in question originated in the Cognac region of France.27

In that case, the Brown-Forman Corporation had filed a trademark application to register CANADIAN MIST AND COGNAC for goods identified as “an alcoholic beverage consisting primarily of a mixture of Canadian whiskey and cognac.” The applicant disclaimed the exclusive right to use the words CANADIAN and COGNAC apart from the mark as shown. The Institut National des Appellations d’Origine (“INAO”) and the Bureau National Interprofessionnel du Cognac (“BNIC”) initiated an opposition proceeding on the grounds that the term COGNAC is protected by France’s AOC system.

The TTAB granted the opposers’ motion for summary judgment, holding that COGNAC is a common law regional certification mark. The mark had not become generic, the TTAB held, because there was no evidence that it had lost its significance as an indication of regional origin by having been used on goods originating somewhere other than the place named in the mark.

In an analogous case, Tea Board of India v. Republic of Tea, Inc.,28 Republic of Tea, Inc. had applied to register the mark DARJEELING NOUVEAU for “tea,” disclaiming the word “darjeeling.” The Tea Board of India opposed that application before the TTAB, claiming ownership of one registration for DARJEELING and a pending application for the certification mark DARJEELING. The Tea Board of India also asserted that it had common law rights in the DARJEELING certification mark.

The TTAB sustained the opposition and dismissed the applicant’s counterclaim for cancellation of opposer’s DARJEELING registration. After a full trial, the TTAB held that there was insufficient probative evidence in the record to establish that the DARJEELING word mark had become generic. It dismissed certain dictionary definitions submitted by the applicant and evidence of generic use of “darjeeling” in the media, and it held that the applicant’s genericness survey was methodologically flawed. Holding that the applicant’s mark was likely to be confused with

27. See Institut National Des Appellations d’Origine v. Brown-Forman Corp., 47 U.S.P.Q.2d 1875, 1998 WL 650076 (T.T.A.B. 1998). 28. 80 U.S.P.Q.2d 1881, 2006 WL 2460188 (T.T.A.B. 2006).

Vol. 107 TMR 971 opposer’s registration, the TTAB also dismissed the applicant’s counterclaim for cancellation.29

The certification mark holder in the SWISS watch case, Federation of the Swiss Watch Industry, was similarly successful. It owned two certification marks, U.S. Registration No. 3047277 for the mark SWISS and U.S. Registration No. 3038819 for the mark SWISS MADE, both to certify the geographic origin of goods identified as “horological and chronometric instruments, namely, watches, clocks and their component parts and fittings thereof.”30 The certification statement for each registration claimed: “The certification mark, as used by persons authorized by the certifier, certifies geographical origin of the goods in Switzerland.”

The petitioner, Swiss Watch International, Inc., sought to cancel these registrations on several grounds. It claimed that it owned a registration for the mark SWISS WATCH INTERNATIONAL and that it had been refused registration of the mark SWISS LEGEND for watches on the basis of likelihood of confusion with respondent’s marks. The petitioner asserted that the marks in question had become generic. The matter proceeded to a full trial before the TTAB, which rejected the petitioner’s evidence of genericness. This included unauthenticated and hearsay Internet exhibits showing the term SWISS used in connection with various watches, press references to a “Swiss watch” as a “metaphor for something of precision workmanship,” and a relatively small number of clearly unauthorized third-party uses of SWISS or SWISS MADE. The petition for cancellation, accordingly, was dismissed.

Finally, the TTAB very recently upheld the certification mark TEQUILA against challenge in Luxco, Inc. v. Consejo Regulador del Tequila, A.C.31 There, Luxco, Inc., an importer of tequila and distilled spirit specialties containing tequila, opposed registration of a certification mark application for TEQUILA in connection with “distilled spirits, namely, spirits distilled from the blue tequilana weber variety of agave plant” filed by Consejo Regulador de Tequila (“CRT”). The TTAB dismissed the opposition.32

Luxco based its opposition on three grounds. First, it asserted that “tequila” is generic for a type of alcoholic beverage. The TTAB recognized that, in the case of certification marks identifying geographic origin, the mark will not be deemed generic if it “retains its ability to designate geographic source.” Here, the evidence, which 29. Id. at *25. 30. Swiss Watch Int’l, Inc. v. Fed. Swiss Watch Indus., 101 U.S.P.Q.2d 1731, 2012 WL 504693 (T.T.A.B. 2012). 31. 121 U.S.P.Q.2d 1477 (T.T.A.B. 2017), 2017 WL 542344. 32. Id. at *30.

972 Vol. 107 TMR included federal regulations, dictionary definitions, advertisements, bottle labels, various publications, retail signage, and consumer surveys, supported a finding that the term “tequila” has significance as a designation of source. The TTAB dismissed this count.33

Second, Luxco asserted that the CRT does not have “legitimate control” over use of the term “tequila” in the United States or Mexico. The TTAB disagreed, noting that the Alcohol and Tobacco Tax and Trade Bureau (TTB), which has control over importation, bottling, and distribution of tequila, “has no authority to make determinations as to trademark registrability under the Trademark Act.” Moreover, as the CRT is “the entity that verifies compliance with the Official Mexican Standard for Tequila,” it is thus authorized by the Mexican government through the Mexican Institute of Industrial Property to apply to register TEQUILA as a certification mark in the United States.

Finally, Luxco asserted that the CRT had committed fraud on the USPTO by making material misrepresentations in its application regarding the status of Tequila as an appellation of origin, and that “[i]n terms of volume practically 100% of the tequila product sold in the world comes from a certified producer and certified brand.” The Board rejected this claim, holding that these statements were not made with intent to deceive and were supported by authorities suggesting a reasonable belief in the position. Accordingly, this count was also dismissed.

In not all instances, of course, has the owner of the claimed certification mark been successful. A notable example is In re Cooperativa Produttori Latte E Fontina Valle D’Acosta (the FONTINA case), where the claimed certification mark was held to be generic.34 In that case, the applicant—an Italian cooperative of cheese producers from the Valle D’Acosta region—sought registration of the word FONTINA (and design) as a certification mark, as shown below:

33. Id. at *21. 34. 230 U.S.P.Q. 131, 1986 WL 83578 (T.T.A.B. 1986).

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The USPTO examining attorney assigned to the trademark application refused registration unless the applicant agreed to a disclaimer of the word FONTINA apart from the mark as shown, “because the word fontina merely describes or is the generic name for a type of cheese.”

The TTAB affirmed this decision and denied registration. It cited broad generic usage of the uncapitalized word “fontina” in common parlance, as well as in Webster’s Third International Dictionary, the Encyclopedia of Italian Cooking, Cassell’s Italian Dictionary—which defined “fontina” as “a kind of soft cheese”—and other sources. The Board also cited favorably the evidence that at least one third-party cheese maker, Universal Foods Corporation, had long been selling “fontina” cheese in the United States.

Likewise, in Institut National des Appellations D’Origine v. Vintners International Co., Inc. (the CHABLIS case), the Court of Appeals for the Federal Circuit affirmed a determination by the USPTO that “chablis” as used in the United States is a generic name for a type of wine with the general characteristics of French chablis, whether or not the grapes of the wine originated in France. “Being generic and therefore, in the public domain,” the Federal Circuit affirmed, “‘chablis’ does not function as a trademark to indicate origin.”35

To similar effect, and in contrast to the views of the English courts,36 the U.S. regulatory authorities have recognized that “champagne” is a semi-generic reference to a certain type of sparkling wine.37

35. Institut National des Appellations D’Origine v. Vintners Int’l Co., Inc., 958 F.2d 1574, 22 U.S.P.Q.2d 1190 (Fed. Cir. 1992), reh’g denied, 1992 U.S. App. LEXIS 8514 (Fed. Cir. 1992). 36. Bollinger v. Costa Brava Wine Co., R.P.C. 16 (1960), R.P.C. 116 (1961). 37. See 27 C.F.R. § 4.24(b)(2); 27 C.F.R. § 4.21(b)(2) (“Champagne is a type of sparkling light wine which derives its effervescence solely from the secondary fermentation of the wine within glass containers of not greater than one gallon capacity, and which possesses the taste, aroma, and other characteristics attributed to champagne as made in the champagne district of France.”)

In the Agreement Between the United States of America and the European Community on Trade in Wine, the United States pledged to seek legislative changes that would limit use of certain semi-generic names, including champagne, to wines originating in the EU. The Agreement contained a “grandfather clause,” which would allow non-EU wines to continue use of those semi-generic names if the name appeared on a certificate of label approval (COLA) that was approved prior to March 10, 2006. Such labels must also include an appropriate appellation of origin. TTB Industry Circular 2006-1 Impact of the U.S. /EU Wine Agreement on Certificates of Label Approval for Wine Labels with a Semi-Generic Name or Retsina. See also TTB, Wine Appellations of Origin, https://www.ttb.gov/appellation/.

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B. Collective Marks Another means of protecting geographical indications under

United States law is to register them as collective marks. Section 45 of the Lanham Act, 15 U.S.C. § 1127, defines a “collective mark” as a trademark or service mark:

(1) Used by the members of a cooperative, an association or other collective group or organization, or

(2) Which such cooperative, association or other collective group or organization has a bona fide intention to use in commerce and applies to register on the Principal Register established by this Act, and includes marks indicating membership in a union, an association, or other organization.

Examples of collective marks include those owned by agricultural cooperatives of sellers of wine, cheese, or other farm produce. Such a collective does not itself sell goods, or render services, but rather promotes the goods and services of its members.38 The collective is the mark owner, rather than any single one of its members, and all members of the collective group are entitled to use the mark.

Examples of registered collective marks indicating regional origin include the following:

• FRANKFURTER ÄPFELWEIN (stylized), U.S. Reg. No. 1097779, for apple wine from the city of Frankfurt, which certifies the origin of the goods in the city of Frankfurt in the nation of Germany:

• DEUTSCHES ECK (and design), U.S. Reg. No. 1350923, for beer from the middle Rhine and lower Mosel areas of Germany:

38. L. Beresford, Geographical Indications: The Current Landscape, 17 Fordham I.P. Media & Ent. L.J. 979, 984 (2007).

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C. Appellations of Origin of Wine Geographical indications can have a special significance with

respect to wines. The wine regulatory scheme in the United States presents another opportunity for holders of geographical indications to protect those rights.

Both federal and state regulations govern the use of American geographical place names on wine. At the federal level, in addition to complying with the requirements of the Lanham Act, an applicant must comply with regulations promulgated by the Treasury Department pursuant to the Federal Alcohol Administration Act.

The Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau (TTB) permits winemakers to indicate that the wine, if it meets specific requirements, originates from a particular geographical area. The regulations are designed to assist wine consumers in identifying the origin of the grapes from which the wine is made and to assist winemakers in distinguishing their products from those originating in different areas.39 In practice, the regulations prevent false claims, i.e., labels that misleadingly suggest that a wine originates from a well-known viticultural area.

Appellations of origin for American wines vary widely in scope. They can include the entire United States, a single state, no more than three states that have contiguous boundaries, a county, and a location established by a “viticultural area.”40 “Viticultural areas” need not be defined by states, counties, or towns. They can have smaller, nonpolitical boundaries, including specific geographical features. To date, the TTB has approved 239 viticultural areas in 27 states.41

The scant existing case law gives little guidance as to how disputes between trademarks and viticultural areas in the United States should best be resolved. In Leelanau Wine Cellars, Ltd. v. Black & Red, Inc.,42 the plaintiff started using the trademark LEELANAU CELLARS for wine in 1977 and obtained registration of the mark in 1997. The TTB subsequently recognized “Leelanau” as a viticultural area in 1981. When the defendants started using the mark CHATEAU DE LEELANAU for wines that were sourced from the Leelanau viticultural area in 2000, the plaintiff sued, alleging likelihood of confusion. The Court of Appeals for the Sixth Circuit affirmed the trial court’s denial of relief, holding that there was no likelihood of confusion and that the presence of the TTB- 39. See McCarthy, § 14:19.50. 40. Id. 41. Established American Viticultural Areas, Alcohol and Tobacco Tax and Trade Bureau (November 30, 2016) https://www.ttb.gov/wine/us_by_ava.shtml. 42. 2003 WL 396340 (W.D. Mich. Feb. 14, 2003), rev’d and remanded on other grounds, 118 Fed. Appx. 942 (6th Cir. 2004).

976 Vol. 107 TMR approved viticultural area name “substantially decreased the possibility that a potential consumer would, upon seeing the [accused] mark, necessarily think of [plaintiff’s] product.”43

In Sociedad Anonima Vina Santa Rita v. U.S. Dept. of Treasury (the SANTA RITA case), the owner of the registered trademark SANTA RITA for a Chilean wine unsuccessfully sought to enjoin the TTB itself from designating a viticultural area to be called “Santa Rita Hills” for certain California wines.44 The District Court denied relief on the grounds that “[i]n reviewing and ultimately approving the application for the Santa Rita Hills AVA . . . the ATF carefully adhered to the applicable statutory and regulatory criteria, avoided conflict with the Lanham Act, and acted in a manner consistent with its prior rulemaking.”45 The court cautioned that while the creation of the Santa Rita viticultural area did not itself conflict with the plaintiff’s rights under the Lanham Act, it did not diminish the plaintiff’s rights to pursue a trademark claim against individual wineries in the future “if and when those wineries use labels that infringe or dilute the plaintiff’s mark.”46 Leelanau, which involved a challenge to an allegedly infringing mark, shows how the existence of a viticultural area might affect the likelihood of confusion analysis in a trademark infringement lawsuit. On the other hand, Santa Rita, where the plaintiffs challenged the actual creation of the viticultural area, shows that the mere existence of a viticultural area need not necessarily conflict with trademark rights.

The federal TTB rules governing viticultural areas generally require that at least 75% of the grapes in wines labeled with the viticultural area name must be grown in that area.47 However, the federal regulation contains a “grandfather clause” permitting continuing use of a mark first used before the adoption of the federal legislation on July 7, 1986, so long as the front label of the wine discloses the true source of the grapes. California passed legislation seeking to close this “loophole” with respect to the “Napa” viticultural area and other federally recognized viticultural areas within Napa County.48 California also passed a similar loophole-

43. Leelanau Wine Cellars, Ltd. v. Black & Red, Inc., 502 F.3d 504, 516 (6th Cir. 2007). 44. Sociedad Anonima Vina Santa Rita v. U.S. Dept. of Treasury, 193 F. Supp. 2d 6 (D.D.C. 2001). 45. Id. at 24-25. 46. Id. at 20. 47. See, e.g., 27 C.F.R § 4.39(i)(1) (“Except as provided in subparagraph 2, a brand name of viticultural significance may not be used unless the wine meets the appellation of origin requirements for the geographic area named.”). 48. Cal. Bus. & Prof. Code § 25241 (2000).

Vol. 107 TMR 977 closing statute giving “viticultural significance” to the “Sonoma” viticultural area in 2007.49

The first case to challenge this loophole was Bronco Wine Co. v. Jolly.50 The plaintiff, Bronco Wine Company, was using trademarks including NAPA RIDGE and NAPA CREEK under the federal loophole for large production wines sourced outside of Napa County. It challenged California’s attempted effort to close the loophole.51 Bronco asserted that the California regulation was unconstitutional on the grounds that the federal wine labeling regulatory system preempted it. The California Supreme Court rejected Bronco’s claim, finding that California’s regulation was a proper supplementation of the federal regulation.52 The Court stated: “We do not find it surprising that Congress, in its effort to provide minimum standards for wine labels, would not foreclose a state with particular expertise and interest from providing stricter protection for consumers in order to ensure the integrity of its wine industry.”53 The Court cited the long history of concurrent state and federal regulation of wine labelling, especially in the area of the geographic origin of the wine, and the shared state and federal interest in protecting consumers from misleading wine labelling.

IV. AUTHOR’S COMMENT The introduction of this article notes that the dispute between

holders of GIs and trademarks is not new. This may be an understatement. One can trace the beginnings of the United States’ and Europe’s differing views on GIs and trademarks from the earliest European immigration to the United States. Interest in the topic, driven partly by the enormous economic implications for agribusinesses, the wine and spirits industry, and more general commercial interests like makers of Swiss watches, is steadily growing. Legal scholars,54 practitioners,55 world trade policy

49. Id. § 25242. 50. Bronco Wine Co. v. Jolly, 33 Cal. 4th 943 (2004). 51. Id. 52. Id. at 997. 53. Id. 54. See, e.g., David Vivas-Eugui and Christophe Spennemann, The Treatment of Geographical Indications in Recent Regional and Bilateral Free Trade Agreements, UNCTAD/ICTSD Project on Intellectual Property and Sustainable Development (2006), available at http://www.bilaterals.org/?the-treatment-of-geographical. 55. See, e.g., Richard P. Mendelson, J. Scott Gerien, and Natacha Resnikoff, A Multilateral Register of Geographical Indications for Wines and Spirits: A Summary and Assessment of the Competing Proposals, available at https://www.dpf-law.com/wp-content/uploads/2013/12/OIV-Presentation-JSG.pdf.

978 Vol. 107 TMR analysts,56 and professional associations like the International Trademark Association57 have been paying increasing attention to the subject.

Is there hope that the competing interests represented by GIs and trademarks can be reconciled? In this author’s opinion, there is. Treatment of GIs as intellectual property rights with equal status to that of other IP rights, including trademarks, is an essential element of such possible reconciliation, as is recognition of the principle of “first in time, first in right.” The formation of an international registration and notification system, such as that existing under the Madrid system, could be a useful and beneficial step to help minimize the risk of future conflicts. It bears mentioning, however, that the prospects for adoption of such a register have foundered as prior proposals of this nature, although discussed at length, were unsuccessful. For example, the Doha Round of the TRIPS (The World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights) negotiations failed to find consensus regarding the establishment of a multilateral registration system.58 Disagreement arose over the voluntariness of such a system, and whether WTO Members who elect not to participate in such system should be bound by its legal effects.59 That GIs have long enjoyed protectable status as certification and collective marks within the United States trademark registration and enforcement system should give encouragement toward reconciliation. The TTAB’s recent decision upholding of the status of TEQUILA as a legitimate certification mark against a genericness attack underscores this fact. 56. See, e.g., K. William Watson, Reign of Terroir: How to Resist Europe’s Efforts to Control Common Food Names as Geographical Indications, CATO Institute Policy Analysis, No. 787, February 16, 2016. 57. At INTA’s 2017 Annual Meeting in Barcelona, no fewer than three sessions featured discussion of GIs and trademarks. 58. Council for Trade-Related Aspects of Intellectual Property Rights, Discussion on the Establishment of a Multilateral System of Notification and Registration of Geographical Indications for Wines and Spirits: Compilation of Issues and Points, TN/IP/W/7/Rev.1, ¶¶ 140-150 (May 23, 2003).

The TRIPS Agreement is a multinational agreement between all members of the World Trade Organization (WTO). It seeks to establish the minimum level of protection that governments must afford to the intellectual property of other WTO Members. The Doha Declaration announced two proposals for the protection of GIs: (1) establishment of a multilateral registration system, and (2) expansion of the scope of Article 23 to extend protection of GIs for products other than wine and spirits. Discussions on both proposals continue. WTO, Intellectual Property: Protection and Enforcement, available at https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm. WTO, Ministerial Declaration of 14 November 2001, WT/MIN(01)/DEC/1, ¶18. WTO, TRIPS: Geographical Indications: Background and the Current Situation, available at https://www.wto.org/english/ tratop_e/trips_e/gi_background_e.htm (last updated November 2008). 59. Id.

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Unquestionably, compromise will be necessary to achieve reconciliation. Neither side can have all it wants. GI advocates, in this writer’s view, must give up on their persistent calls for the right to “claw-back” long-held generic and semi-generic names while, at the same time, trademark advocates cannot realistically expect to ignore future recognition of terroir-driven and other locality-based distinctions that give producers from the involved regions legitimate market advantages.

Finally, one cannot ignore the effect of shifting world politics on this somewhat esoteric trade policy debate. The recent election of an inward-turning, nationalist administration trumpeting “America First” in the United States, the Brexit vote in the United Kingdom, and similar conservative/nationalist movements within other countries would seem at least superficially to strengthen GI advocates’ political clout as they seek favorable legislation and treaties addressing the GIs vs. trademarks issue.60 Given the persistent U.S./EU split on the issue, however, one would think that such strengthening is much more likely to occur in Europe than in the United States.

V. CONCLUSION This paper offers a brief summary of the history, economics, and

politics underlying the United States’ position in the long-running dispute between holders of geographical indications and trademark rights. Because GIs and trademarks serve distinct interests and purposes, there are clearly no easy answers in reconciling the two regimes of intellectual property protection. However, the increasing significance of GI-identified foodstuffs, wine, and spirits within the context of global agribusiness alone, not to mention the increasing interest of manufacturers in non-agricultural GIs, makes a resolution of the issues involved ever more urgent and compelling.

60. The potential geopolitical effect of recent worldwide elections on the GI question was highlighted in the Professor vs. Practitioner Debate session at the May 2017 International Trademark Association Annual Meeting in Barcelona, provocatively entitled, “Resolved: That Geographical Indications are The Antidote to Populist Nationalism.” (For what it may be worth, at least among attendees at that session, the resolution failed.)

980 Vol. 107 TMR

FOUNDATIONAL OBJECTIVES OF LAWS REGARDING TRADEMARKS AND

UNFAIR COMPETITION∗

By Tony Bortolin∗∗

CONTENTS

Introduction ............................................................................... 982

I. Preventing Misrepresentation.......................................... 984

A. Simplified Statement of the Objective........................ 984

B. Explanation of, and Support for, the Objective .......... 984

C. Value of the Objective ................................................. 994

D. Distinguishing Some Authorities That Seemingly Contradict the Objective ............................................. 995

II. Preventing Damage to Signification ................................ 1002

A. Simplified Statement of the Objective........................ 1002

B. Explanation of, and Support for, the Objective .......... 1003

C. Value of the Objective ................................................. 1009

III. Preventing Unfair Damage to Income-Goodwill .............. 1011

A. Simplified Statement of the Objective........................ 1011

B. Explanation of, and Support for, the Objective .......... 1013

C. Value of the Objective ................................................. 1017

D. Distinguishing Some Authorities That Seemingly Contradict the Objective ............................................. 1019

IV. Whether Certain Laws Go Beyond the Three Objectives 1020

A. Introduction ................................................................ 1020

∗ © 2017 Tony Bortolin B.A.A., LL.B. ∗∗ Lawyer and trademark agent with MacBeth & Johnson (Ontario law firm) and with its associated firm, Dennison Associates (Canadian patent & trademark agency), Associate Member, International Trademark Association. Also founder of TBLawOnline.com and OnlineTMLaw.com. Any opinions herein are strictly those of the author. Special thanks to all of the contributing editors at INTA.

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B. Some Laws Seemingly Do Not Go Beyond the Three Objectives .................................................................... 1020

C. Jurisdiction-wide Deemed Confusion Might Go Beyond the Three Objectives ...................................... 1022

Closing ....................................................................................... 1030

982 Vol. 107 TMR

INTRODUCTION The decisions are not clear as to the exact character of the rights, which are protected by the law of unfair competition or the exact basis on which actions of this character are founded.1 [T]he very nature of the right in a trade-mark is still unfixed.2 [D]ecisions as to the nature of trade-mark rights are . . . chaotic . . . irreconcilable.3

These words are as true in 2017 as they were in the 1920s. Confusion as to the nature of trademark rights continues.4

Almost every legal decision or writing within the field of trademark law and unfair competition expresses a view as to the foundation of such laws. Yet the particular foundation identified is not always the same.

The primary reason for such confusion is that, albeit with the best of intentions, many judges and commentators try to simplify such laws and their foundations only to oversimplify them. There is also inconsistency in the terminology for defining these objectives, causes of action, and their essential elements. Another problem is that the failure to identify the underlying policies properly results in poor decisions and poor legislation. For example, it was observed that:

What is needed in every trademark and unfair competition case is an articulation of the underlying policies and principles at stake in the case)—not a formalistic application of legal rules based on conceptualistic categories which obscure the actual choices and conceal the true basis of decision.5 These problems can be ameliorated by understanding that the

field of trademarks and unfair competition does not involve a mere handful of laws governed by a single objective. There are instead over twenty different causes of action, each governed by one or more of several different foundational objectives. Different causes of action address different objectives or combinations thereof. A catalog of such causes of action can be found in a companion work,6 while this article

1. Harry Nims, The Law of Unfair Competition and Trade-marks (2d ed. 1921 and later editions) at 17, within the introduction to Chapter 2. 2. F. Schechter, The Historical Foundations of the Law Relating to Trade-Marks (New York: Columbia University Press, 1925) at 4 [Schechter’s book]. 3. Id. at 153-4. 4. E.g., as stated in W. Cornish, Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights, 7th ed. (London: Sweet & Maxwell, 2010) at 650 “Over a long period there have been attempts to arrive at a common foundation of unfair competition law within the EU. This goal remains far off: the job is too intricate.” 5. Daniel M. McClure, Trademarks and Unfair Competition: A Critical History of Legal Thought, 69 TMR 305, 355 (1979). 6. Tony Bortolin, Catalog of Trademark Causes of Action (with Groupings by Foundational Objectives), 107 TMR 848 (2017) (“Catalog”).

Vol. 107 TMR 983 focuses on identifying and explaining the primary objectives underlying the causes of action and related laws. Such related laws include criminal prohibitions, statutory grounds for opposing or canceling registrations, and statutory and common-law principles permitting or restricting the ability to assign or license marks. These foundations also speak to the legal grounds for different forms of relief, such as monetary relief, and interlocutory and final injunctions.

The majority of trademark and unfair competition laws are directed to at least one of three different foundational objectives or underpinnings. As a simplified introduction to the three objectives, imagine that you are working as a professional within a particular field and then someone uses your name for the same or similar goods or services. Three legal concerns would be as follows:

• members of the public are being deceived into thinking that the other trader is you, or that you are somehow endorsing their goods or services;

• the signification of your name is being undermined in that, for those who observe the name being used by the other party, that name on its own would no longer signify you and your services; and

• you are likely suffering an unfair loss of financial income, as to the trade being diverted from you.

Accordingly, these three principal foundational objectives are that: (1) prospective purchasers should not be deceived, whether

intentionally or unintentionally (this concern is referred to herein as “misrepresentation”),7

(2) damage should not be caused to the signification or distinctiveness of marks8 (referred to herein as “signification”),9 and

(3) damage should not be unfairly caused to business goodwill (referred to herein as “income-goodwill”)—meaning goodwill in the economic sense of reasonably expected sales,

7. As discussed in Part I. 8. The term “mark” (or “sign”) herein refers to subject matter (such as words or logos) that can legally be considered to be a “trademark” such as following use in the course of trade (hence, the term “trademark”). “Mark” also includes marks that are not necessarily used in the course of trade, such as government or official marks. In addition, “trademark” herein encompasses the concept of a “service mark,” as occasionally used in some legal systems (such as in the United States) to refer more specifically to marks that are used in the course of providing services rather than goods. “Trademark” is spelled as one word (except within quotations or titles), with all due respect to jurisdictions that use “trade mark” or “trade-mark.” See also the author’s commentary regarding the different spellings of that term at: http://www.tblawonline.com/pdfs/Spelling-of-trademark.pdf (last accessed Oct. 10, 2017). 9. As discussed in Part II. As also discussed below, “signification” could be referred to as “signification-goodwill.”

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especially in the nature of “repeat” sales, or payment of a royalty commensurate to the value of the use of the marks.10

Again, none of these objectives is sufficient on its own to support all of the laws and remedies in the field and thus, in order to better cover the field, all three need to be recognized and kept in mind. They are discussed in Parts I through III, respectively. The possibility that certain laws go beyond those objectives is then discussed in Part IV.

I. PREVENTING MISREPRESENTATION A. Simplified Statement of the Objective

A common objective of many laws regarding trademarks and unfair competition is the public interest of avoiding misrepresentation in the course of trade.

A certain amount of such misrepresentation is tolerated under the notions of “let the buyer beware” or allowing for mere “puffery,”11 but, otherwise, various forms of misrepresentation are vigorously outlawed.12

B. Explanation of, and Support for, the Objective For many generations, there have been laws against

misrepresentation, such as the laws against fraud, deceit, forgery, false impersonation, and obtaining money under false pretenses.13 The concept of discouraging lies is even included in the Ten Commandments.

Within the field of trademarks and unfair competition, there are at least two categories of causes of action addressing misrepresentation14: those involving misrepresentation in the form of “Actual Confusion” (as defined below) especially the classical15 form of passing off at common law, and those involving misrepresentation in some other form along the lines of false advertising, such as a false description as to the quality or quantity

10. As discussed further in Part III. 11. “Puffery” is exaggeration or bragging in advertising that is immaterial or not taken seriously by purchasers. 12. As discussed below in the next section, namely, Part I.B. 13. See sample citations in the balance of I.B. 14. Such causes of action are described in the Catalog. In particular, those in the first category are in the Catalog at Part I, 107 TMR 848, 854 (2017). Those in the second category are at Parts II and IV, id. at 865, 881. 15. Defined in the Catalog as “Common Law Passing Off Involving Actual Confusion” or “Misrepresentation as to Trade Source.” 107 TMR 848, 855-56 (2017).

Vol. 107 TMR 985 of the defendant’s goods, especially the extended16 form of passing off at common law.

To help avoid some ambiguity, the term “Actual Confusion” herein refers to misrepresentation or confusion that features the following two characteristics:

(1) The wrongdoer’s conduct is misleading prospective purchasers to believe that its goods (or services or business) are made or performed by the plaintiff, or as if they are otherwise authorized, sponsored, endorsed etc. by the plaintiff.

(2) The confusion of this type is sufficiently likely to be actually occurring as opposed to confusion that is statutorily deemed.17

Given that such laws address certain forms of misrepresentation, it is understandable that a connection or analogy with the tort of deceit is often mentioned in discussing the origin or foundation of such laws.18 Technically, the tort of deceit is different in that it constitutes a claim brought by the party deceived, which, in the context of a trademark or passing off situation, would suggest that the claim should be brought by the deceived purchaser rather than the honest competitor. Nevertheless, the above-mentioned trademark causes of action and the tort of deceit both address the evils of misrepresentation. In addition, they both transcend the need for privity (meaning, in this context, a contract between the litigants).19

Conduct causing Actual Confusion is also very much like false impersonation in the sense that the deceiver is effectively pretending to be the trademark owner.

Conduct causing Actual Confusion is also much like forgery, at least in cases where the mark being copied happens to be the signature of a proprietor. 16. Defined in the Catalog as basically any type of misrepresentation in the course of selling goods or services, such as false advertising. Id. at 865. 17. The concept of “Actual Confusion” does not necessarily mean that there must be evidence of particular individuals having been actually confused, but that the overall circumstances sufficiently evidence that individuals have likely been confused. Meanwhile, Actual Confusion is not as broad as certain concepts of “Deemed Confusion” such as where a defendant uses the same mark but also uses a distinguishing house mark and is nevertheless enjoined, for example. Catalog, 107 TMR 848, 854 n.9, 872 (2017). Actions involving Actual Confusion, including classical passing off (also referred to therein as “Common Law Passing Off Involving Actual Confusion), are discussed in the Catalog. 18. E.g., see text below at note 57. Some try to reject the analogy between misrepresentation and deceit on the basis that deceit involves the element of intention while that element is allegedly removed from the laws regarding trademarks and unfair competition, but this removal is not necessarily true; see text and citation below at note 81. 19. The break from privity for the purposes of the action in respect of deceit was developed in Great Britain in the landmark decision of Pasley v. Freeman, (1789) 3 Term Rep 51, 100 ER 450 (KB).

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That conduct is also much like counterfeiting in cases where the defendant is facilitating the Actual Confusion by copying either the other party’s trademark label or the appearance of the other party’s goods.20

Those causes of action are also analogous to bait-and-switch selling. In both types of cases, the purchaser is effectively baited by the defendant’s false display of the plaintiff’s mark as if the purchaser will receive the plaintiff’s product rather than the defendant’s. Bait-and-switch does not even require that purchasers actually be deceived after being baited. So, if bait-and-switch is to be prohibited, this is all the more reason to also prohibit passing off and trademark infringement involving misrepresentation at least in the form of Actual Confusion.

These parallels are occasionally recognized by legislation. For example, as early as 1803, France enacted legislation that was effectively a registered trademark system, providing a criminal prohibition against the forgery of private writings together with a civil claim for damages.21 The legislation was focused on the marks of manufacturers and artisans, which is understandable in that such fields covered many of the forms of business at the time.

In the year 1282, a statute in the Italian state of Parma prohibited the use of a “mark” owned by a trade or guild in the field of knives or swords (obviously a principal field of business at the time), and such law was stated to be “for the protection of guilds and artisans in the state,22 and to prevent many frauds which are or may be committed upon them.”23

A statute in Scotland in 1723 prohibited the counterfeiting of the marks or names of linen manufacturers.24

The following U.K. cases from the mid-1800s further demonstrate the close association between, on one hand, laws in respect of trademarks and passing off addressing some form of misrepresentation and, on the other hand, more general laws

20. Trademark and passing off cases involving Actual Confusion are also very much like theft, or even piracy, in the sense of the defendant stealing the plaintiff’s goodwill or repeat business, although this may be better discussed under the foundational objective of protecting income-goodwill, in Part III below. 21. Title IV Act dated 22 Germinal, year XI. Available in English with commentary in Coddington, Digest of the Law of Trademarks (1878) (NY Ward & Peloubet) at 375-380. 22. The objective of providing “protection” to trademark owners is discussed separately in Parts II and III. 23. Edward S. Rogers, Some Historical Matter Concerning Trade-marks, 9 Mich. L. Rev. 29 (1910) as reprinted 62 TMR 239, 247 (1972), citing German Dr. Kohler. 24. 13 Geo. 1, c. 26, s. 30, as indicated by F.M. Adams, A Treatise on the Law of Trade-Marks. (George Bell and Sons, London 1874) [Adams on Trade-marks]. Incidentally, the legislation provided that a wrongdoer would be liable to pay the manufacturer a set amount, very much like a form of damages, which, in turn, would help to support the foundational concerns discussed in terms of preventing damage to signification and unfair damage to income-goodwill, in Parts II and III.

Vol. 107 TMR 987 against misrepresentation. In these cases, criminal charges actually were laid at common law. In R. v. Closs (1857), the accused was charged with trying to pass off a painting as having been painted by a particular well-known artist. The decision of the Criminal Court of Appeal expressly uses such terms as “pass off” and “trade mark.” That wrongdoing was criminally pleaded in terms of obtaining money by false pretenses, being “a cheat at common law” and “forgery at common law.” In particular, Cockburn, C.J. stated:

[W]e have carefully looked into the authorities, and we think that if a person in the way of his trade or business put, or suffer to be put, a false mark or token upon any article so as to pass off as genuine that which is spurious, and the article is sold, and money obtained by means of that false mark or token, that is a cheat at common law.25

Another example is the decision rendered a few months later by the same Court in R. v. John Smith (1858). The case involved the misuse of the name BORWICK’S for baking powders. Willes J. explained:

In cases like the present, the remedy is well known: the prosecutor [complainant] may, if he pleases, file a bill in equity to restrain the defendant from using the wrapper, and he may also bring an action at law for damages; or he may indict him for obtaining money under false pretences.26

Upon such authority, an offender named Jones was sentenced to “three years of penal servitude.”27

Similarly, even earlier, in R. v. Dundas (1853), the offender used some false labels in the sale of a product (namely blacking, under the name or brand EVERETT’S). He too was sentenced to imprisonment (two years).28

Incidentally, the three justices in the above-mentioned BORWICK’S case stated that passing off, at least the type in that case, did not technically constitute the particular charge of forgery at common law.29 But this was statutorily addressed in the United Kingdom shortly thereafter; the imitating of trademarks was confirmed or otherwise deemed to be forgery, as well as counterfeiting.30 To this day, such treatment of imitating trademarks has continued at least in Canada where the Criminal 25. (1857), 7 Cox’s Criminal Cases (“Cox C.C.”) 494 at 497; Dearsley & B. C.C. 460; 27 LJ MC 54; 3 Jur NS 309 (emphasis added). 26. (1858), 8 Cox C.C. 32 at 36-7; Dearsley & B. C.C. 566; 27 LJ MC 225; 4 Jur NS 1003; 31 LT 135; 6 WR 495. 27. As reported by H. B. Poland in Trade Marks: The Merchandise Marks Act, 1862 (London: J Crockford, 1862) at 33 [“Poland”]. 28. 6 Cox C.C. 380. 29. R. v. John Smith, 8 Cox C.C. 32 at 36-7 (1858). 30. § 5 Merchandising Marks Act, 1862 (U.K.), reproduced in Poland’s book, above at note 27.

988 Vol. 107 TMR Code still provides that: “Every one commits an offence who, with intent to deceive or defraud the public or any person, whether ascertained or not, forges a trade-mark.”31

Some other examples of judicial comments acknowledging that laws regarding trademarks and unfair competition have an objective of preventing misrepresentation include the following:

In Singleton v. Bolton (1783), Lord Mansfield held that, if the defendant sold a product of its own under the plaintiff’s name or mark, “that would be a fraud for which an action would lie.”32

In Croft v. Day (1843), Lord Langdale emphasized this point by saying that doing these things is “a fraud, and a very gross fraud”33 and that relief (at least in the form of an injunction) is warranted in interest of, among other things,34 preventing the defendant from using a name or mark “in such a way as to deceive and defraud the public.”35 In that case, he also reiterated from “a former occasion” that “the right [of passing off] which any person may have to the protection of this Court, does not depend upon any exclusive right which he may be supposed to have to a particular name, or to a particular form of words. His right is to be protected against fraud . . . .”36

Arguably, a civil cause of action for extended passing off was observed in Coats v. Holbrook (1845) where the New York Court held the defendant liable on the grounds that, among other things, the defendant stamped its spools of thread as being of “six cord” when they were only of three, and as being 200 yards in length when they were only 120.37

Senator Lott, sitting as one of the judges in Taylor v. Carpenter (1846 N.Y.), said in respect of what is referred to here as classical passing off (and common law trademark infringement):

Its object is to prevent the commission of a fraud, not only on [the plaintiffs] but on the public . . .38 In Amoskeag Mfg. Co. v. Spears (1849 N.Y.), Duer J. referred to

the imitating of someone’s mark (in a case of passing off) as

31. Currently § 407 of Canadian Criminal Code, RSC 1985, c. C-46 (emphasis added). 32. 99 ER 661, 3 Doug 293 (KB), Cox’s American Trademark Cases (“Cox Amer. T.M. Cas.”) 634 (emphasis added). 33. Croft v. Day, 7 Beav. 84 at 88, 49 ER 994 (Ch) (blacking) (1843). 34. As discussed below at note 173. 35. Croft v. Day, 7 Beav. 84, 90 (1843) (emphasis added). 36. Id. at 88 (emphasis added). 37. 2 Sand. Ch. R. 586 (N.Y.); Cox Amer. T.M. Cas. 20 (spools of thread). The decision also involved a form of classical passing off given that the case report (at page 22 of Cox Amer. T.M. Cas) explains that the defendants copied the plaintiff’s name, figures, color, and general appearance. 38. (Dec. 1846) Cox Amer. T.M. Cas. 45, 56-57 (N.Y. C.A.) (emphasis added).

Vol. 107 TMR 989 forgery.39 He also stated: “the suppression of fraud” is one of the court’s “most important functions”40; “that an injunction must be granted whenever the public is in fact misled…”41; and that such misleading of the public “is alone sufficient to render it the duty of the court to interfere by an injunction.”42

Similarly, in Walter Baker & Co. v. Slack (1904), the U.S. Court of Appeals for the Seventh Circuit was quite content to enjoin the defendant to prevent the misrepresentation to the public, without referring to any authorities for that principle, and without referring to notions of proprietary rights in the mark or damage to signification or distinctiveness. For example, the Court stated that the courts should not “sanction” the sale of spurious articles, and stated that purchasers are entitled to that which they demand, to that which has been approved by their taste by experience, or to that which they had been recommended to purchase.43

In the passing off case of Lever v. Goodwin (1887), the English Court of Appeal said: “The law on this head is plain. It is founded on fraud.”44 Of course, the concept of “fraud” includes the separate elements that there be a misrepresentation and that it be intentional, and, when the judicial comment is read in context, the emphasis was on the element of misrepresentation. In other words, the Court effectively stated that passing off is founded on preventing misrepresentation, whether it be intentional or not. In fact, on the grounds of the misrepresentation, the Court went so far as to affirm an order for an accounting of profits.45

In Stahly Inc. v. M.H. Jacobs Co. (1950), the U.S. Court of Appeals for the Seventh Circuit decided that the defendants could not sell defective razors bearing the plaintiff’s mark to the public without any indication as to their actual condition.46 This relief was granted notwithstanding that the plaintiff, in a private contract with the defendant, had waived all its rights with respect to the defective razors bearing its trademark. This effectively meant that there was no damage to the plaintiff in the form of diversion of trade 39. Cox Amer. T.M. Cas. 87 at 94b. 40. Id. at 92. 41. Id. at 95 (emphasis added). 42. Id. at 101. Ultimately, while recognizing the validity of the objective, the court did not issue an injunction in the Amoskeag case for reasons explained in the text infra at note 84. 43. 130 Fed. 514. 44. 36 Ch D 4; 4 RPC 492, CA, Cotton LJ, Lindley LJ and Bowen LJ, aff’g Chancery Division. Chitty J (1886), 36 Ch D 1; 4 RPC 492 (soap wrapper). 45. Such type of monetary award in respect of innocent passing off is questioned separately in the article regarding Intention, infra at n.81. For present purposes, the fact is that the court emphasized misrepresentation as being a fundamental objective of the law against passing off. 46. 183 F.2d 914, 917 (7th Cir.), cert. denied, 340 U.S. 896 (1950).

990 Vol. 107 TMR (income-goodwill). In addition, the Court did not seem to rely upon the possible damage to the plaintiff’s mark in terms of its ability to signify the original level of quality (signification). The court stated that “it must be remembered that the trade-mark laws and the law of unfair competition are concerned not alone with the protection of a property right existing in an individual, but also with the protection of the public from fraud and deceit.”47

In General Baking Co. v. Gorman (1925), Anderson J. said: It should never be overlooked that trade-mark and unfair competition cases are affected with a public interest. A dealer’s good will is protected, not merely for his profit, but in order that the purchasing public may not be enticed into buying A.’s product when it wants B.’s product.48

This 1925 judicial statement was approved by the Supreme Court of Canada in Ciba-Geigy Canada Ltd. v. Apotex Inc (1992).49 Similarly, the Court cited other U.S. jurisprudence in stating that: “the power of the court in such cases is exercised, not only to do individual justice, but to safeguard the interests of the public.”50 And that the customer “is at the heart of the matter.”51 And that “[t]he customer expects to receive a given product when he asks for it and should not be deceived.”52 (emphasis added)

Continuing with some Canadian authorities, at one point in Kirkbi AG v. Ritvik Holdings Inc. (2005), the Supreme Court of Canada rejected the submission that Section 7(b) of the Canadian Trade-marks Act (statutory passing off) was focused on preventing confusion; the Court, at least in this part of the decision, instead preferred the view that such provision creates a property right in trademarks.53 But this holding was in the context of a more technical issue.54 In addition, earlier in the decision, the Court said:

[T]he civil remedy in s. 7(b) protects the goodwill associated with trade-marks and is directed to avoiding consumer confusion through use of trade-marks.55

Similarly, as to passing off at common law, the Court said:

47. Id. at 916 (emphasis added). 48. 3 F.2d 891, 893 (1st Cir. 1925) (emphasis added). 49. [1992] 3 S.C.R. 120 at 136 per Gonthier J for the unanimous court [Ciba-Geigy]. 50. Id. (emphasis added). 51. Id. 52. Id. (emphasis added). 53. 2005 SCC 65, [2005] 3 S.C.R. 302 per LeBel J [Kirkbi] at para 56-58. 54. In particular, the issue here was whether s. 7(b) was subject to the principle that functional marks should not be capable of being monopolized. 55. 2005 SCC 65, at para 35 (emphasis added).

Vol. 107 TMR 991

This tort has a long history. At a very early point in its development, the common law became concerned with the honesty and fairness of competition.56

Still further, a few months later in Mattel, Inc. v. 3894207 Canada Inc. (2006), the Court said that passing off has “its roots in the law of deceit.”57

The close relation between the prohibitions against classical passing off and false advertising is evident in the U.S. trademark statute where the two civil wrongs are prohibited as part of the very same subsection; that is, they are both part of subsection (a)(1) of Section 43.58

The objective of avoiding public misrepresentation has also been recognized within the jurisprudence and legislation addressing the objective of maintaining signification when trademarks are transferred or licensed to others. Signification is discussed further in Part II but, in short, trademarks inherently mark something relating to trade,59 and sometimes that signification is contradicted after a trademark is transferred or allowed to be used by others. For example, if a trademark designates steel made at a particular manufactory and if the trademark is allowed to be used by an assignee or licensee who is making steel at a different manufactory (and particularly if the different manufactory results in different product quality), purchasers are likely being deceived by that usage.60 This concern is statutorily recognized, for example, in Section 5 of the Lanham Act; the first part thereof, since 1946, has essentially provided:

Where a registered mark or a mark sought to be registered is or may be used legitimately by related companies, such use shall inure to the benefit of the registrant or applicant for registration, and such use shall not affect the validity of such mark or of its registration, provided such mark is not used in such manner as to deceive the public.61

This clearly recognizes the possibility that such use may “affect the validity of such mark or of its registration [if] such mark is . . . used in such manner as to deceive the public.”

56. 2005 SCC 65, at para 63 (emphasis added). 57. 2006 SCC 22, [2006] 1 S.C.R. 772 para 27 per Binnie J for the majority (trademark opposition case involving the BARBIE doll trademark)). 58. § 43(a)(1)(A) of the U.S. Trademark Act of 1946, ch. 540, title VIII, 60 Stat. 441 [15 U.S.C. § 1125(a)(1)(A)]; amended Pub. L. 100–667, title I, § 132, Nov. 16, 1988, 102 Stat. 3946 (herein after, the “Lanham Act”). 59. As discussed in Part II. 60. E.g., see Hall v. Barrows (Dec. 21, 1863), per Lord Westbury, cited below at note 112; see also Assignability and Licensability of Trademark Rights, at TBLawOnline.com. 61. 15 U.S.C. § 1055 (emphasis added).

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Similarly, Section 14(3) of the Lanham Act allows for cancellation of a trademark registration “if the registered mark is being used by, or with the permission of, the registrant so as to misrepresent the source of the goods or services on or in connection with which the mark is used.”62 Again, such laws are concerned with preventing misrepresentation (and damage to signification) even where a mark is registered and the conduct is by or with by the permission of the owner.

Further evidence of the strong association between trademark laws (and other laws regarding false advertising and unfair competition) and the objective of preventing misrepresentation in the course of trade is indicated in the introduction of legislation in the mid to late 1800s in the United Kingdom, as found in Parliamentary debates (Hansard) and the provisions themselves. At the time, more than one bill had been introduced63 and, upon the First Reading of one of them, the Lord Chancellor stated that the intention of certain provisions was to prohibit using marks “to denote quantity and quality of goods which were utterly false; for instance, a mark would be put on a piece of textile fabric to denote that it was of a certain length, when it was, in fact, much shorter.”64 Such false advertising would harm the purchaser, as well as the honest competitor who obviously would have difficulty selling their properly measured fabric as cheaply as the dishonest competitor.65

In the United Kingdom, false advertising has been specially prohibited at least through the Merchandise Marks Acts of 1862 to 1953,66 which legislation was then substantially continued in the Trade Descriptions Act 1968,67 which was, in turn, substantially continued in the Consumer Protection from Unfair Trading Regulations 2008.68 The long title of the first of these was An Act to amend the Law relating to the fraudulent marking of Merchandise.69 At least some of these statutes included remedies, such as for damages for classical passing off, and certain injunctive relief.

Famous trademark commentator Professor Frank Schechter attempted to advance the protection of trademarks as property by, 62. 15 U.S.C. § 1064(3). 63. E.g., Poland, supra note 27 at 7-8 indicates there were as many three overlapping bills in the United Kingdom in 1961. 64. HL Deb, 12 Feb. 1861, vol. 161 c. 328. 65. The Lord Chancellor also referred to the other two foundational objectives discussed herein, noting that manufacturers should not be deprived of their profits by reason of such misrepresentation, and that trademark owners should be able to maintain their marks’ ability to signify a guarantee of the genuineness and excellence of their articles rather than being disgraced by the inferior and fraudulent nature of the spurious articles. Id. 66. Starting with Merchandising Marks Act, 1862, 25 & 26 Vict c. 88 (Aug. 7, 1862). 67. Chapter 29. 68. SI 2008/1277. 69. Merchandising Marks Act, 1862, supra note 66 (emphasis added).

Vol. 107 TMR 993 among other things, downplaying the objective of preventing misrepresentation. He suggested that the misrepresentation objective was already sufficiently addressed by a multitude of statutory laws in other fields regarding false advertising. For example, he said:

[T]here is perhaps no longer a need for regarding deception of the public as one of the bases for trade-mark protection. A large number of Federal and State statutes [in the U.S.] for the repression of misbranding and other forms of commercial charlatanry may now be invoked . . . .70

But it is not entirely clear that the misrepresentation objective is indeed sufficiently addressed by such other statutory laws, particularly in all countries, and particularly in terms of whether such statutory laws support certain specific causes of action within the field of trademarks and unfair competition such as extended passing off (false advertising) as well as reverse confusion in the form of “Falsely Taking Credit.”71

Moreover, one would think that the enactment of these laws regarding false advertising supports, rather than detracts from, the objective of preventing misrepresentation in the course of trade.

Still further, while there are at least two other objectives of some trademark laws as discussed in Parts II and III, Schechter acknowledged that preventing misrepresentation is at least one of the objectives of at least some of the laws within the field. For example, he quoted different authorities saying that “the protection of trademarks and trade names was [at least] originally undertaken by the courts on the ground of preventing fraud.”72 And, “[t]he ground of the court’s interference to prevent such fraudulent use was to save the public from fraud.”73 As another example, Schechter reported:

A great many courts . . . have made the protection of the public not merely a test of unfair competition or of trademark infringement, but a basis of their jurisdiction. . . . The stressing of the deception of the public as a ground for trade-mark protection undoubtedly has historical justification. The element of ‘the deceit of the people’ as the basis of trade-mark law still found running through decisions may be traced to . . . the early days of gild life.74

70. Schechter’s book, supra note 2, at 164-5. 71. As discussed in the Catalog Part II (Groups M and MI), 107 TMR 848, 865 et seq. (2017) 72. Schechter’s book, supra note 2, at 4 (emphasis added). 73. Schechter’s book, supra at note 2, at 5 (emphasis added). 74. Schechter’s book, supra note 2, at 162-4.

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C. Value of the Objective The objective of preventing misrepresentation obviously

supports the existence of any cause of action that addresses Actual Confusion. This includes the cause of action for classical passing off.75 This also includes broader causes of action and prohibitions to the extent that they encompass forms of Actual Confusion, such as the statutory and common-law forms of trademark infringement, and the statutory protection of the marks of entities that are not necessarily traders, such as government marks, certification marks, and the names and likenesses of private individuals.76

The objective of preventing misrepresentation also supports causes of action or prohibitions that might not even involve the use of the plaintiff’s trademark, such as extended passing off (false advertising), trade libel, and “Falsely Taking Credit.”77

Many, if not all, of these laws are also supported by the objective of preventing damage to income-goodwill,78 and thus some may suggest that it is redundant to focus on the objective of preventing misrepresentation. However, for one thing, the prevention of misrepresentation provides an added basis, sometimes the sole basis, for injunctive relief.79 Secondly, the prevention of misrepresentation helps to justify certain causes of action not justified by the objective of preventing damage to income-goodwill, such as “Blurring As To A Descriptive Quality In A Non-Confusing Field” and “Blurring As To A Descriptive Quality Among Non-purchasers (including Post-sale Confusion).”80 In particular, the defendant’s use of the plaintiff’s famous mark in a different field might not be so confusing as to divert any trade (and therefore not constitute damage to income-goodwill in that sense), but the defendant’s use might nevertheless deceive purchasers into thinking that the defendant’s product is of the same quality as the plaintiff’s. Accordingly, the objective of preventing misrepresentation should provide some guidance to lawmakers and the courts as to whether to prohibit such conduct, and the extent to which monetary relief might be awarded.

75. Supra note 15. 76. Supra note 14. 77. See Catalog Part II (Groups M and MI), 107 TMR 848, 865 et seq. (2017). 78. As discussed in Part III. 79. In short, subject to the circumstances and discretion of the court, misrepresentation in the course of trade should not be sanctioned and permitted to continue. Such misrepresentation alone should thus provide grounds for injunctive relief; e.g., see text supra notes 33 to 43, 46, and 49 to 52. Further discussion of the point is beyond the scope of this work and to be addressed separately. 80. As discussed in the Catalog Part IV (Group MS). 107 TMR 848, 881-887 (2017).

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D. Distinguishing Some Authorities That Seemingly Contradict the Objective

A number of decisions have been interpreted as if misrepresentation is not a foundational concern. But such interpretation in most instances is unsound, and is otherwise contrary to everything discussed above.

Some of these decisions are discussed next within three categories: (1) those denying relief despite confusion (or misrepresentation in some other form), (2) those granting relief despite a supposed lack of confusion, and (3) those seemingly basing such principles entirely upon the notion of protecting the “property” in trademarks and/or goodwill.

(1) Many decisions denying relief despite confusion can be explained on the basis that relief was actually denied on other grounds.

In particular, in a number of these decisions, relief was denied on the grounds that the plaintiff was seeking substantial monetary relief, and thus the plaintiff also needed to satisfy the element of intention but failed to do so.81 For example, in Crawshay v. Thompson (1842), the action failed even though, as noted by Coltman J. in that U.K. case: “There was a good deal of evidence to shew that persons might possibly be imposed upon [meaning, confused, deceived] by the mark by the defendants . . .”82 This judicial comment might suggest that misrepresentation was not a driving concern given that the claim was denied despite such deception. However, the claim was in the English Court of Common Pleas and was thus for damages, rather than injunctive relief, and it was thus on the basis of fraud, which, in turn, required the element of intention, and it was ultimately decided that the case failed because the element of intention was not established.

The well-known U.K. decision of Derry v. Peek (1889) was not a trademark or passing off case although it nevertheless involved liability for misrepresentation,83 and was another case where relief was denied despite the establishment of the element of misrepresentation. The holding is understandable in that it was another claim merely for damages rather than injunctive relief such that intention was again considered to be a required element, and it

81. The relevance of intention for the purposes of monetary relief is discussed separately by Tony Bortolin, Intention: Is It Truly Irrelevant to the Awarding of Damages or Profits in Canada and Abroad?, 106 TMR 1037, 1038-1045 (2016). 82. 4 Manning & Granger 357, 378; 134 ER 146. 83. LR 14 AC 337, 58 LJ Ch 864, [1889] All E.R. 1 (statement in a prospectus was untrue). This analogy between the causes of action was recognized by leading U.K. practitioner D.M. Kerly, in The Law of Trade-Marks and Trade Name, and Merchandise Marks (London: Sweet & Maxwell, 1st ed., 1894) at 384-6.

996 Vol. 107 TMR was another case where the claim for damages was denied on the basis that the element was not established.

Some cases denying relief despite confusion or misrepresentation can be explained on yet another ground. In Amoskeag Mfg. Co. v. Spears (1849 N.Y.), there were indications that some people were confused and yet relief was denied.84 But again this was not because confusion of the public was not a concern (as noted previously).85 The denial of relief is better understood as having been based on the fact that the mark was deemed descriptive.86 Due to descriptiveness, the Court even went so far as to say that granting an injunction would have been “injurious” to the public87 because competitors would not have been able to use the descriptive term. The decision mentioned that some people were confused (presumably because they were not themselves aware of the descriptive meaning or because the plaintiff had established a secondary meaning for that term among those particular people), but the number of such people may have been de minimis. Alternatively, it may have been difficult to identify this particular segment of the public, and therefore difficult to craft an injunction solely to protect that segment.

Similar comments can be made in respect of Fetridge v. Merchant (1857). In denying relief, the New York Court effectively indicated that it was not concerned with confusion of the public in the absence of harm to the plaintiff.88 In other words, it appears to be another case where relief was denied despite confusion among the public. However, among other things, this was a case where the plaintiff’s mark was judged to have already been used by other traders, effectively meaning that the mark was descriptive or otherwise failed to exclusively signify the goods of the plaintiff. In addition, it might again constitute a case where it may have been too complicated or too late (or not even contemplated) to craft an injunction solely to protect the particular segment of the public who were at risk of being confused.

There are a number of other decisions where the U.S.89 and U.K.90 courts have made comments in trademark and unfair competition cases along the lines that the courts are not concerned 84. Cox Amer. T.M. Cas., supra, at 95-96. 85. See text, supra at note 42. 86. Meaning the mark violates the common principle that one trader should not be able to monopolize terms that should remain available to other traders for the purposes of merely describing the generic nature of their goods or services. 87. Id. at 93. 88. 4 Abb Pr R 156; 4 Man & Gr 385; Amer. T.M. Cas. 194, 195-6. 89. See, e.g., Ely-Norris Safe Co. v. Mosler Safe Co., 7 F.2d 603, 604 (2d Cir. 1925), rev’d 273 U.S. 132 (1927). 90. See, e.g., Dental Manufacturing Co. v. C. De Trey & Co., [1912] 3 KB 76, 29 RPC 617 (CA) (dental spittoon).

Vol. 107 TMR 997 with misrepresentation of the public, at least not without damage to signification or income-goodwill. Not only are such comments contrary to everything mentioned above, but many of them can be distinguished on the basis that the cases were argued solely on the basis of classical passing off when they were really cases of extended passing off, and thus failed for lack of pleading. Even where extended passing off was pleaded, such courts were rarely if ever directed to arguments and authority supporting that cause of action.91 Still further, at least some jurisdictions have enacted statutory forms of the civil cause of action for extended passing off.92

(2) As to cases implying that misrepresentation is not a foundational objective of the laws within the field because relief was granted despite an alleged lack of confusion, again, there are several explanations:

One explanation is that some of these cases actually did involve confusion. For example, some commentators suggest that the U.K. case of Eastman Kodak Co v. Kodak Cycle Co (1898) was an instance of relief being granted despite a lack of confusion. The case is identified as one of the earliest decisions supporting the notion that trademarks should be protected against mere “dilution.”93 However, the decision indicates that injunctive relief was granted because, among other things, the defendant’s use of the mark “would cause the Defendant Company to be identified with the Plaintiff Company, or to be recognised by the public as being connected with it.”94 This is all consistent with a finding of Actual Confusion. The Court even expressly said that the defendant’s usage “would lead to confusion; . . . deception.”95 The Court also described the usage as being for the very purpose and object of “connecting themselves in some way with the Plaintiff Company and its business.”96 Thus, the Court’s finding of confusion was understandable in that, as of that era, the plaintiff’s goods (cameras) and those of the defendant (bicycles) were sometimes sold in the very same shops.97 The plaintiff even sold specialized clamps for mounting cameras onto bicycles.98 While the

91. For some support for the cause, see, e.g., A.G. Spalding & Bros v. A.W. Gamage Ltd (1915), 84 LJ Ch 449, 113 LT 198, 31 TLR 328, [1914-15] All ER Rep 147, 32 RPC 273. Arguably, see text supra, at note 37 from Coats v. Holbrook (1845). See also Pillsbury-Washburn Flour Mills Co. v. Eagle (1898), 86 Fed. R. 608, and Stahly Inc. v. M.H. Jacobs Co., 183 F.2d 914, 917 (7th Cir.), cert. denied, 340 U.S. 896 (1950). 92. E.g., see Catalog, Part II.B, 107 TMR 848, 867-9 (2017). 93. It was cited as such, for example, by F. Schechter, The Rational Basis of Trademark Protection (1927), 40 Harvard Law Review 813, 825 [Schechter’s 1927 article]. 94. 15 RPC 105, 112 (emphasis added). 95. Id. (emphasis added). 96. Id. at 111. 97. Id. at 108. 98. Id. at 109.

998 Vol. 107 TMR decision does support prohibitions on the use of trademarks within fields of trade that do not necessarily compete with those of the trademark owner—whether in the form of antidilution laws or in the form of broader definitions of what constitutes confusion or infringement—the decision does not contradict that the courts and other lawmakers are also still concerned with the objective of preventing misrepresentation in the form of confusion.

Another subcategory of cases in which relief was granted despite a lack of Actual Confusion is where such confusion was lacking at the particular point of sale by the defendant to a middleman, but it was clear that a subsequent buyer or consumer would be confused. Thus, these cases can be better understood as cases of contributory or indirect liability for infringement or classical passing off, as cases of acting jointly or conspiring to commit such wrongdoing, or as cases of aiding and abetting.99 In all such instances, even though “confusion” is not established at the time of the sale by the defendant, the courts are concerned with preventing confusion as may occur at any other point along the chain of distribution. Thus, these decisions actually support, rather than refute, the objective of avoiding misrepresentation.

Some cases expressly mention, among others, the objective of preventing misrepresentation. For example, in Sykes v. Sykes (1824),100 the Court of King’s Bench in the United Kingdom stated that, where the defendant knows that the middlemen will resell the goods to unsuspecting buyers, such a wrongdoer “lends himself to a deceit upon the public, and deprives [the plaintiff] of gains.” Similarly, the Court said, “The law will not endure that any man should either directly, or indirectly by deceitful means, deprive another of the just gains arising from his ingenuity and labour.”101

Similarly, in the U.K. decision in Lever v. Goodwin (1887),102 Cotton L.J. quoted Chitty J. in the court below as having found that the defendant knowingly put “an instrument of fraud into their hands.”103 (Coincidentally, that quote from Cotton L.J. was, in turn, quoted in 1939 by Sir Greene M.R. in the prominent U.K. decision of Draper v. Trist,104 and formed an important basis of that decision.)

99. In Catalog at Part VI.A (Group E). 100. 3 Barn. & Cress. 541, 107 ER 834 (KB). 101. Id. (emphasis added). This judicial comment is consistent not only with the foundational objective of preventing misrepresentation in the course of trade, but also with the objective of preventing unfair damage to income-goodwill which is discussed further in Part III. 102. Supra note 44. 103. Supra note 44, at 3 and 7 (of 36 Ch D). 104. Infra note 168.

Vol. 107 TMR 999

(3) Some trademark cases suggest that preventing misrepresentation is not a foundational objective because they seemingly grant relief solely on the basis that the plaintiff’s trademarks and/or goodwill are a form of “property.”

Such notions of protecting trademarks and goodwill are themselves valid objectives as discussed herein.105 However, very few, if any, of the cases expressly indicate that preventing public misrepresentation should itself no longer be an objective of the laws in the field.

Moreover, relief was denied in a number of other decisions despite misrepresentation because the plaintiff was seeking an injunction and, especially during the 1800s, the authorities were of the view that the applicable courts (meaning the courts of equity or Chancery) could not grant such relief unless there was a likelihood of damage to the plaintiff’s property.106 Once again, such decisions could imply that protecting the public against misrepresentation is not an appropriate objective given that relief was sometimes denied despite a finding of such misrepresentation. But such implication can be dismissed by distinguishing these cases on the basis that the applicable court supposedly required damage to property.

For example, Chancellor Walworth of the Chancery Court of New York in Partridge v. Menck (1848) stated that “the court proceeds upon the ground that the complainant has a valuable interest in the good-will of his trade or business.”107 In addition, Wright J.A. as part of the appeal decision in that case said that when a label or trademark has been adopted and becomes known so as to indicate that the product is manufactured or sold by a particular trader or with their authority, it “is a species of property” and will be protected against use by others. However, he then added that such right is limited to cases where the infringer is using the same or similar mark “in such a manner as probably to mislead . . .”108 Indeed, judges at all three levels of that case refused the requested injunctive relief, and this was at least partly on the basis that there was no Actual Confusion by the defendant due to the use of distinguishing markings.

Similar comments can be made regarding the well-known judicial dicta of Lord Westbury.109 Such dicta have certainly helped to develop the laws and causes of action prohibiting conduct that do not necessarily involve misrepresentation. However, in expressing 105. In Parts II and III. 106. The alleged modern-day requirement of damage to support an award of injunctive relief, and what should qualify as such damage, are beyond the scope of this work but worthy of discussion and to be addressed separately. 107. Cox Amer. T.M. Cas. 72, 76-7 (per Chancellor Walworth), aff’d by CA at p 79 of Cox Amer. T.M. Cas. (emphasis added). 108. Cox Amer TM Cas at 80. 109. E.g., see text below at note 174.

1000 Vol. 107 TMR such dicta, his Lordship was cautious of the jurisdiction of the Court of Chancery at the time, and also did not discard misrepresentation as being a concern of other laws and causes of action. Even in his especially well-known decision in Leather Cloth Co. v. American Leather Cloth Co. (Dec. 21, 1863), Lord Westbury recognized misrepresentation (in the form of confusion) as an element of classical passing off. For example, where the remedy being sought at the time was damages in the Court at Law, he accepted: “At law the remedy for piracy of a trade mark is by an action on the case in the nature of a writ of deceit. This remedy is founded upon fraud . . .”110 Similarly, for the purposes of an injunction in the Court of Equity, he acknowledged: “It is, indeed, true” that, unless the defendant’s mark must be “mistaken in the market” for the trade mark of the plaintiff, “there is no invasion of the plaintiff’s right” and that this is the “the test” as to whether the property in the trademark has been invaded.111 Also, in Hall v. Barrows (also released on Dec. 21, 1863), Lord Westbury held:

Imposition on the public is indeed necessary for the plaintiff’s title . . . [I]t is the test of the invasion by the defendant of the plaintiff’s right of property; for there is no injury done to the plaintiff if the mark used by the defendant be not such as may be mistaken, or is likely to be mistaken, by the public for the mark of the plaintiff.112

Such principles were reiterated by both Lord Westbury and VC Wood as part of their respective decisions in McAndrew v. Bassett (1864).113

Among other decisions referring to trademark rights as property but nevertheless not discarding the concern regarding misrepresentation is that of the Supreme Court of Canada in Consumers Distributing Co. v. Seiko (1984). On one hand, the Court loosely approved the notion that “the true basis” of the action for passing off is (supposedly) not the prevention of injury by fraudulent competition along the lines of deceit, but the prevention of injury to the right of property in the plaintiff to the goodwill of their business. In support thereof, Estey J. reproduced the wording of the principle as expressed within a general text on torts.114 That passage in

110. 4 De Gex J & Sm 137, 33 LJR (NS) Ch 199, SC 12 WR 289, Cox Am. T.M. Cas. 686, SC 10 Jur (NS) 81. 111. Id. at 289 of WR report. 112. (Dec. 21, 1863), 33 LJR (NS) (Ch) [1864] 204, 4 De Gex J & Sm 150, 12 WR 322, 9 LT Rep (NS) 561, 3 NR 259 (emphasis added). 113. 4 De Gex J & Sm 380; 10 Jur (NS) 492, [1864] 33 LJ Ch 561 (containing the decisions of both V-C Wood Mar. 4, 1864, and LC Westbury May 7, 1864). 114. [1984] 1 S.C.R. 583 at 606 per Estey J [Seiko]. The text on torts, in turn, likely paraphrased that principle as expressed in Draper v. Trist (1939), infra at note 168 per Lord Goddard at 526 (of ER).

Vol. 107 TMR 1001 Consumers Distributing was then approved by the same Court in Ciba-Geigy Canada Ltd. v. Apotex Inc. (1992).115 However, that passage in Consumers Distributing relates to an attempt to support extended passing off, meaning, a cause of action that does not require misrepresentation in the form of Actual Confusion. Conduct can be unlawful even if it does not necessarily involve such misrepresentation. It is thus understandable that a number of decisions such as Consumers Distributing tend to overemphasize the objective of protecting income-goodwill.

Some conduct can be unlawful even if it does not involve misrepresentation at all.116 But such laws and their objectives do not negate the objective of preventing misrepresentation as a basis for other laws.

In addition, the Court in both of those cases also reproduced a passage from the above-mentioned general text on torts, including the following:

Indeed, it seems that the essence of the tort lies in the misrepresentation that the goods in question are those of another; . . .117

Still further, the Court in Ciba-Geigy specifically referred to safeguarding the interests of the public in terms of avoiding misrepresentation, as mentioned above.118

Another example of a decision referring to trademark rights as property and thereby implying that misrepresentation is not a foundation is Orkin Exterminating Co Inc v. Pestco of Canada Ltd (1985).119 The case included some comments as if passing off involving Actual Confusion is based upon the proprietary nature of income-goodwill. In addition, the foreign plaintiff succeeded in enjoining the defendant in Ontario (Canada) even though the plaintiff had not yet made sales in that geographical area. All of this suggests that the case did not turn on misrepresentation but on whether there was effectively a virtual property right in the plaintiff’s trademark rights. But focusing on the ultimate ruling, the case nevertheless did involve misrepresentation, particularly in the form of Actual Confusion. That is, at least one of the grounds of the decision in favor of the plaintiff was that the “practical consequence” of the plaintiff being “vulnerable to losing . . . customers” was due to such confusion or deception.120 115. [1992] 3 S.C.R. 120, supra, at 134-5. 116. As discussed, generally, in the Catalog, also in Parts II–IV below. 117. Consumers Distributing Co. v. Seiko [1984] 1 S.C.R. at 598; Ciba-Geigy Canada Ltd. v. Apotex Inc. [1992] 3 S.C.R. at 135 (emphasis added). 118. Text above at notes 49 to 52. 119. 1985 CanLII 157 (ON CA), 5 CPR (3d) 433 (Ont CA). 120. Id. at 444. Such confusion was especially evidenced in the fact that, at least for a number of years, the defendant did not use or otherwise advertise the name other than in a

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Another case emphasizing the notion of “property” is Bollinger v. Costa Brava Wine Co Ltd (1959-60).121 This is a U.K. case where the defendant was enjoined from using the term Spanish Champagne. By citing122 the decision in Duke of Bedford v. Ellis (1901),123 the court in Bollinger effectively confirmed that the notion of requiring a proprietary right was only for the purposes of the former court of equity (Chancery).124 In addition, there was no express rejection of the objective of preventing misrepresentation. Still further, Bollinger is another case where, regardless of any property notions, the conduct was likely unlawful pursuant to the common law cause of action in respect of extended passing off, meaning the case still involved misrepresentation. Understandably, there was no misrepresentation in the form of Actual Confusion in that the public was not confused into thinking that the defendant’s product was made by any particular member of the plaintiffs (given that the plaintiffs were competing against each other under the mark that they were trying to protect), but members of the public were nevertheless being deceived into thinking that the defendant’s product was made by at least some member of that group and/or that the defendant’s product was of a particular type from a particular geographical region. Either way, the public was deceived, and thus the case does not contradict the objective of preventing misrepresentation.

In view of all of the above, preventing misrepresentation has been, and continues to be, a primary objective of laws within the field of trademarks and unfair competition. One should be cautious when reading comments within the vast array of decisions and writings that try to suggest otherwise.

Discussed next is the objective of preventing damage to signification.

II. PREVENTING DAMAGE TO SIGNIFICATION A. Simplified Statement of the Objective

Another objective for a number of trademark laws and trademark causes of action is to prevent damage to the signification of trademarks.

Words have meanings. But if a particular word is used by some people as having one meaning while others start to use it in the

telephone listing, and thus it was naturally determined by the Court that consumers looking up and calling that number must have done so on the basis of their recognition of the name solely through the use and advertising of the name by the plaintiff. 121. (Nov. 1959), [1960] RPC 16 and (Dec. 1960), [1961] RPC 116, (Danckwerts J). 122. At p 120 of [1961] RPC. 123. [1901] AC 1 (HL). 124. Supra note 106.

Vol. 107 TMR 1003 same context as having another meaning, the word becomes ambiguous; the word loses its accepted meaning. It cannot serve its purpose or achieve its function in terms of reliable communication. The same concern applies to trademarks.

In simplified terms for present purposes, as soon as a mark is established as signifying something, it cannot continue to perform that function unless that signification is maintained.

B. Explanation of, and Support for, the Objective As with any word or symbol, a trademark can come to signify

almost anything relating to trade. The typical notion is that it signifies that certain goods or services are provided or otherwise endorsed by a particular entity (sometimes referred to as signifying the “trade source”). A mark can also come to signify quality, either in the sense of overall quality, or a specific quality of certain goods or services.125

To understand the foundational objective, imagine what would happen if cars had the same license plate number or vehicle identification number. Or, imagine ordering parts for a machine if different parts had the same part number. Similarly, it would be difficult to deliver the mail if streets in the same area had the same name, not to mention if businesses had the same name. Words, names, part numbers—they all serve the purpose of distinguishing entities, places, and things from one another. It is part of their inherent nature or function.

The same considerations apply to trademarks. A qualifying mark has meaning upon being adopted. Suppose someone has purchased a product and wishes to repurchase it, recommend it to someone, or tell someone that it is either good or no good. The source of that product can ordinarily be identified and communicated by means of the trademarks associated with the product. However, this purpose cannot be achieved unless the signification of marks can be sufficiently maintained, both by the owner and the law.

As a simple example, if one party starts selling a product under the mark ABC and then another party starts selling a similar product in the same area under the same mark, at least one category of harm is that the mark can no longer be relied upon for the purposes of distinguishing between the two products or their suppliers. For an example, for people encountering the mark on the junior user’s product and recognizing that it is not the senior user’s product, the mark no longer signifies the senior user’s product, meaning that the mark no longer communicates that the product is

125. This is subject to the common principle mentioned above at note 86 that a mark is not easily protected if it is inherently descriptive of such quality and should remain available for use by other traders in the field.

1004 Vol. 107 TMR made or sponsored solely by the senior user. For those people, the mark will cease to be “distinctive” in that respect.

Similarly, if the defendant’s product is of lesser quality than the plaintiff’s and people notice this difference, the plaintiff’s mark no longer designates the higher quality of the plaintiff’s product. Again, for those people, the mark will cease to be distinctive at least in that respect. The plaintiff’s trademark no longer represents what it used to represent.

As illustrated by the preceding two examples, there are different types of signification, any of which can be damaged. If the defendant happens to purchase its product from the very same manufacturer as does the plaintiff such that the quality is the same, perhaps the defendant’s use of the plaintiff’s mark does not undermine its signification in terms of that quality; but it can still undermine its signification in terms of the identity of the party that stands behind the quality (trade source).126 Conversely, if the defendant’s product is, in fact, of a lesser quality, but in a sufficiently different field such that there is no Actual Confusion, then perhaps there is no damage to signification as to the specific trade source; but, there could still be damage to signification as to product quality insofar as people nevertheless recall the signification of the plaintiff’s mark and the defendant’s product fails to meet that quality. There can also be cases where signification is damaged in terms of the mark’s recognizability127 or wholesomeness as the case may be.128

In view of this function of trademarks, protecting the signification or distinctiveness of trademarks obviously provides a benefit to the public and to the owners of such marks; protecting signification supports the maintenance of a system whereby trademarks can be used to reliably communicate whatever a trademark might happen to signify.

The concept of signification needs to be understood in relation to two other legal principles. In order to establish a cause of action for classical passing off, there is a required element known as “goodwill.”129 Depending upon the particular cause of action and form of relief being sought, there are effectively two different

126. E.g., see A. Bourjois & Co., Inc. v. Katzel, 260 U.S. 689 (1923). 127. E.g., see text and citation infra at note 145. 128. A case of unwholesomeness is discussed in the text at note 155. 129. Reckitt & Colman Products Ltd. v. Borden Inc. per Lord Oliver [1990] UKHL 12, [1990] 1 All ER 873 at 880 (mid), [1990] 1 WLR 491 at 499, [1990] RPC 341, (lemon juice plastic container shaped like lemons) [Reckitt]. Approved for example by the Supreme Court of Canada in Ciba-Geigy Canada Ltd. v. Apotex Inc., [1992] 3 S.C.R. 120, at 133 per Gonthier J. The three components are also affirmed in Kirkbi AG v. Ritvik Holdings Inc. 2005 SCC 65, [2005] 3 S.C.R. 302 at paras. 66–69. The precise requirement of “goodwill” for the purposes of classical passing off is beyond the scope of this work but worthy of discussion and to be addressed separately.

Vol. 107 TMR 1005 versions of that “goodwill”: one is the equivalent of the concept discussed herein as income-goodwill (expected income)130 and the other aligns with the concept discussed herein as signification.

The second trademark concept overlapping with signification is “distinctiveness.” Once again, this concept has at least two different versions, with signification substantially aligning only with one of them. “Distinctiveness” might be defined slightly differently in different jurisdictions but signification substantially aligns with distinctiveness that has been acquired or established through some form of use, while the concept of distinctiveness typically goes further and encompasses the inherent ability of a mark to acquire signification. For example, a mark that has been applied for but not yet used can be deemed to be distinctive if it meets certain requirements, such as that it is not merely descriptive of the goods or services. Such a mark may be “distinctive” because it is capable of being used to distinguish goods or services from those of others, even though the mark has not yet been used and thus has no such signification actually established in the marketplace.

The term “signification” is thus used herein to focus on a more specific concept whereby a mark has actually acquired signific-ation/goodwill/distinctiveness at least among some members of the relevant public. “Signification” exists when the mark has already been used or otherwise promoted so as to establish at least a material amount of recognition as actually designating the owner or something about the owner’s goods or services.

The following are some legal provisions and authorities emphasizing the objective of preventing damage to signification.

An often-cited footnote in the U.S. Supreme Court decision in Inwood Lab. v. Ives Lab. (1982)131 includes the following:

Such blatant trademark infringement inhibits competition and subverts both goals of the Lanham Act . . . [including the goal of stopping] the infringer [who] deprives consumers of their ability to distinguish among the goods of competing manufacturers.132

Senator Lott in Taylor v. Carpenter (1846 NY) stated that, among other things, the act of passing off:

—defeats the very end and object contemplated by legitimate competition, the choice to the public to select between the articles exposed to sale [together with the concern in the form of misrepresentation as discussed above in Part I].133

130. As mentioned in the Introduction above and discussed in Part III. 131. 456 U.S. 844, 854 n.14, 102 S. Ct. 2182, 2188 n.14 (1982). 132. Supra note 131, citing H. R. Rep. No. 944, 76th Cong., 1st Sess., 3 (1939), and S. Rep. No. 1333, 79th Cong., 2d Sess., 3 (1946) (emphasis added). 133. (Dec. 1846) Cox Amer. T.M. Cas., supra, at 56-7 (emphasis added).

1006 Vol. 107 TMR Justice Campbell of the New York Court of Appeals seemed to acknowledge all three foundational objectives, including preventing damage to signification where, in Howard v. Henriques (1851), he said:

Every man may and ought to be permitted to pursue a lawful calling in his own way, provided he does not encroach upon the rights of his neighbor or the public good. But he must not, by any deceitful or other practice, impose upon the public; and he must not, by dressing himself in another man’s garments, and by assuming another man’s name, endeavor to deprive that man of his own individuality, and thus despoil him of the games to which by his industry and skill he is fairly entitled.134 The Supreme Court of Canada in Mattel, Inc. v. 3894207

Canada Inc. (2006) explained that trademarks “operate as a kind of shortcut” to get consumers to where they want to go, “assuring consumers that they are buying from the source from whom they think they are buying and receiving the quality which they associate with that particular trade-mark.”135 And that shortcut simply will not work unless its signification is protected. If others are permitted to use a mark as a shortcut for something else, the mark loses its ability to operate as a shortcut on behalf of the original user. The trademark is at risk of losing its signification among those who encounter the same (or sufficiently similar) mark being used by others.

Similarly, the Supreme Court of Canada in Kirkbi AG v. Ritvik Holdings Inc. (2005) referred to the above concept as one of the “underlying policies which structure intellectual property law” and said:

Trade-marks seek to indicate the source of a particular product, process or service in a distinctive manner, so that, ideally, consumers know what they are buying and from whom . . . . The foundation of a trade-mark is distinctiveness because only a distinctive mark will allow the consumer to identify the source of the goods . . . . [A mark is] a symbol of a connection between a source of a product and the product itself.136

A few passages later, the Court expressed the same concept in respect of passing off in that such law has:

—sought to ensure that buyers knew what they were purchasing and from whom.137

134. 3 Sand. Ch. 725, 727, Cox Amer. T.M. Cas. 129, 131 (N.Y. C.A. 1851) (hotels). 135. 2006 SCC 22, [2006] 1 S.C.R. 772, supra, at para 21. 136. Kirkbi, supra, at para 39 (emphasis added). 137. Kirkbi, supra, at para 63 (emphasis added). In the context of other decisions of this Court, it was not indicating in this passage that, for the purposes of classical passing off, trademarks need to signify both “what customers are purchasing” and “from whom.”

Vol. 107 TMR 1007 As expressed by Francis H. Upton in 1860:

[A trademark is] the means, and in many instances, the only means, by which [manufacturers] are enabled to inspire and retain public confidence in the quality and integrity of the things made and sold—and thereby secure for them a permanent and reliable demand—which is the life of manufacturing and mercantile operations. And it is also . . . the only means, by which the public is protected against the frauds and impositions of the crafty and designing.138

As expressed by Lord Westbury: Property in the word for all purposes cannot exist; but property in that word, as applied by way of stamp upon a particular vendible article, as a stick of liquorice, does exist the moment the article goes into the market so stamped, and there obtains acceptance and reputation whereby the stamp gets currency as an indication of superior quality, or of some other circumstance which renders the article so stamped acceptable to the public.139 The objective of protecting signification has also been

recognized in various legislation. For example, in the United States, Section 45 of the Lanham Act provides the following definition:

The term “trademark” includes any word, name, symbol, or device, or any combination thereof—

(1) used by a person, or (2) which a person has a bona fide intention to use in commerce and applies to register on the principal register established by this chapter,

to identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown.140

Similarly, the same provision defines the concept of a mark being “abandoned” as including the following:

When any course of conduct of the owner, including acts of omission as well as commission, causes the mark to become the generic name for the goods or services on or in connection with which it is used or otherwise to lose its significance as a mark.141

Moreover, misrepresentation in either respect could still constitute extended passing off. For present purposes, the point is that the Court recognized the importance of maintaining signification at least in some respect. 138. A Treatise on the Law of Trade Marks at 16 (WC Little 1860) (emphasis added). 139. McAndrew v. Bassett (1864), supra, 4 De Gex J & Sm at 386 (emphasis added). 140. 15 U.S.C. § 1127 (emphasis added). 141. Id. (emphasis added).

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It is commonly known that trademark rights can also be lost if the owner does not stop rival traders from confusing use. For example, as stated by the Supreme Court of Canada, “The appellant . . . like all trade-mark owners, is required by law to protect its trade-marks from piracy or risk having such marks lose their distinctiveness, and, potentially their legal protection . . .”142

This is all consistent with the fact that trademark rights can be lost if the signification is sufficiently contradicted.

As discussed above, such rights can also be lost if the signification is undermined even by the contradictory use by the very owner or an authorized licensee.143

Similarly, as to certification marks, Section 14(5)(A) of the Lanham Act provides for the cancellation of a registration for such marks on the grounds that the owner “does not control, or is not able legitimately to exercise control over, the use of such mark.”144 Such principles address the concern of preventing misrepresentation in cases where a certification mark deceives as to the goods or services being controlled by the owner, but they also address the objective of maintaining signification of such marks.

Still further, the United States federal prohibition against dilution covers such causes of action as “Blurring As To Recognizability in a Non-competing Field.”145 The fact that such conduct damages signification without necessarily causing confusion or diverting trade is at least implicitly acknowledged by the language of the statute that provides as follows:

(1) Subject to the principles of equity, the owner of a famous mark that is distinctive, inherently or through acquired distinctiveness, shall be entitled to an injunction against another person who, at any time after the owner’s mark has become famous, commences use of a mark or trade name in commerce that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark, regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury.146 The objective of preventing damage to signification is

recognized within, and supported by, the writings of Professor 142. 2006 SCC 22, [2006] 1 S.C.R. 772, supra, at para 26, citing Aladdin Industries, Inc. v. Canadian Thermos Products Ltd., [1974] S.C.R. 845; Breck’s Sporting Goods Co. v. Magder, [1976] 1 S.C.R. 527. 143. Text above at notes 60 to 62. 144. 15 U.S.C. § 1064(5)(A). 145. Defined in Catalog in Group “S” (regarding “Only Damage to Signification”) as the form of dilution where a plaintiff’s trademark is recognized by a material number of people even when the same or similar mark is displayed by the defendant in a field so different that Actual Confusion might be avoided, but that recognizability itself is nevertheless damaged. 107 TMR 848, 875-7 (2017). 146. § 43(a)(2) of the Lanham Act (15 U.S.C. § 1125(a)(2)).

Vol. 107 TMR 1009 Schechter. In particular, despite his emphasis on protecting trade and custom (income-goodwill), he commented that, even in cases where a defendant is not directly competing with a trademark owner and thus not necessarily diverting trade or custom, there is injury that can “be gauged in the light of what has been said concerning the function of a trademark. It is the gradual whittling away or dispersion of the identity and hold upon the public mind of the mark or name.”147 Similarly, he said the “uniqueness or singularity” of a mark, especially a coined mark, can be “vitiated or impaired by its use” by others.148

C. Value of the Objective Given that signification is undermined by Actual Confusion as

discussed above, the objective of preventing damage to signification obviously supports the existence of the causes of action and other laws that address Actual Confusion, including the cause of action for classical passing off.149

Preventing damage to signification also supports broader causes of action or prohibitions to the extent that those causes encompass at least Actual Confusion. Causes of action that do so include the statutory and common-law forms of trademark infringement, and the statutory protection of the marks of entities that are not necessarily traders, such as government marks, certification marks, and the names and likenesses of private individuals.150

Even in the case of government marks and private names that have not been used by their respective owners as trademarks, signification is damaged when the marks and names are commercialized by someone else without consent. This can damage the esteem of the mark and of its owner analogous to the laws prohibiting the use of a copyrighted work in contravention of the author’s moral rights.

Many of these laws are also supported by the objectives of preventing misrepresentation and damage to income-goodwill, and thus some may suggest that it is redundant to focus on the objective of preventing damage to signification. However, for one thing, the objective of preventing damage to signification provides an added basis, and sometimes the sole basis, for injunctive relief.151 Secondly, the prevention of damage to signification supports certain causes of action that are not justified by the objective of preventing

147. Schechter’s 1927 article, supra note 93, at 825. 148. Id. at 830-31. 149. As discussed in the Catalog, at Part I.F (in Group MSI). 150. Id. 151. See above note 79.

1010 Vol. 107 TMR damage to income-goodwill, nor even by the objective of preventing misrepresentation. In particular, there is a recognized type of confusion where Actual Confusion is avoided on the basis of distinguishing markings used by the defendant, but defendant’s use of the mark at issue is nevertheless prohibited to some extent (referred to in the Catalog as “Deemed Confusion Despite Distinguishing Markings”).152

Another type of prohibition that appears to be supported merely by the objective of preventing damage to signification is “Genericizing,” namely, the cause of action protecting against the descriptive or generic use of someone’s mark.153 In short, if a defendant is using the plaintiff’s mark as a generic term, either as the descriptive name of the type of product or of a generic characteristic, the defendant is typically not causing any public deception, but is nevertheless undermining the ability of the plaintiff to use its mark to signify its own brand of products. The defendant’s conduct therefore undermines the distinctiveness of the mark without necessarily constituting a misrepresentation to the public. Such misconduct thus violates one objective even though it does not violate the other. Arguably, Genericizing also does not necessarily violate the objective of preventing unfair damage to income-goodwill. The defendant might not be a competitor or even a business. For example, the defendant might be a news or dictionary service that is displaying the plaintiff’s mark as a regular word rather than a trademark, thereby leading the public to think of the mark as a regular word. The defendant might not be diverting sales from the trademark owner’s pocket to its own, nor trying to evade having to pay the trademark owner a franchising fee or royalty. Nevertheless, the defendant is damaging the signification of the trademark, and is therefore exposed to being enjoined and perhaps having to pay a certain amount of monetary relief comparable to the value of the damage caused to such asset, and perhaps some additional amount as a deterrent in the public interest of protecting signification.

It is well known that legislators, judges and commentators internationally have struggled for generations as to how to justify and refine the laws against dilution. However, recognizing the objective of protecting signification will help clarify the need for particular causes of action that address, for example, cases where the plaintiff’s mark is being used in a field that is so different that Actual Confusion might be avoided but where purchasers nevertheless recognize the mark, and thus the mark still loses some of its recognizability.154 Once again, in view of the significance of the 152. 107 TMR 848, 872 (2107). 153. As discussed in the Catalog, in III.E (Group S). 154. See text and citation supra, at note 145.

Vol. 107 TMR 1011 damage to signification, there is a strong basis to consider granting at least injunctive relief.

Protecting signification also supports dilution laws against Tarnishing (including unwholesome association). On one level, given that the usage of a mark in a tarnishing manner might not result in Actual Confusion, such usage might not blur or undermine the particular ability of the plaintiff’s mark to continue to signify the trade source of the plaintiff’s goods and services. Nevertheless, such usage can arguably damage signification of a mark in terms of its ability to signify other features of the plaintiff’s goods and services, such as that they are savory, tasteful, and moral. A tarnishing or unwholesome association gives the plaintiff’s mark and/or the plaintiff’s products and services a stigma, a lower level of esteem, or at least a different signification than may be desired by the plaintiff. This objective appears to be judicially acknowledged, for example, in the Budweiser case of 1962 in which the plaintiff widely advertised the slogan “Where there’s life . . . there’s Bud” for beer while the defendant tried to adopt the mark “Where there’s life . . . there’s bugs” for a combined floor wax and insecticide.155 The court said:

The court also finds that the value and effectiveness of plaintiff’s prior advertising is impaired to some extent by the deceptively similar phraseology and treatment employed by defendant in its advertising. Unless enjoined, there is sufficient likelihood to damage to plaintiff, despite the fact that the court finds that no recompensable damages were incurred by plaintiff.

In summary as to this Part, the objective of preventing damage to signification supports numerous trademark laws. Discussed next is the objective of preventing unfair damage to income-goodwill.

III. PREVENTING UNFAIR DAMAGE TO INCOME-GOODWILL

A. Simplified Statement of the Objective The foundational objective discussed in this Part is the objective

of protecting against unfair damage to “income-goodwill.” In the field of trademarks and unfair competition, the term

“goodwill” itself, over the generations, has not always been used consistently. Some decisions, legislation, and learned writings have used such terminology as “the goodwill in a trademark,” “the goodwill associated with a trademark,” “the property” in a trademark, or “the property in the goodwill” of a business. In particular, the term “goodwill” has been used to designate the first 155. Chem. Corp. of Am. v. Anheuser-Busch, Inc., 306 F.2d 433 (5th Cir. 1962), cert. denied, 372 U.S. 965 (emphasis added). The case was both pursuant to infringement of federal trademark registration, and Florida unfair competition.

1012 Vol. 107 TMR element of the cause of action for classical passing off, which element, in turn, overlaps with the above-mentioned concept of signification.156 All of these concepts may very well overlap in the sense of having financial value and the capability to be recognized as a business asset, but a distinction can be made between prohibiting unfair damage to income-goodwill and prohibiting damage to signification (which could be referred to as “signification-goodwill”). In some situations, the signification of a trademark can be damaged without damaging income-goodwill,157 while, in other situations, income-goodwill can be damaged without damaging signification as discussed in this Part.158

Accordingly, the concept of income-goodwill is intended to encompass forms of goodwill other than signification. It is intended to encompass the notion of expected income (profits) from reasonably expected sales, especially in the nature of “repeat” sales (meaning sales anticipated from previous purchasers).159 It is also intended to encompass the expected income in the form of commensurate or substantial royalties from granting licenses to share in such goodwill. It is also intended to encompass the deserved income, that is comparable to royalties, in respect of the use of a mark for the purposes of its drawing power.

Protecting income-goodwill obviously serves a private business interest in terms of protecting expected income in the above-mentioned forms. However, it also serves public interest. Protecting such goodwill encourages traders to develop it in the first place; traders would be less inclined to develop and maintain good-quality products if their competitors could simply reap the benefits of those efforts or otherwise undermine those efforts. In other words, even though the laws against unfair competition might constitute a prima facie restraint of free trade and free speech, such restraint serves a public interest in terms of encouraging good-quality trade, together with a certain degree of civilized conduct as between competitors. Some judicial comments along those lines are provided below, although the point here is that the courts and lawmakers need not struggle with the issue of whether trademark laws merely protect private interest or merely protect public interest.160 The 156. Text above at note 129. 157. As mentioned above in Part II, and see Groups M, S, and MS in Parts II–IV, respectively, of the Catalog, 107 TMR at 865-887. 158. And see Groups MI and I in Parts II and V, respectively, of the Catalog, 107 TMR at 865-871, 887-893. 159. This is in accordance with a relatively early definition of goodwill in the business, financial sense, namely, “the advantage or benefit, which is acquired by an establishment … in consequence of the general public patronage and encouragement, which it receives from constant or habitual customers…”; per Justice Story, Story on Partnerships (1841) § 99, as quoted by A.S. Biddle, Good-Will, 23 Amer. L. Reg. 1 (Vol. 23 Old Series) at p. 1 (1875). 160. E.g., Schechter noted that: “[C]ourts are endeavoring to reach a conclusion as to whether, in such cases, the true basis of relief is the deception of the public or whether, on

Vol. 107 TMR 1013 prevention of unfair damage to income-goodwill is yet another objective that serves both interests.

B. Explanation of, and Support for, the Objective The objective of protecting goodwill, particularly in terms of

expected sales and as a form of “property,” has been set forth on numerous occasions. The following are some examples.

The U.S. Supreme Court in Inwood Lab. v. Ives Lab. (1982), while also acknowledging the objective of protecting consumers’ ability to distinguish goods, as noted above, identified the following objective:

By applying a trademark to goods produced by one other than the trademark’s owner, the infringer deprives the owner of the goodwill which he spent energy, time, and money to obtain.161

In Taylor v. Carpenter (1846 N.Y.), Senator Spencer said: It is of no small importance to a manufacturer or vendor of flour or salt, or to a packer of provisions, that his brand should inspire confidence in the public mind, and thereby secure a ready sale; and so of every other manufacturer. And the assurance that he can securely enjoy its exclusive benefit is always found to be among the highest incentives to ingenuity, laborious exertion, and honorable and faithful conduct . . .162

In Partridge v. Menck (1848), Chancellor Walworth said: [T]he court proceeds upon the ground that the complainant has a valuable interest in the good-will of his trade or business . . . he is entitled to protection against the defendant who attempts to pirate upon the goodwill of the complainant’s friends or customers, or the patrons of his trade or business by sailing under his flag without his authority or consent.163

In Amoskeag Mfg. Co. v. Spears (1849 NY), Duer J. said: [The law of passing off’s] direct tendency is to produce and encourage a competition, by which the interests of the public are sure to be promoted; a competition that stimulates efforts and leads to excellence, from the certainty of an adequate reward.164

In McLean v. Fleming (1877), Clifford J. said: the other hand, it is the inquiry to the owner of the trade-mark involved.” Schechter’s book, supra note 2, at 5. 161. 456 U.S. 844, 854 n.14, 102 S. Ct. 2182, 2188 n.14, supra, citing S. Rep. No. 1333, 79th Cong., 2d Sess., 3 (1946) (emphasis added). 162. Cox Amer. T.M. Cas., supra, at 62. 163. 2 Barb (N.Y.) Ch 101, 1 How App C 558; Cox Amer. T.M. Cas. 72, 76-7 (per Chancellor Walworth, aff’d by CA) (emphasis added). 164. Cox Amer. T.M. Cas., supra, at 92 (emphasis added).

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[T]he court proceeds on the ground that the complainant has a valuable interest in the goodwill of his trade or business . . .165

In Dixon Crucible v. Guggenheim (1870), Paxson J. said: The trade mark adopted and used . . . is one of the means by which the results of labor and skill are assured.166

In Hanover Star Milling Co. v. Metcalf (1916), the U.S. Supreme Court stated:

The redress that is accorded in trademark cases is based upon the party’s right to be protected in the goodwill of a trade or business. . . . [T]he profit he might make through the sale of the goods which the purchaser intended to buy.167 Turning to a U.K. authority, in Draper v. Trist (1939),168 Lord

Goddard famously said: In passing-off cases . . . the true basis of the action is that the passing off by the defendant of his goods as the goods of the plaintiff injures the right of property in the plaintiff, that right of property being his right to the goodwill of his business.169

The above comment of Lord Goddard has been often quoted, such as by the Delhi High Court in the passing off case of Prina Chemical Works v. Sukndayal (1974)170 and by the Supreme Court of Canada in the passing off case of Consumers Distributing Co. v. Seiko (1984).171

Similarly, the latter court stated in Ciba-Geigy Canada Ltd. v. Apotex Inc. (1992) that, in addition to protecting the public from misrepresentation:

The purpose of the passing-off action is thus also to prevent unfair competition. One does not have to be a fanatical moralist to understand how appropriating another person’s work, as that is certainly what is involved, is a breach of good faith.172 Arguably, the objective of protecting goodwill was also raised

long ago in Croft v. Day (1843),173 where the Court added that it must prevent the defendant from using the deceiving mark so as to

165. 96 U.S. 245 at 252 (liver pills). 166. Cox Amer. T.M. Cas. 559, 577 (Phil.) (stove polish). 167. 240 U.S. 403, 412 (1916). 168. Draper v. Trist and Trisbestos Brake Linings Ltd, [1939] 3 All ER 513, [1939] 56 RPC 429 (CA). 169. Id. at 526 (of All ER) (emphasis added). 170. ILR 1974 Delhi 545, paras 20–35, in turn, approved in such cases as Crayons Advertising Ltd v. Crayon Advertising (2014), IA No. 11898/2013, para 29 (Delhi High Court). 171. Text above at note 114. 172. 3 S.C.R. 120, supra, at 136. 173. Croft v. Day, 7 Beav. 84, 90 (1843).

Vol. 107 TMR 1015 prevent the defendant from “obtain[ing] for himself, at the expense of the plaintiff, an undue and improper advantage.”

There are also a number of comments along the lines that goodwill is to be protected within the decisions of Lord Westbury. For example, in Edelsten v. Edelsten (Jan. 28, 1863), he included the notion of protecting income-goodwill where he held, “The injury done to the plaintiff in his trade by loss of custom is sufficient to support his title to relief.”174

Such comments have often been reiterated, such as in the Mattel (Barbie) case (2006) where the Supreme Court of Canada said:

It has been established since Edelsten v. Edelsten (1863)175 that a trade-mark is a proprietary right.176 Similarly, the Supreme Court of Canada in Kirkbi AG v. Ritvik

Holdings Inc. (2005)177 referred to each of the following: Statutory passing off (involving Actual Confusion) “protects the goodwill associated with trade-marks;”178 “The goodwill associated with [trademarks] is considered to be a most valuable form of property;”179 and that the common law as to such passing off “sought to protect the interest of traders in their names and reputation.”180

As stated in Adams on Trade-marks in 1874, the principles “upon which the courts of law and equity have interfered for the protection of trade-marks” have “necessarily involved”:

—the prevention of fraud upon the public, and the protection of the property of the plaintiff; because when a man is selling goods of his own manufacture as the goods of another, he does in fact violate both these principles of right. He is defrauding his customer by inducing him to purchase something different from that which he things he is buying, and he is injuring the property of the plaintiff by palming off inferior goods as the manufacture of the plaintiff, and by diverting to his own pocket profits which the plaintiff was legally entitled . . .181

As expressed by the U.S. Court of Appeals for the 5th Circuit in 1941, a trader cannot “reap where one has not sown, to gather where

174. 1 De Gex J & Sm 185, 199; 46 ER 72, 78‑79; 7 LT (Ch) 768, 769 (emphasis added). 175. Id. 176. Mattel, supra 1 S.C.R. 772 at para 90, per Binnie J. for the majority (emphasis added). 177. 2005 SCC 65, [2005] 3 S.C.R. 302 per LeBel J. [Kirkbi]. 178. Kirkbi, supra 3 S.C.R. 302, at para 35 (emphasis added). 179. Id. at para 39 (emphasis added). 180. Id. at para 63 (emphasis added). 181. Adams on Trade-Marks, supra note 24 at p. 11 (emphasis added).

1016 Vol. 107 TMR one has not planted, to build upon the work and reputation of another.”182

Saxlehner v. Apollinaris Co. (1897) is another case advancing the notion that the trademark right constitutes a species of property.183

Similarly, Lord Jauncey of the House of Lords in Reckitt & Colman Products Ltd. v. Borden Inc. (1990) said:

There was for some time doubt as to the precise rights which were entitled to be protected by a passing off action but this was finally resolved in A. G. Spalding & Bros. v. A. W. Gamage Ltd. (1915) 32 R.P.C. 273, 284 where Lord Parker of Waddington, identified the right as: “property in the business or goodwill likely to be injured by the misrepresentation.” More recently in Star Industrial Co. Ltd. v. Yap Kwee Kor [1976] F.S.R. 256, Lord Diplock, delivering the judgment of the Board, said, at p. 269:

A passing off action is a remedy for the invasion of a right of property not in the mark,184 name or get-up improperly used, but in the business or goodwill likely to be injured by the misrepresentation made by passing off one person’s goods as the goods of another . . . .185

In his 1914 text Good Will, Trade-marks and Unfair Trading, Edward S. Rogers also reports on the long history of laws regarding trademarks.186 For example, he said:

In France trade-marks were in use from the very earliest times. They were regarded as property and protected against infringement by civil remedies.

As early as the thirteenth century, the copying of valuable marks became so common and so injurious that infringement was made a misdemeanor and in some cases even a felony . . .187 Harry Nims similarly recognized that laws regarding

trademark and unfair competition address, in addition to the

182. Aetna Casualty & Surety Co. v. Aetna Auto Finance, Inc., 123 F.2d 582, 584 (5th Cir. 1941). 183. [1897] 1 Ch 893 (Hungarian bitter water). 184. Incidentally, the comment within the excerpt that the protection is “not in the mark” is too restrictive and otherwise needs to be understood in context. It was not intended to undermine the objective of protecting the signification of marks. The courts have sometimes used such language simply to support their refusal to grant the plaintiff a property right which would be excessive, such as a monopoly in selling lemon juice in containers actually shaped like lemons. The fact is that, as discussed herein, the law does protect the goodwill or value of marks (as discussed in Part II) and goodwill in the form of income-goodwill (as discussed in Part III). 185. [1990] UKHL 12, [1990] 1 All ER 873 at 880 (JIF lemon juice plastic container shaped like lemons) (emphasis added) [Reckitt]. 186. 1914 AW Shaw Company, Chicago, New York, London at 34-37. 187. Id. (emphasis added).

Vol. 107 TMR 1017 objective of preventing deception the public, the objective of protecting business goodwill represented by trademarks and preventing competitors from unfairly appropriating business goodwill.188

The concept of protecting income-goodwill is also supported by the writings of Professor McKenna.189

The French unfair competition law, “concurrence déloyale,” also encompasses the concept of preventing unfair damage to income-goodwill. A competitor’s “work” (goodwill, fruits of their labor) is protected from being taken advantage of, sometimes loosely referred to as parasitism.190

C. Value of the Objective Before discussing the value of protecting income-goodwill, one

should recognize its limitations. The protection of income-goodwill is not absolute. Many decisions and academic commentaries have overstated the protection that should be afforded to goodwill by laws within the field of trademarks and unfair competition.

A number of comments in decisions and legal writings suggesting that goodwill and/or trademarks or trademark rights can be protected as “property” can be discounted on a variety of grounds: sometimes the comments are unexplained and unsubstantiated; sometimes the comments are ambiguous as to what legal rights are intended to be encompassed by “property”; sometimes the comments disregard the fact that trademark rights might constitute a form of property at least partly with the assistance of legislation rather than on the basis of some natural right; some of the comments misunderstand decisions of such justices as Lord Westbury; some comments fail to acknowledge that the element of intention is not necessarily removed from the civil causes of action; and sometimes the comments overlook the limitations that inherently apply, at least in certain situations, to the ability to assign or license trademarks.191 However, it must be acknowledged that no matter how much a business invests in developing goodwill along the lines of repeat customers, competitors have a right to take away those customers if they do so fairly. In other words, while competitors

188. Harry Nims (above note 1), The Law of Unfair Competition and Trade-marks (2d ed. 1921 and others) at §§ 6-9. 189. E.g., see M. McKenna, The Normative Foundations of Trademark Law (2007), 82 Notre Dame L. Rev. 1839; reprinted at 97 TMR 1126 (2007). 190. E.g., in Quebec, Canada, see Groupe Pages Jaunes Cie v. 4143868 Canada Inc. (2011) 2011 QCCA 960 (CanLII), rev’g 2009 QCCS 5398, although the ruling itself on appeal goes too far in protecting such goodwill. France: Au Nom Du Peuple Francais, Cour de Cassation, Chambre commerciale, (M. Bezard, président) du 26 janvier 1999, 96-22.457 (unreported) (Civil Code 1382). 191. Such commentary is beyond the scope of the present work.

1018 Vol. 107 TMR cannot take away sales by causing confusion, misrepresenting facts, or taking advantage of the drawing power of a trademark, competitors can indeed take away those sales by means of trade practices that are lawful.192

Professor McKenna is a strong proponent of protecting the concept discussed herein as income-goodwill although the italicized qualification appears to be recognized even in his writings, such as where he carefully stated:

[T]rademark law, like all unfair competition law, [seeks] to protect producers from illegitimate diversions of their trade by competitors.”193 For this reason alone, certain judicial and academic comments

go too far. For example, contrary to the above-mentioned comment in the 1941 Aetna case,194 traders can indeed seek to “reap where one has not sown” in the sense that they can compete fairly for the same sales.

With this limitation in mind, one can better understand that trademark laws, particularly laws under the rubric of antidilution, need to be defined more specifically so as not to unduly restrain trade. Equally, such laws need to be enacted or judicially developed so as to help ensure that income-goodwill is indeed protected as against trade that is unfair. In particular, neither of the first two foundational objectives discussed above (preventing misrepresentation and damage to signification) would cover certain wrongful trade practices, such as Misappropriation of Drawing Power (including Initial Interest Confusion and Bait and Switch).195 If a defendant is in a field so different that confusion is avoided, but nevertheless takes advantage of the drawing power of the plaintiff’s trademark, then there might not be any Actual Confusion, and thus no misrepresentation and sometimes no damage to signification. Nevertheless, in taking advantage of the drawing power, the defendant’s conduct might unfairly rob the plaintiff of income in the form of compensation for the boost to the advertising of the defendant’s business. Thus, the objective of preventing unfair damage to income-goodwill is not redundant of the other two objectives. Again, a plaintiff might not be entitled to a complete monopoly with respect to any use of its mark whatsoever, but this

192. Id. For example, it has been said that the fact that injury done to a competitor as a result of fair competition is non-tortious has “long been recognized”; McClure (1979) above note 5 at 306 citing authority from 1410. Similarly, Harry Nims has explained that the law of unfair competition curtails freedom of trade, but only of trading that is unfair; Harry Nims, (above note 1) The Law of Unfair Competition and Trade-marks (2d ed. 1921 and others) at § 3. 193. M. McKenna, supra 82 Notre Dame L. Rev., at 1841 (emphasis added). 194. See text above at note 182. 195. Defined in the Catalog, in Part V (Group I), 107 TMR 848, 887 (2017).

Vol. 107 TMR 1019 should not be grounds for restricting trademark laws so as to only apply in cases of Actual Confusion.

The objective of preventing unfair damage to income-goodwill also has value insofar as it justifies the assessment of monetary relief commensurate to the damage to such goodwill; the greater or lesser the damage to income-goodwill, then the greater or lesser the monetary relief on that basis.

The objective may also provide a basis for injunctive relief. Subject to the circumstances and discretion of the court, it simply seems wrong to sanction and allow any unfair damage to income-goodwill to continue.

D. Distinguishing Some Authorities That Seemingly Contradict the Objective

It is true that the protection of income-goodwill pursuant to the law of passing off was contradicted by certain portions of the often written-about decision in Blanchard v. Hill (1742).196 Lord Hardwicke rejected the plaintiff’s argument that the defendant, in using the plaintiff’s mark (for playing cards), “prejudices the plaintiff by taking away his customers.”197 The argument was rejected by him on the basis that there was “no more weight” in this than, by analogy, in an objection to one innkeeper “setting up the same sign with another.” This judicial statement implied there was no law prohibiting one trader from using the same trademark or tradename as another. However, for one thing, his Lordship was focused on denying the injunction in respect of the plaintiff’s mark for playing cards on the basis that the court did not wish to be seen as upholding a monopoly in the form of a charter that was granted to the plaintiff by the King (and had been declared invalid by Parliament).198 In addition, he did not actually state that relief should be denied despite the occurrence of Actual Confusion as between innkeepers, let alone explain why. He also did not even state that two innkeepers setting up “the same sign” necessarily amounted to Actual Confusion. That is, perhaps it was understood that confusion within the particular field of innkeeping would hardly occur, even under the same sign, because inns were typically maintained by the owners personally rather than being franchised; customers would not have been easily confused when each inn comprised a different building and was maintained by its own innkeeper. Thus, if there could not be any Actual Confusion in that particular field at the time, then there could not be any actual diverting of trade on the basis of setting up the same sign. The

196. 2 Atk 484, 26 ER 692. 197. Id at 487. 198. Wadlow, The Law of Passing-off, 2004, p 19 (1-28, in sec. 1D).

1020 Vol. 107 TMR judicial comment was thus still consistent with the objective of preventing unfair diversion of trade. Meanwhile, the overall decision has been seen as actually supporting the laws of passing off, at least preventing diversion of trade in that Lord Hardwicke otherwise commented that, as part of a separate analogy, a cloth-worker can indeed maintain an action against another of the same trade for using the same mark where it is done to “draw away customers.”

In summary, it helps to recognize and keep in mind that one of the social concerns of trademark laws and unfair competition developed over the years is protecting against unfair damage to income-goodwill.

Some comments as to whether certain trademark laws go beyond the three objectives are discussed next.

IV. WHETHER CERTAIN LAWS GO BEYOND THE THREE OBJECTIVES

A. Introduction Certain statutory laws and judicial orders appear to go beyond

the objectives of preventing misrepresentation, damage to signification, and unfair damage to income-goodwill. Some actually do so, and some arguably only appear to do so.

The objectives or rationales for such laws and judicial orders have not always been indicated, or records are not readily available considering that some laws were made centuries ago.

It could be debated that such laws or orders go too far, precisely because they go beyond such objectives. On the other hand, it could be argued that at least some laws and orders are justified on the basis of providing a means for enforcing the laws pursuant to those objectives, and thus helping to achieve those objectives. These issues are discussed further below.

B. Some Laws Seemingly Do Not Go Beyond the Three Objectives

As discussed above199 and in the Catalog,200 some decisions rendered in favor of the plaintiff despite no finding of Actual Confusion can be considered as cases of contributory (secondary, indirect) liability, cases of acting jointly or conspiring to commit such wrongdoing, or cases of aiding and abetting. For example, even though Actual Confusion in such cases might not be caused upon the sale of spurious goods from the defendant to an intermediate party, it is nevertheless caused or facilitated upon the reselling of 199. In Part I.D.(2). 200. In Catalog at VI.A (Group E), 107 TMR 848 (2017).

Vol. 107 TMR 1021 the goods. Accordingly, given that Actual Confusion is effectively addressed by such prohibitions, such extensions of laws in respect of trademarks and unfair competition still can be seen as addressing the primary objectives of preventing misrepresentation, preventing damage to signification, and preventing unfair damage to income-goodwill. Such laws do not appear to involve any different policy objectives. They are instead consistent therewith in the sense of being tools for the purposes of enforcing the primary laws in the field.

The same can be said regarding laws that prohibit the mere making of infringing labels and the mere importing of infringing labels or goods bearing such labels.201 Confusion is not caused by such mere making or importing, but it is part of the plan and thus such laws nevertheless help to enforce the primary laws against infringement and unfair competition. There was an international wave of legislation in 2015 focusing on the mere importation of infringing goods. However, as with contributory liability, the wrongfulness of such conduct was recognized long ago. For example, Article 9(1) of the Paris Convention as of 1925 provides:

9 (1) All goods unlawfully bearing a trademark or trade name shall be seized on importation into those countries of the Union where such mark or trade name is entitled to legal protection.

The age of this provision confirms that the seizing of spurious goods even before they are resold (and Actual Confusion is caused) is likely within the scope of the three foundational objectives.

The same can be said regarding statutory provisions, or portions thereof, that extend infringement so as to encompass the mere distribution or mere advertising of registered marks. Such acts alone might not constitute Actual Confusion in the technical sense but can lead to such confusion indirectly, or otherwise damage signification or income-goodwill.

Such laws are understandable, provided that they too are tempered by some common limitations or defenses.202 For example, a party should be able to display someone else’s mark for the purposes of parody or comparative advertising (provided that such display does not also constitute some other form of prohibited conduct, such as Genericizing, or Misappropriation of Drawing Power).

201. Such laws are discussed in the Catalog at Part VI.B, 107 TMR 848 (2017). 202. As discussed in the Catalog in Part VII, Limitations or Defenses, 107 TMR 848, 899 (2017).

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C. Jurisdiction-wide Deemed Confusion Might Go Beyond the Three Objectives

A more complicated and challenging issue is whether the concept of “Jurisdiction-wide Deemed Confusion” goes beyond the three primary foundational objectives. As discussed in the Catalog,203 this concept refers to the possibility of finding “confusion” even if the parties’ marks do not have any use or signification within the same geographical area. The possibility especially arises where trademark registration schemes protect registered trademarks against infringement at all locations across the jurisdiction, meaning even if a defendant is using the mark in an area of the jurisdiction where the plaintiff’s mark does not yet have any use or signification.204

The possibility also arises in the context of trademark oppositions. Certain trademark schemes permit applications to be opposed on the basis of the applied-for mark having already been used by another party. Again, confusion is deemed even if the trademark of that prior user has not been used or otherwise established in the same part of the jurisdiction as the applicant.

The concept is similar, yet different, from the concept of Deemed Confusion Despite Distinguishing Markings.205 In the case of the latter, the court (or opposition board as may be applicable) ignores distinguishing markings for the purposes of assessing “confusion”; in the case of the former, the concept is that the court also ignores defendant being in a different geographical part of the jurisdiction than that where the plaintiff’s mark has use or signification. Confusion is assessed by presuming that the parties’ respective mark(s) are being used within the same geographical area, at least to some extent and for the purposes of some remedies (as discussed further in (1) to (3)).

Deemed Confusion Despite Distinguishing Markings does not go beyond all three of the foundational objectives discussed herein in that it is at least consistent with the objective of protecting signification.206 Meanwhile, the foundational challenge of Jurisdiction-wide Deemed Confusion is that, if the plaintiff has not yet used or otherwise established the mark in the defendant’s area, then certain relief would not be so easily explained on the basis of those objectives; customers in the defendant’s area would not be confused, and thus there is no misrepresentation; sales are not actually diverted from the plaintiff, and thus no damage to income-

203. See “Statutory Infringement Regarding Jurisdiction-wide Deemed Confusion” in the Catalog at 897 (VI.D), 107 TMR 848 (2017). 204. Id. 205. Text supra, at note 152. 206. Id.

Vol. 107 TMR 1023 goodwill in that sense; and, the signification of the plaintiff’s mark is not necessarily being damaged in that area because such signification has not been established in that area. So, how is relief in that area to be justified? Judges and legislators rarely, if ever, discuss this issue.

Some may suggest simply that this geographical extension of the plaintiff’s protection is justified as a matter of property rights. However, simply saying this does not explain why it should be so; it does not explain why trademark rights should be treated as property in terms of being afforded such geographical extension. In addition, it is difficult to see how trademark owners have any natural or common-law proprietary rights beyond the three foundational objectives. This, in turn, means it is difficult to see how they should have any such rights in a mark beyond the geographical area where it has been used or otherwise established by the plaintiff.

If anything, trying to base the jurisdiction-wide protection on the basis of a notion of “property” in the mark runs the risk of being circular; registered trademark rights have been considered to be a form of property because of such geographical extension having been statutorily granted, and thus it is difficult to then justify that geographical extension on the basis that registered trademark rights are considered to be a form of property. But for the statutory grant of a registration, it is hard to say a plaintiff has any property right as a matter of natural law or common law in a trademark beyond the geographical scope of its established signification.

Another overly simple theory would be as follows: An incentive of granting trademark registrations is that it typically reduces the private and public cost and inconvenience of having to call and hear members of the public as witnesses as to the plaintiff having established signification of the mark and as to the likelihood of Actual Confusion. However, the saving of such inconvenience only applies to the area where the plaintiff has established rights and could produce such evidence; it does not justify the prohibition on the use of the mark elsewhere in the jurisdiction. Thus, Jurisdiction-wide Deemed Confusion is not necessarily justified on that particular basis. The plaintiff and the court are not being saved the trouble of such evidence in cases where the plaintiff has no such evidence in respect of the applicable geographical area.

Yet another theory that can be quickly dismissed is that many of the original trademark statutes were enacted pursuant to trade treaties, especially in the late 1800s. To encourage international trade, treaties provided that the marks of traders from one country would be protected within the other signatory countries and vice versa. However, the existence of such treaties and reciprocity does not necessarily explain why such provisions were proposed and agreed to in such treaties, at least not in terms of providing some

1024 Vol. 107 TMR justification beyond the three primary objectives. For example, the following is from the official summary of certain debate comments when one of the first U.K. trademark bills was introduced in 1862; it mentions reciprocity but ultimately refers to the primary objectives:

MR. HADFIELD said, he thought the Bill ought to empower the Government to enter into arrangements for reciprocity on this subject with foreign countries. He held registration to be essential, and saw no difficulty in managing it. An old established system of registration for trade marks existed in Sheffield, and had worked very well. The manufacturers of that town complained bitterly of the ill-treatment which they received on the Continent, where their trade marks were widely pirated. When they cautioned the public by advertisement against the forgery, the impostors actually had the effrontery to advertise that they alone sold the genuine article. He trusted there would be no difficulty in providing a safe, economical, and efficient means of protection for honest traders.207 Yet another theory supporting trademark registration schemes

is that they provide a registry that can be searched prior to adopting a mark. An honest trader can see whether someone is claiming rights in a mark as opposed to the mark being unused or otherwise unclaimed for such reasons as abandonment or descriptiveness, and therefore available to be adopted. This objective certainly helps to support the existence of a trademark registry, and is consistent with the primary objectives. A new mark can be selected in such a way as to help avoid misrepresentation before it begins. This avoidance, in turn, helps to achieve the objectives of avoiding the damage to signification and unfair damage to income-goodwill. However, while this helps to justify the creation of a registry, it does not help to justify the jurisdiction-wide protection of such marks. This is perhaps consistent with the fact that the first U.K. trademark statute, enacted in 1875, created a registry, but did not expressly provide any exclusive rights. The same can be said regarding the second and third U.K. trademark acts.208

The true objectives, or lack thereof, of this jurisdiction-wide extension could be better discussed by considering the objectives with respect to different forms of relief. This is discussed next with respect to: (1) injunctive relief; (2) monetary relief in the form of

207. Hansard, HC Deb, 18 February 1862, vol 165 cc. 447-8 (emphasis added). Similarly, see the other excerpt from Hansard mentioned above at note 64. 208. In addition, Lord Cairns was prominent in helping to pass that first U.K. statute, and he often was counsel for defendants rather than plaintiffs in passing off cases. He would have understood the value of a registry from the point of view of the defendant that selects a mark in good faith only to be sued for passing off or common law infringement.

Vol. 107 TMR 1025 substantial damages or profits; and (3) the opposing or cancelling of registrations on the basis of confusion.

(1) As to injunctive relief in the geographical area where signification has not been established, this is not automatically supported by one or more of the primary foundational objectives. Again, without signification being established in an area, there is no signification to protect in that area; there is no damage to signification where none exists. And without signification being established in the geographical area, there is also no risk of misrepresentation in the form of Actual Confusion; customers in that area would be encountering the defendant’s mark without having encountered the plaintiff’s mark, and thus they would not be misled in that respect. Further, if there is no signification in an area, there is no income-goodwill associated with the plaintiff’s mark in that area, and thus no risk of damage thereto; that is, it would be hard to see how any trade would be diverted by the defendant’s use of the same mark as the plaintiff among those customers who encounter the defendant’s use before encountering the plaintiff’s.

Nevertheless, the geographical extension afforded by Jurisdiction-wide Deemed Confusion is arguably justified on the basis that, in general, businesses naturally expand, and thus the jurisdiction-wide prohibition provides a certain “buffer” or safety zone, both in terms of preventing misrepresentation among the public before the plaintiff and defendant expand their respective businesses to the point of overlapping with each other, and in terms of allowing registered owners to pursue such expansion at their own pace with reduced fear of someone adopting the same mark elsewhere in the jurisdiction. Even though the registered owner has not yet developed signification throughout the jurisdiction, the availability of injunctive relief provides it with the ability to more-safely acquire that signification.

Jurisdiction-wide injunctive relief is also easier to justify in terms of preventing such potential damage as may be caused by Genericizing or Tarnishing. In other words, whether a trademark is registered or not, if a defendant starts using it, whether as a generic term or in a tarnishing manner, within a particular region not yet occupied by the plaintiff, it would be understandable that the court would have a basis to enjoin it. Such use would not only undermine the ability of the plaintiff to expand to that region, but it could even undermine the signification of the mark overall, and thus undermine the validity of the plaintiff’s registered or unregistered rights in the mark.

Jurisdiction-wide injunctive relief in respect of trademark infringement is analogous to, and therefore supported by, the jurisdiction-wide protection typically afforded to the marks of non-traders, such as flags, government seals, and private names. While some of those marks are known throughout the jurisdiction, some of

1026 Vol. 107 TMR them are not, such as flags and government seals of small, faraway countries and most private names and likenesses. Similarly, if a trader invades your privacy by displaying your name and face on its product, it would be understandable that the invasion can be enjoined throughout the jurisdiction regardless of the fact that you might not be known throughout it.

Yet another possible analogy is with the common practice that, when a court awards an injunction in respect of classical passing off, the injunction will typically have no geographical restriction and thereby extend throughout the geographical scope of the court’s jurisdiction. For example, if both parties have been using the same mark merely within one city and the injunction is awarded by a provincial or state court, the injunction typically has effect throughout that province or state, again even though the plaintiff might only have established signification and goodwill within the one city. It is not clear, however, whether such jurisdiction-wide scope in the past has been mindful or not.

In the United States, there is a doctrine founded upon the Dawn Donut case209 that contradicts the above arguments in support of jurisdiction-wide injunctive relief. The principle is that a registrant cannot enjoin a remote user until the parties are in geographic proximity. In the Dawn Donut case, the court denied injunctive relief to the registered owner because the owner was not using its mark in the defendant’s area and presented “no present prospect that plaintiff will expand its use of the mark at the retail level into defendant’s trading area.”210

However, the continued viability of the Dawn Donut doctrine is questionable. Firstly, the principle paves the way for any and all registered trademarks to be used without permission in any geographical area not yet occupied by the owner. This concern might be tempered somewhat by the fact that many businesses are on the Internet and thus arguably have some sort of presence throughout the jurisdiction and beyond. Nevertheless, some businesses do not actually use the Internet to that extent. Moreover, the criticism of the Dawn Donut doctrine remains in that the doctrine awkwardly sanctioned the unauthorized use of a registered mark in a geographical part of the jurisdiction not yet seized by the owner.

Secondly, in denying injunctive relief on this basis (namely, that the owner has not used the mark in the area or otherwise confirmed its intention to do so), the court is exposing registrations to the risk of being cancelled on the grounds of no longer signifying the goods or services of plaintiff throughout the jurisdiction of the

209. Dawn Donut Co. v. Hart’s Food Stores, Inc., 267 F.2d 358 (2d Cir. 1959). 210. Id. at 365.

Vol. 107 TMR 1027 registration.211 For example, the Dawn Donut principle would seemingly allow multiple rival traders to adopt the plaintiff’s trademark, each in the trader’s own distinct geographical area covered by the registration. Because the plaintiff could not enjoin these rival traders until the plaintiff enters those areas, the registration would be at risk of being canceled on the basis that the mark is no longer distinctive of the plaintiff throughout the jurisdiction. Respectfully, the Dawn Donut doctrine is faulty at its core.

Thirdly, even if a defendant adopts an infringing mark innocently, such innocence is inherently lost after the defendant is on notice that its conduct is wrongful, particularly upon being advised of the plaintiff’s registration and otherwise upon receiving the declaration of wrongfulness at trial. As such, allowing a defendant to continue its use after that point effectively authorizes infringement that is intentional. Once again, the principle is faulty, even though the discretionary denial of injunctive relief in the Dawn Donut case may have been entirely sound.

Consider also the awkwardness of the Dawn Donut principle if both parties are using the mark in very large, albeit different, regions of the jurisdiction. For example, would it truly be proper to deny injunctive relief to a registered owner using a mark throughout, say, one third of the country while the defendant uses it in another third of the country simply because the plaintiff has not sufficiently confirmed its intention to use the mark within that other third? What good is a statutory cause of action for trademark infringement if it hardly does more than a statutory or common law cause of action for passing off?

Consider further that the denial of confusion pursuant to the Dawn Donut doctrine contradicts the principle that confusion would indeed be deemed if the case was a trademark opposition instead of an infringement action. That is, if the plaintiff (the senior user) was opposing an application filed by the defendant, “confusion” would be deemed for the purposes of blocking that application.212

It also appears that the Dawn Donut principle inadvertently evolved from a decision that can perhaps be better explained and distinguished as a case of injunctive relief being denied simply on grounds of discretionary leniency based upon the particular facts of

211. As mentioned above, a trademark owner is “required by law to protect its trade-marks from piracy or risk having such marks lose their distinctiveness, and, potentially their legal protection…”; text above at note 142. Some cases may suggest that this is not a risk because an infringer should not be permitted to rely upon their own infringing use to seek cancellation of a registration, but even if the principle is sound, it is believed that the use by an infringer could still be relied upon by a third party for the purposes of seeking such cancellation. 212. At least under the Lanham Act, and also under the Canadian trademark statute as mentioned infra at note 217.

1028 Vol. 107 TMR the case. The defendant seemingly commenced its use innocently and thus the temporary denial of injunctive relief effectively provided a good-faith defendant with some time to adopt a new mark and to pay for new signage as well as to take any other steps as may be required for a name change.

In summary, while jurisdiction-wide injunctive relief might not be automatically justified on the basis of the three foundational objectives, the denial of such relief on the basis of the U.S. Dawn Donut doctrine should be reconsidered.

Meanwhile, the denial of substantial monetary relief in cases with fact patterns like that in the Dawn Donut case would make much more sense. This is discussed next.

(2) The granting of jurisdiction-wide relief in the form of substantial damages or an accounting of all profits is especially difficult to rationalize on the basis of the three foundational objectives where the registered owner has not made any sales or otherwise established its mark in the defendant’s area. This is especially difficult to rationalize considering that registrations can be obtained in some jurisdictions after making only limited sales in a faraway corner of the jurisdiction, even without making any sales in the jurisdiction itself213 or anywhere at all.214

Monetary relief particularly in the form of substantial damages is difficult to justify. Such relief is typically focused on compensating the plaintiff for damage suffered but, insofar as protection is extended beyond the geographical extent of the plaintiff’s customer base (if any), sales have not been diverted and thus, arguably, there is no substantial damage to be compensated to the plaintiff. At best, there may be some form of damages on the basis of, and commensurate to, the damage to signification or misappropriation of drawing power, if any.

Similarly, given that sales have not been diverted, substantial monetary relief in the form of the defendant’s profits is equally difficult to justify. Such an award might constitute a windfall to the plaintiff, and thus the award might not be truly just and equitable, especially if the defendant has acted in good faith.

On the other hand, it would be easier to justify more substantial monetary relief if the defendant has not acted in good faith.215

213. Trademark registrations can sometimes be obtained in one country on the basis of use and registration in a foreign country (under the Madrid Protocol) and sometimes on the basis of no use anywhere (the latter sometimes referred to as an “attributive” registration scheme, as distinct from a “declaratory” scheme which declares rights on the basis of usage). 214. Trademark registrations can be obtained in many jurisdictions without use anywhere. This is the situation, for example, in the European Union as of 2016. 215. While this article flags these issues and provides a framework for further discussion, the finer points of the analysis represent another subject beyond the scope of this work and worthy of further writings.

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(3) When it comes to the ability to oppose or cancel registrations, the issue of being able to assess confusion on a jurisdiction-wide basis can itself be subdivided into different scenarios.

Perhaps the easiest scenario to rationalize is the ability to assess confusion on a jurisdiction-wide basis where the opposer has used the mark prior to the mark being used or otherwise filed by the other party. Even if opposer has not yet used or established the mark in the same area as the applicant (and therefore opposition is not seemingly supported by any of the primary foundational objectives), the simple fact is that the applicant’s jurisdiction-wide registration, if allowed, would suddenly preclude the opposer from being able to continue its own use in its own area. Accordingly, some jurisdictions permit trademark applications to be opposed on the basis of this jurisdiction-wide concept of deemed confusion.

Arguably, the principle is supported at least by the objective of preventing damage to income-goodwill in that, if the applicant’s registration is otherwise allowed to issue and stand, the state has effectively stripped the opposer of its goodwill in the mark and left it for the new registrant.

Such grounds of opposition typify registration schemes that are sometimes referred to as “first to use.” In contrast, such grounds of opposition are not provided in the trademark schemes that are sometimes referred to as “first to file.”

To explain further, if the system does not provide this ground of prior use for challenging an application for registration, the senior user would be more vulnerable to liability for infringement of that very registration even though it used the mark first. Again, the registration, upon being granted, would suddenly block the senior user from continuing to use its own mark in its own area. Despite having priority of use, it would suddenly be exposed to liability for infringement. This would be contrary to the manner in which the conflict would be resolved at common law.216 Assuming that the parties are each in their own geographical area, they would typically have their own rights within their own area at common law. Such laws are in accordance with the primary foundational objectives and thus the granting of a registration to the junior user (and thereby exposing the senior user to liability) would be contrary to those objectives. Indeed, it would be contrary to the objectives of preventing damage to the senior user’s established signification and income-goodwill and preventing misrepresentation insofar as the registration would permit the registered owner to expand into an area where the mark already signifies a different party. Businesses in different jurisdictions are usually entitled to settle on the same

216. See “Common Law Passing Off Involving Actual Confusion” (classical passing off) and other related causes of action, in Part I (Group MSI) of the Catalog, 107 TMR 848, 854 (2017).

1030 Vol. 107 TMR mark for the same goods or services within their own area; being the first to use a particular mark in respect of a single sale in one country does not entitle that business to protect it around the world, at least not as a matter of generally accepted trademark laws.

It thus appears to be sound that Jurisdiction-wide Deemed Confusion is the law for the purposes of opposing applications on the basis of confusion in such jurisdictions as Canada, although even there the difficulty of the issue is reflected in the fact that a contrary decision of the Federal Court of Canada needed to be reversed and corrected at the Supreme Court level.217

The discussion of the issue can also take into account the jurisdiction-wide “protection” that is effectively provided to company names. A company name might have been hardly used, or not even used at all and merely registered, and therefore have no signification within certain areas of the jurisdiction, and yet such company name schemes prohibit the registration of the same name. This, in turn, effectively prohibits anyone else from using at least the same company name anywhere in the jurisdiction. Some trademark schemes also provide grounds for blocking the registration of trademarks on the basis of confusion with a company name.218

The situation becomes more difficult when considering which party should prevail where: (i) the opposer adopted its mark after the other party filed, (ii) the opposer comes forward after the statutory opposition period closed and the registration granted, or (iii) the opposer comes forward to challenge the registration after it stood for several years.

These and other difficult scenarios reveal that, at some point, there must be some recognition for the issuance of a registration itself. This can perhaps be described as the objective of certainty or finality. In cases where it conflicts with the other foundational objectives, the conflict needs to be delicately reconciled.

CLOSING Instead of just one or two foundational objectives, there are at

least three objectives supporting laws in the field of trademarks and unfair competition: preventing misrepresentation, preventing damage to signification, and preventing unfair damage to income-goodwill.219

Keeping these three objectives in mind, where applicable, helps to develop and apply such laws, and helps to advance the discussion 217. Masterpiece Inc. v. Alavida Lifestyles Inc., [2011] 2 S.C.R. 387, 92 CPR (4th) 361, paras 24–33. 218. See “Company Names” in Part VI.C (Group E) in the Catalog, 107 TMR 848, 896 (2017). 219. As discussed above in Parts I–III, respectively.

Vol. 107 TMR 1031 regarding certain ongoing debates within the field, such as the appropriate limits of the laws against infringement or dilution, the elements of the causes of action, the appropriate remedies, and the ability to assign or license trademarks.

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WHAT INSURANCE COVERAGE REMAINS FOR TRADEMARK INFRINGEMENT CLAIMS AFTER

YEARS OF POLICY LANGUAGE CHANGES?

By David A. Gauntlett∗

CONTENTS

I. Introduction ........................................................................ 1036

II. Commercial General Liability Insurance Coverage for Intellectual Property Claims .............................................. 1037

A. Insurance Policies Are Contracts ................................. 1037

B. History and Context of “Advertising Injury” Policy Language ....................................................................... 1037

C. The Development of “Advertising Injury” / “Personal Injury” Provisions as an Aspect of ISO Commercial General Liability Coverage ........................................... 1039

1. 1976 ISO CGL Form ................................................. 1039

2. 1986 ISO CGL Form ................................................. 1039

3. 1998 ISO CGL Form ................................................. 1039

4. 2002 ISO CGL Form ................................................. 1041

5. 2003 ISO CGL Form ................................................. 1041

6. 2007 & 2013 ISO CGL Form .................................... 1041

III. Insurance Coverage Analysis for Trademark Infringement Claims .......................................................... 1042

A. Trademark Infringement Coverage Is Not Directly Provided in CGL Policies .............................................. 1042

B. The Three-Part Test for “Personal and Advertising Injury” Coverage ........................................................... 1042

C. Applying the Three-Part Test ....................................... 1043

∗ Principal, Gauntlett & Associates. Mr. Gauntlett litigates insurance coverage disputes regarding intellectual property throughout the United States, and writes and speaks frequently on the subject. He may be contacted via his firm’s website at http://www.gauntlettlaw.com/.

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1. Offense ...................................................................... 1043

2. Advertising ............................................................... 1045

3. Causal Nexus ............................................................ 1047

D. “Occurring During the Policy Period”........................... 1048

E. “Notice of Suit” .............................................................. 1048

IV. “Personal and Advertising Injury” Coverage Cases .......... 1051

A. “Misappropriation of Advertising Ideas” [1986 ISO] ... 1051

1. Scope of Meaning ...................................................... 1051

2. Fact Scenarios Analyzing Coverage ......................... 1052

a. Coverage Found .................................................... 1052 b. No Coverage Found .............................................. 1053 c. Criticisms of No Coverage Found Cases .............. 1054

B. “Infringement of Title” [1976/1986 ISO] ...................... 1055

1. Scope of Meaning ...................................................... 1055

2. Fact Scenarios Analyzing Coverage ......................... 1056

a. Coverage Found .................................................... 1056 b. No Coverage Found .............................................. 1058 c. Criticisms of No Coverage Found Cases .............. 1058

C. “Infringement of Slogan” [1976/1986/ 2001/2004/2007 ISO] ..................................................... 1059

1. Scope of Meaning ...................................................... 1059

2. Fact Scenarios Analyzing Coverage ......................... 1061

a. Coverage Found .................................................... 1061 b. No Coverage Found .............................................. 1062 c. Criticisms of No Coverage Found Cases .............. 1063

D. Infringement of Trade Dress in Your “Advertisement” [1998/2001/ 2004/2007 ISO] .............. 1064

1. Scope of Meaning ...................................................... 1064

2. Fact Scenarios Analyzing Coverage ......................... 1065

a. Coverage Found .................................................... 1065 b. No Coverage Found .............................................. 1065

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E. Use of Another’s Advertising Idea in Your “Advertisement” [1998/2001/2004/2007/2014 ISO] ...... 1066

1. Scope of Meaning ...................................................... 1066

2. Fact Scenarios Analyzing Coverage ......................... 1066

a. Coverage Found .................................................... 1066 b. No Coverage Found .............................................. 1068

V. Pertinent Exclusions .......................................................... 1070

A. First Publication Exclusion [All ISO Policies] ............. 1070

1. Policy Language........................................................ 1070

2. Fact Scenarios Analyzing Coverage ......................... 1072

a. Coverage Found .................................................... 1072 b. No Coverage Found .............................................. 1073

B. Knowledge of Falsity [ISO] ........................................... 1076

1. Policy Language........................................................ 1076

2. Knowledge of Falsity Fact Scenarios Analyzing Coverage ................................................................... 1077

a. Coverage Found .................................................... 1077 b. No Coverage Found .............................................. 1078

3. Knowing “Personal and Advertising Injury” [ISO] .......................................................................... 1078

a. Coverage Found .................................................... 1078 b. No Coverage Found .............................................. 1079

C. Intellectual Property Exclusion .................................... 1079

1. ISO Version............................................................... 1079

a. Policy Language of IP Exclusion .......................... 1079 b. Fact Scenarios Analyzing Coverage..................... 1080

(1) Coverage Found .............................................. 1080 (2) No Coverage Found ........................................ 1080

2. Non-ISO Provisions .................................................. 1081

a. Exclusionary Provisions That Are Not Conspicuous, Plain, and Clear ............................. 1081

b. Broker Liability for Failure to Advise Policyholder of Limitation in Coverage ............... 1081

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c. Pertinent Non-ISO Intellectual Property Exclusions ............................................................. 1082 (1) Travelers ......................................................... 1082 (2) St. Paul ........................................................... 1082 (3) Hartford .......................................................... 1083 (4) Chubb .............................................................. 1085 (5) Great American .............................................. 1085

D. “Failure to Conform” ..................................................... 1086

1. Coverage Found ........................................................ 1086

2. No Coverage Found .................................................. 1087

E. “Breach of Contract” ..................................................... 1088

1. Coverage Found ........................................................ 1088

2. No Coverage Found .................................................. 1089

VI. Issues for Counsel in Trademark Infringement Litigation ............................................................................ 1090

A. Issues for Plaintiff’s Counsel ........................................ 1090

B. Issues for Defendant’s Counsel..................................... 1092

1. Legal Malpractice for Failure to Notify Insurers of Potentially Covered Claims ...................................... 1092

2. Notifying Appropriate Insurers Promptly ............... 1093

3. When It Is Unclear Which Insurer Is At Risk, More Than One May Be Potentially Liable ....................... 1093

4. Securing the Right to Independent Counsel ............ 1094

a. Assuring Insurers Pay a Reasonable Rate .......... 1094

C. Retaining Coverage Counsel ........................................ 1095

VII. Conclusion .......................................................................... 1095

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I. INTRODUCTION This publication last addressed insurance coverage for

trademark infringement claims in 1999.1 Since that time, litigation costs have increased and millions of dollars (in fees alone)2 can be at stake based on whether or not a claim is covered by insurance and/or triggers an insurer’s duty to defend.3 Conflicting court decisions continue to contribute to a lack of clarity about when coverage or a duty to defend arises from trademark infringement or similar claims. In addition, insurers have aggressively introduced exclusion language removing many intellectual property claims from applicable business insurance policies.4

A duty to defend is triggered by potential coverage. Whether or not there is potential coverage depends on the precise policy language and on the factual allegations of the claim, not on labels of causes of action. Uncertainty often arises in gauging coverage for trademark infringement and related claims. A typical assessment will include whether the claims include factual allegations that assert liability based on “misappropriation of ‘advertising ideas or style of doing business’”; “infringement of title”; “use of another’s advertising idea in your ‘advertisement’”; or “infringement of copyright, title or slogan.” The articulated claims are to be interpreted broadly in assessing potential coverage, taking into account “all possible worlds.”5

1. Christopher L. Graff, Insurance Coverage of Trademark Infringement Claims: The Contradiction Among the Courts and the Ramifications for Trademark Attorneys, 89 TMR 939 (1999) (hereinafter, “Graff”). 2. Compare trademark infringement litigation costs over the years as listed in in the American Intellectual Property Law Association’s (AIPLA) biennial Economic Survey available free to AIPLA members at https://www.aipla.org/learningcenter/library/books/ econsurvey/Pages/default.aspx (last visited Sept. 16, 2017). See also County Mutual Ins. Co. v. Vibram USA Inc., pending in the Supreme Judicial Court for the Commonwealth of Massachusetts, July 11, 2017, Joint Application for Direct Appellate Review, available at http://www.mass.gov/courts/docs/sjc/clerk-for-commonwealth/dar-25491-dar-application.pdf (last visited September 27, 2017) (dispute regarding duty to defend claims relating to use of an athlete’s name as a trademark for shoes, with $1.3 million in defense costs at stake). 3. The duty to defend means the insurer’s responsibility to pay the insured’s fees and costs incurred in resisting claims pursued against the insured both before and after the initiation of a lawsuit against the insured, whether by complaint, counterclaim, third party claim or demand for license or payment of monies. 4. See Section II.C, infra, regarding ISO policy language and non-ISO provisions offered by other carriers that have included more extensive and restrictive intellectual property exclusions, including policies from Travelers/St. Paul, Hartford, Chubb, and Great American in Section V.C.2. See also David A. Gauntlett, Insurance Coverage of Intellectual Property Assets § 22.05 (2d ed. 2017). 5. Atl. Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1039 (2002) (Where an insurer seeks to defeat coverage by relying on an exclusion, it must show, “through conclusive evidence, that the exclusion applies in all possible worlds.”).

Vol. 107 TMR 1037

Against this background, this article provides an overview of issues regarding, and update on insurance coverage for, trademark infringement and related claims.

II. COMMERCIAL GENERAL LIABILITY INSURANCE COVERAGE FOR

INTELLECTUAL PROPERTY CLAIMS A. Insurance Policies Are Contracts

Insurance contracts are a distinct class of contracts, but they are contracts nonetheless. Because they are contracts, coverage analysis always begins with the policy’s language. Over the years, the policy language that gives rise to coverage for advertising injury has taken on a number of forms, from the humble single-sentence in the 1976 Insurance Services Office (“ISO”)6 Commercial General Liability (“CGL”) form (set forth in Section II. C. 1 below) to the multi-part offense based coverage that is heavily litigated today.

In order to understand the availability of current coverage for trademark-related claims, it is useful to understand the genesis of the language that creates the coverage. For that reason, we provide some history followed by an overview of the relevant contract language in ISO CGL forms from 1976 to 2013.

B. History and Context of “Advertising Injury” Policy Language

As explained by the Insurance Information Institute, a CGL insurance policy is intended to protect a business from financial loss should the business be “liable for property damage, bodily injury or personal and advertising injury caused by [its] services, business operations or [its] employees” and “covers non-professional negligent acts.”7

It is the “advertising injury” (and to a lesser extent, depending on the particular factual allegations at issue, “personal injury”) language in many CGL policies that is often at issue when evaluating coverage for trademark disputes.8 This policy language developed over the years.

6. “ISO” is the Insurance Services Office, a New York–based policy standards organization that adopts policy language which member insurance companies may license to include in their policy forms either in whole or in part. The ISO policy form typically provides the broadest form of commercial liability insurance coverage available to the average insured. 7. See http://www.iii.org/article/commercial-general-liability-insurance (last visited Aug. 10, 2017). 8. This was true even back in 1999. See Graff, supra note 1.

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The ISO, formed in 1971 as an advisory and rating organization for the property and casualty insurance industry,9 first offered policy language that included an endorsement10 providing coverage for “personal injury” and “advertising injury” in 1976. This endorsement was provided for a 15% upcharge over the base price of the then issued CGL policy.11 The 1976 ISO policy form was drafted by graduate English students at Columbia University and, accordingly, the form uses terminology based on literary, rather than legal, definitions.12 Before the 1976 form, some of the offenses within the scope of this endorsement coverage were available for specific insureds who requested coverage for exposure to such torts as defamation or as part of the exposure that publishers, broadcasters or advertisers face for forms of copyright infringement, misuse of titles or slogans, invasion of privacy, and unfair competition.13 With the advent of the 1976 ISO form, “advertising injury” coverage was available and offered more broadly.

Today, ISO policies still often offer the broadest coverage available for intellectual property claims in general insurance policies as compared to policies drafted and issued by individual insurers. For example, the coverage offered by Hartford, St. Paul, Travelers, Chubb/ACE, or Great American, along with other insurers who no longer offer ISO centric coverage, is generally far narrower in scope than ISO policy coverage.14 Yet, even ISO policies do not provide direct coverage for trademark infringement per se and often specifically exclude such coverage, as indicated by the policy language set forth in the next section.

9. See http://www.verisk.com/insurance/brands/iso/about.html (last visited Aug. 10, 2017). 10. An insurance “endorsement” is “an amendment or addition to an existing insurance contract that changes the terms or scope of the original policy. Endorsements may also be referred to as riders. An insurance endorsement may be used to add, delete, exclude, or otherwise alter coverage.” Definition provided by TheBalance.com at https://www.thebalance.com/insurance-endorsement-or-rider-2645729 (last visited Aug. 14, 2017). 11. David A. Gauntlett, Insurance Coverage Considerations, in Intellectual Property Due Diligence in Corporate Transactions 12A:6, 12A-7 (Lisa A. Brownlee ed., 2011). 12. David A. Gauntlett, Insurance Coverage for Intellectual Property Lawsuits, Ch. 29, § 29.06[1] in 2 Intellectual Property Counseling and Litigation (Lester Horwitz and Ethan Horwitz eds. 1994) (hereinafter, “Insurance Coverage for IP Lawsuits”). 13. Gauntlett, Insurance Coverage for IP Lawsuits, § 29.06[1]. 14. Gauntlett, Insurance Coverage of Intellectual Property Assets, § 22.05, 22-15 Opportunities and Pitfalls (2d ed. Supp. 2014).

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C. The Development of “Advertising Injury” / “Personal Injury” Provisions as an Aspect of ISO Commercial General Liability Coverage

1. 1976 ISO CGL Form As noted above, in 1976, ISO added “advertising injury”

coverage to CGL policy forms, defined as follows: “Advertising Injury” means any injury arising out of an offense

committed during the policy period occurring in the course of the named policyholder’s advertising activities, if such injury arises out of such libel, slander, defamation, violation of right of privacy, piracy, unfair competition or infringement of copyright, title or slogan.

2. 1986 ISO CGL Form Ten years later, the “advertising injury” language was modified

in a manner that eliminates somewhat vague and general claims (like “unfair competition”) originally included in 1976 and provides more specifics regarding other covered claims:

1. “Advertising Injury” means injury arising out of one or more of the following offenses: . . .

(1) Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services;

(2) Oral or written publication of material that violates a person’s right of privacy;

(3) Misappropriation of advertising ideas or style of doing business; or

(4) Infringement of copyright, title or slogan. . . .

b. This insurance applies to: . . . (2) “Advertising injury” caused by an offense committed

in the course of advertising your goods, products, or services.

3. 1998 ISO CGL Form The 1998 ISO form eliminates distinct definitions of

“advertising injury” and “personal injury” from prior forms, substituting a new series of defined “personal and advertising injury” offenses.

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The 1998 form also deletes the offenses of: (1) “infringement of title”; and (2) “misappropriation of advertising ideas or style of doing

business” The policy form adds two new offenses as follows: “Personal and advertising injury” means injury . . . arising out of one or more of the following offenses: . . . f. “Infringement upon another’s copyright, trade dress, or

slogan in your advertisement;” and g. “the use of another’s advertising idea in your

advertisement.” . . . . The policy form also provides more specifics regarding what

constitutes an “Advertisement”: An “Advertisement” means a dissemination of the information or images that has the purpose of inducing the sale of goods, products or services through (a) . . . . . . . “A paid broadcast, publication or telecast to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters.” This policy form substitutes “infringing upon another’s”

[copyright, trade dress, or slogan] for the phrase “infringement of” in the predecessor policy version. The language change adopts more limiting language that links the conduct of the infringer back to the claimant’s injury. The predecessor policy language “infringement of” is broader because it does not focus on whether the claimant had an ownership interest in or legal rights to the pertinent copyright, trade dress, or slogan claims being allegedly infringed. This, in effect, means that the predecessor language “infringement of” could cover indirect injury claims where infringement arose even if the infringement was only incidental to the claim for relief asserted by the claimant against the insured.

Thus, for example, a claim for tortious interference with contract by a defendant advertising its business could create potential coverage for indirect injury arising from covered claims for “infringement of copyright” dependent on the factual allegations in the complaint.15 Even though a claim for infringement of copyright was not directly asserted against the insured, its coverage could nonetheless be implicated. Where an insured’s advertising 15. Curtis-Universal, Inc. v. Sheboygan Emerg. Med. Servs., Inc., 43 F.3d 1119, 1122 (7th Cir. 1994) (applying Wisconsin law).

Vol. 107 TMR 1041 purportedly infringed the copyright of another, although plead only as a predicate fact to support claims for tortious interference, such allegations could trigger an obligation for an insurer to defend under the “infringement of copyright in your ‘advertisement’” policy language. Other circumstances can be imagined where even though the claim did not focus on “infringement of copyright, trade dress or slogan,” an actionable component of the conduct alleged would give rise to coverage.

4. 2002 ISO CGL Form Individual insurers as early as 1988 sought to limit the scope of

coverage for any intellectual property claims by adding exclusions to their standard CGL policy forms. The key ISO revision in 2002 is based on those policy exclusions. Specifically, effective February 2002, ISO added an exclusion to its CGL form, specifying that the “advertising injury” coverage does not include coverage for infringement of “copyright, patent, trademark, trade secret, or other intellectual property rights.”16 An exception to the exclusion then adds back “advertising injury” coverage for infringement, in the insured’s advertisement, of copyright, trade dress, or slogan.

5. 2003 ISO CGL Form The 2003 ISO form also provided coverage for: (f)The use of another’s advertising idea in your “advertisement”; and (g)infringing upon another’s copyright, trade dress or slogan in your “advertisement” The form excluded claims relating to “intellectual property

rights” but provided that “this exclusion does not apply to infringement, in your ‘advertisement,’ of copyright, trade dress or slogan.”

6. 2007 & 2013 ISO CGL Form The 2007 form provided exclusions for: . . . Infringement of copyright, patent, trademark or trade secret; and “Personal and advertising injury” arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.

16. The “Advertising and Personal Injury” since its inception into the standard form ISO CGL policy has been offered under what is known as Coverage B, with Coverage A addressing the more traditional liability exposure for “bodily injury” and “property damage.”

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The policy language further explained: Under this exclusion, such other intellectual property rights do not include the use of another’s advertising idea in your “advertisement.” However, this exclusion does not apply to infringement in your “advertisement” of copyright, trademark, or slogan.

III. INSURANCE COVERAGE ANALYSIS FOR TRADEMARK INFRINGEMENT CLAIMS

A. Trademark Infringement Coverage Is Not Directly Provided in CGL Policies

To secure direct coverage for trademark infringement claims, media liability coverage17 should be secured. Each specific media liability policy endorsement has unique features and different limitations and restrictions beyond those included in CGL policies. These specific media liability policies are typically underwritten18 with more focus on the nature of the insured and offer more experienced claims representatives who understand intellectual property litigation.19

Nevertheless, there are claims similar to trademark infringement claims or often asserted in trademark infringement cases where some coverage or duty to defend under CGL “advertising injury” policies is possible.

B. The Three-Part Test for “Personal and Advertising Injury” Coverage

Parsing the policy language in the policy forms since 1998, three elements required for coverage can be discerned:

17. As explained by the International Risk Management Institute, “media liability insurance” is a “type of errors and omissions (E&O) liability insurance designed for publishers, broadcasters, and other media-related firms. The policies are typically written on a named perils basis and cover the following broad areas: defamation, invasion of privacy, infringement of copyright, and plagiarism.” See https://www.irmi.com/online/insurance-glossary/terms/m/media-liability-coverage.aspx (last visited Aug. 14, 2017). 18. “Underwriting” is a term used by insurers to describe the process of assessing risk and ensuring that the cost of the coverage is proportionate to the risks faced by the potential insured. 19. Media liability coverage is typically written on a “claims made and reported” basis, which means that the duty to defend is triggered when the claim or suit is brought against the insured. This is to be contrasted with an “occurrence” policy, when the duty to defend is triggered by when the offense occurred. “Occurrence”-based coverage is rarely available in media liability policies. Similarly, certain industries, such as the medical technology and pharmaceutical sectors, rarely obtain “occurrence” based coverage because with such coverage insurers would not be able to assess the litigation and indemnity exposure by the conclusion of the policy year in which the policy was issued. See David A. Gauntlett, IP Attorney’s Handbook for Insurance Coverage in Intellectual Property Disputes (2d ed. 2014).

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(1) A claim against the insured that falls within one or more enumerated “advertising injury” offenses listed in the policy;

(2) an “advertising activity” by the insured; and (3) a causal nexus exists between one of the “advertising injury”

offenses and the insured’s “advertising activity.” The key element is an included “offense,” per element (1) above.

Without an included offense, no potential coverage arises. To meet element (2), following changes in policy language in

1998, “advertising activity” must be conduct that falls within the policy’s express definition of an “advertisement,” which need only include a “publication . . . to . . . specific market segments about your goods, products or services for the purposes of attracting customers or supporters.”20 The latter category, “supporters,” can include investors who are the most salient form of supporters for a corporation.

The third, causal nexus, element requires satisfaction of the “in your advertisement” requirement in the phrase “infringing upon another’s copyright, trade dress or slogan in your ‘advertisement’” in a 1998 ISO policy. This formulation links the insured’s “advertisement” back to the claim by the party directly injured due to such infringement.

C. Applying the Three-Part Test 1. Offense

The “advertising” function served by many trademarks is apparent from the definition of a trademark:

Any word, name, symbol, device or any combination thereof used by a manufacturer or retailer of a product in connection with that product to help consumers identify that product and distinguish that product from the products of competitors.21 Liability for trademark infringement also arises in the context

of “advertising”: [t]he Lanham Act imposes liability for infringement of a registered mark upon any person who uses an infringing mark in interstate commerce in connection with the sale or advertising of goods or services. . . . This means that merely

20. Rombe Corp. v. Allied Ins. Co., 128 Cal. App. 4th 482, 489 (2005) (finding that a breakfast meeting for invited guests was not “advertising” within the policy definition such that no coverage was available for the claims alleging misappropriation of trade secrets and customer lists). The decision did not address the meaning of “supporters,” but suggests that dissemination could quality under the “advertisement” definition if sufficiently widespread, even if focused on recipients with particular characteristics or interests. 21. J. Thomas McCarthy, Trademarks and Unfair Competition § 3.4, at 3-15 (4th ed. 2004, Supp. 2010).

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advertising an infringing mark is itself an act of infringement, apart from any manufacturing or sale.22 The advertising functions of trademarks can come into play

when assessing “advertising injury” coverage that also excludes coverage for “trademark infringement.” The coverage issues in the “offense”-based “advertising injury” and “personal injury” coverage require a more precise level of analysis than a simple reference to what a particular court believes should constitute “advertising injury” or “personal injury.”23

Facts, not labels, determine offense-based coverage availability.24 This requires exploring, researching, and clarifying the basis for liability in each case. An insurer owes a defense where inferences from the facts alleged suggest the possibility that the claims can be amended to clarify why they fall within coverage.25 This is true even if the potential coverage is implicit, not explicit,26 and the amendment may have been made to secure coverage.27 The ultimate question of how liability will implicate coverage requires case-specific factual analysis.

22. Id. § 25.26, at p. 25-39 (emphasis added). 23. Atl. Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1032-33 (2d Dist. 2002) (“Like advertising injury, ‘personal injury’ is a term of art that describes coverage for certain enumerated offenses that are spelled out in the policy. . . Coverage for personal injury is not determined by the nature of the damages sought in the action against the insured, but by the nature of the claims made against the insured in that action. Under the personal injury policy provision, ‘[c]overage . . . is triggered by the offense, not the injury or damage which a plaintiff suffers[.]’”). 24. Cincinnati Ins. Co. v. E. Atl. Ins. Co., 260 F.3d 742, 745 (7th Cir. 2001) (“Coverage does not depend on the characterization of the wrong by the plaintiff . . . .”). 25. Scottsdale Ins. Co. v. MV Transp., 36 Cal. 4th 643, 654, 31 Cal. Rptr. 3d 147, 115 P.3d 460 (2005) (“[T]he duty to defend . . . exists where extrinsic facts known to the insurer suggest that the claim may be covered. . . . Moreover, that the precise causes of action pled by the third-party complaint may fall outside policy coverage does not excuse the duty to defend where, under the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability.”). 26. Michael Taylor Designs, Inc. v. Travelers Prop. Cas. Co. of Am., 761 F. Supp. 2d 904, 912 (N.D. Cal. 2011), aff’d, 495 Fed. Appx. 830 (9th Cir. 2012) (“The amended complaint may have articulated the new legal theory of ‘Slander of Goods,’ and liberally sprinkled the term ‘disparagement’ throughout, but it did so without adding substantially new or different allegations as to the factual circumstances, or fundamentally altering the nature of the injury being alleged. . . . The only factual change of any note was the expansion of the somewhat vague term ‘steered,’ into ‘sales employees orally told potential customers. . . .’ Making this one point explicit rather than implicit, however, does not represent a distinction of significant import.” (footnotes omitted)). 27. Norfolk & Dedham Mut. Fire Ins. Co. v. Cleary Consultants, Inc., 81 Mass. App. Ct. 40, 958 N.E.2d 853 (2011), review denied, 461 Mass. 1108, 961 N.E.2d 591 (2012) (“Here, however, the labels are not at odds with Towers’s factual allegations. Indeed, even Towers’s original complaint, especially when considered in light of the averments contained in the Schlemann affidavit, alleged facts consistent with and sufficient to state or roughly sketch a claim for damages arising out of conduct constituting ‘[o]ral . . . publication, in any manner, of material that violate[d] [Towers’s] right of privacy.’”).

Vol. 107 TMR 1045

Two examples suffice. Both addressed coverage under unfair competition claims conjoined with other claims, which is often how such claims are pled. The first, Burgett,28 cited with approval by the California Supreme Court in Swift,29 stands for the proposition that “an insured was ‘potentially liable for disparagement by implication’ when faced with a suit alleging it had made a false claim to be ‘the only owner’ of a particular trademark.”

The second, Aurafin-Oroamerica, a Ninth Circuit decision, concluded that the absence of an allegation of an explicit false statement did not preclude potential coverage in an unfair competition lawsuit. As the court explained:

To the extent that the district court found that D&W’s counterclaims alleged each element of libel, but that the facts did not support a libel claim as a matter of law, the district court applied the wrong legal standard and impermissibly considered the merits of the libel claim.30 So understood, fact allegations may implicate a defense for

disparagement as libel in a lawsuit that claims unfair competition and is conjoined with claims for trademark infringement.

In light of these legal principles, so long as trademark infringement claims fall within an enumerated “personal and advertising injury” offense, the insurer’s duty to defend may arise (subject to any pertinent intellectual property exclusions).

2. Advertising The ease with which the “advertising activity” requirement is

met is dependent on the nature of the claims for which coverage is sought, the specific facts that have been pled, and the “advertising” definition employed. Courts across the country have struggled to establish a single definition of the term “advertising.”

Courts have focused on three distinct definitions of “advertising”: a narrow, intermediate, and broad definition.

• Narrow Definition: “advertising” is limited to the “widespread distribution of promotional materials to the

28. Burgett, Inc. v. Am. Zurich Ins. Co., 830 F. Supp. 2d 953, 962 (E.D. Cal. 2011). 29. Hartford Cas. Ins. Co. v. Swift Distribution, Inc., 59 Cal. 4th 277, 294 (2014). 30. Aurafin-Oroamerica, LLC v. Fed. Ins. Co., 188 F. App’x 565, 566 (9th Cir. 2006).

1046 Vol. 107 TMR

public at large,”31 including brochures and trade show displays.32

• Intermediate Definition: The “advertising” requirement is satisfied as long as the insured directs its promotional activities toward a significant portion of its relevant client base even if, from an objective perspective, the dissemination of the advertising material is neither public nor widespread.33

• Broad Definition: “advertising” includes any activities designed to advertise, publicize, or promote a particular good, product, or service.34 This can include trade show demonstrations35 and a home tour of a residence.36

31. Hameid v. National Fire Ins. of Hartford, 31 Cal. 4th 16, 24, 1 Cal. Rptr. 3d 401, 71 P.3d 761 (2003) (“‘[A]dvertising’ means widespread promotional activities directed to the public at large.”); Hewlett-Packard Co. v. ACE Prop. & Cas. Ins. Co., No. C 99-20207 JW, p. 5 (N.D. Cal., Nov. 23, 2003) (“The Hameid decision did not address the issue before this court: whether a package insert in a product that is distributed and sold worldwide is ‘advertising.’ Indeed, the Hameid decision expressly declined to address the question of ‘whether widespread promotional activities directed at specific market segments constitute advertising under the CGL policy.’ Hameid, 31 Cal. 4th at n.3. Arguably, HP’s package insert is widespread promotional activity directed at a specific market segment.”). Note: The author’s firm, Gauntlett & Associates, appeared as amicus curiae counsel for [client] in the Hameid case and submitted a brief in support of the insured that proposed two exceptions to the narrow advertising definitions otherwise adopted by the court. Id. at *24. In footnote 2, the court clarified that the defined term “advertisement,” which a specific definition might include a broader range of conduct than that available under the undefined predecessor term “advertising.” See, David A. Gauntlett, IP Attorneys’ Handbook for Insurance Coverage in Intellectual Property Disputes, 125 n.34 (2d ed. 2010). 32. Fireman’s Fund Ins. Co. of Wis. v. Bradley Corp., 2003 WI 33, 261 Wis. 2d 4, 660 N.W.2d 666, 679 (2003) (“Creating brochures and displaying products at a trade show clearly involve the widespread announcement or distribution of promotional materials and calling the attention of the public to the emergency shower systems by proclaiming their qualities in order to increase sales or arouse a desire to buy.”). 33. Info. Spectrum, Inc. v. Hartford, 364 N.J. Super. 54, 67, 834 A.2d 451, 459 (N.J. App. Div. 2003), aff’d, 182 N.J. 34, 860 A.2d 926 (2004) (“We assume without deciding that [a demonstration at a hardware exposition show in Atlantic City in June 1999] would constitute an act of advertising within the meaning of this policy.”). 34. Century 21, Inc. v. Diamond State Ins. Co., 442 F.3d 79, 83, 78 U.S.P.Q.2d 1316 (2d Cir. 2006) (“‘[M]arketing’ may be construed to include activities apart from selling and distribution that are ‘within the embrace’ of ‘advertising’ . . . .” A single allegation in an underlying complaint that the insured “marketed” the allegedly infringing goods was advertising in light of the breadth of the potential for coverage standard and the applicability of notice pleadings in the underlying federal court lawsuit.). 35. Elan Pharm. Research Corp. v. Emp’rs Ins., 144 F.3d 1372, 1377 (11th Cir. 1998) (“Any oral, written, or graphic statement made by the seller in any manner in connection with the solicitation of business[.]”). 36. Kirk King, King Cons., Inc. v. Cont’l W. Ins. Co., 123 S.W.3d 259, 265, 69 U.S.P.Q.2d 1517 (Mo. Ct. App. W.D. 2003) (quoting the author as follows: “A contractor putting its sign up next to the home it is building, without stating so, is placing it there to attract the attention of potential homebuyers. A highway billboard is a common form of advertising though, being stationary, it cannot be distributed. King’s sign is analogous to a highway billboard sign: Both are designed to garner business and both aim their messages at the public . . . . [L]iability for copyright infringement may be accomplished by a mere act of distribution through

Vol. 107 TMR 1047

With the post-1998 policy form and definition of “advertisement,” more specificity in what qualities as an “advertisement” is evident. Since 1998, under the ISO definition of an “advertisement,” all that is required to trigger its applicability is not “advertising” but rather “a notice . . . published to . . . specific market segment about your . . . products[.]”37 This can be met by “[c]alling the public’s attention to a product or business by proclaiming its qualities or advantages in order to increase sales or arouse a desire to buy or patronize[.]”38

3. Causal Nexus Coverage for “advertising injury” offenses always includes a

focus on the linkage between the injury and the offense, as well as between the offense and advertising. Some courts have inappropriately collapsed this analysis requiring a direct link between injury and advertising but this approach often ignores the pertinent policy language. Courts adopting this improper analysis typically require that “injury” arises out of” a “personal and advertising injury” offense and that the offense either includes publication of material (that disparages or defames) an organization for “personal injury” offense or that occurs “in your ‘advertisement’” for “advertising injury” offenses.39

Where the injury is the commission of the offense,40 the causal nexus called for by the policy language is between “offense” and “advertising activity,” not between “injury” and “advertising activities.”41 Claims for various forms of unfair competition,42

promotional activity that can itself involve a casual nexus to advertising . . . . David A. Gauntlett, Recent Developments in Intellectual Property Law, 37 Tort & Ins. L.J. 543, 550 (Winter 2002).”). 37. Rombe Corp. v. Allied Ins. Co., 128 Cal. App. 4th 482, 485, 27 Cal. Rptr. 3d 99 (4th Dist. 2005) (“The term ‘specific market segments’ does not relieve an insured of the burden of demonstrating that it was engaged in relatively wide dissemination of its advertisements even if the distribution was focused on recipients with particular characteristics or interests.”). 38. Bear Wolf, Inc. v. Hartford Ins. Co., 819 So. 2d 818, 820 (Fla. Dist. Ct. App. 2002) (“[D]isplaying a copyrighted work at a trade show which is restricted to members of a trade association and qualified buyers would constitute a display of ‘copyrighted work publicly’ under the federal Copyright Act, 17 U.S.C. § 106(5).”); Indiana Ins. Co. v. Super Natural Distrib., Inc., 2003 WI App 244, 268 Wis. 2d 293, 671 N.W.2d 864 (Ct. App. 2003) (unpublished disposition). 39. Atl. Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1040 (2d Dist. 2002). 40. B.H. Smith, Inc. v. Zurich Ins. Co., 285 Ill. App. 3d 536, 539, 221 Ill. Dec. 700, 676 N.E.2d 221, 223 (1st Dist. 1996) (applying New York law) (“Zurich’s duty to defend was triggered in this case because the Claiborne complaint alleged an injury constituting an enumerated offense which occurred in the course of Smith’s advertising activities.”). 41. Pac. Grp. v. First State Ins. Co., 70 F.3d 524, 527 (9th Cir. 1995) (causal nexus is only between offense and the insured’s advertising activity). 42. Hewlett-Packard Co. v. Ace Prop. & Cas. Ins. Co., 2008 WL 4104209 (N.D. Cal. 2008).

1048 Vol. 107 TMR trademark infringement,43 and trade dress44 infringement typically involve advertising as an element to establish liability whether or not the role of advertising as such is specifically stated in the complaint. This follows because advertising is an element of the way in which liability attaches for most trademark, trade dress, and unfair competition claims.45

D. “Occurring During the Policy Period” Where the complaint is unclear on this issue, extrinsic evidence

may be used to clarify whether the allegations include conduct within the policy period.46 The same is true when the allegations are silent as to when the wrongful conduct occurred.47

E. “Notice of Suit” The failure to give notice of a “cease and desist” letter can

activate late notice prohibitions in an insurance policy, even though the eventual suit is noticed promptly.48 The ContextMedia court in Illinois made the failure to give such notice a trap for the unwary since many policyholders are overwhelmed by a plethora of cease and desist letters. The court’s rationale was that the belief that one 43. El-Com Hardware, Inc. v. Fireman’s Fund Ins. Co., 92 Cal. App. 4th 205, 219, 111 Cal. Rptr. 2d 670 (1st Dist. 2001) (“[A]ppellants demonstrated a potential for coverage under the policies’ advertising provisions because their infringement of the trade dress of Penn Fabrication’s handles occurred in the course of advertising its products.”). 44. Hyman v. Nationwide Mut. Fire Ins. Co., 304 F.3d 1179, 1193-94, 64 U.S.P.Q.2d 1411 (11th Cir. 2002) (“[W]e find simply that Double R’s publication of advertisements featuring artwork similar to the artwork in Inter-Global’s ads and promoting products substantially similar to Inter-Global’s products designated by similar model numbers to Inter-Global’s model numbers is sufficient to create a nexus between trade dress infringement and advertising.”). 45. J. Thomas McCarthy, Trademarks and Unfair Competition, supra note 21, § 25:26 (4th ed. 2004) (“The Lanham Act imposes liability for infringement of a registered mark upon any person who uses an infringing mark in interstate commerce in connection with the sale or advertising of goods or services. This broad definition includes any manufacturer, supplier, dealer, printer, publisher, or broadcaster who in fact has used the infringing mark in connection with ‘the sale, offering for sale, distribution or advertising of any goods or services’ when such use is likely to cause confusion.”). 46. American Motorists Ins. Co. v. Fireman’s Fund Ins. Co., 82 U.S.P.Q.2d 1050, 2007 WL 735767, *6 (N.D. Cal. 2007) (The use of Pelican Accessories’ trademarks on product packaging was not advertising. “[E]ven the Richards declaration, which . . . states that the company advertised Pelican products, cannot be construed to support the more specific proposition . . . that the Pelican mark was used in advertising in 1997.”). 47. Indian Harbor Ins. Co. v. Hartford Cas. Ins. Co., 2007 WL 2955564, *7 (Cal. App. 2d Dist. 2007) (unpublished/noncitable) (“The allegations [in 28, 29 and 30 of the Adidas complaint] are not limited in time or by product line and potentially cover Skechers’s advertising activities during the period covered by Hartford’s policy . . . . Skechers also provided Hartford with a 1998–1999 catalog that advertised, during Hartford’s policy period, allegedly infringing Skechers footwear described in the Adidas complaint.”). 48. Hartford Cas. Ins. Co. v. ContextMedia, Inc., Case No. 12-cv-9975, 2014 U.S. Dist. LEXIS 120037 (N.D. Ill. E.D. Aug. 28, 2014).

Vol. 107 TMR 1049 is not liable is not an excuse for failing to give notice.49 Another Illinois court subsequently reasoned that the policy term requiring notice when “practicable” meant “capable of being put into practice of being done or accomplished.” So understood, a lengthy delay was found to be unreasonable where the insured was not “incapable of immediately notifying its insurer of a potential claim.”50 Potential coverage arises even when the claim itself is false, frivolous or fraudulent. Submission of a sham claim for potential coverage does not require any belief by an insured that there is a viable basis for the claimant to assert liability.51

The state law to be applied to the insurance contract can be critical on the issue of timely notice of a claim. In New York and Texas, a rigorous forfeiture of coverage rule is likely to apply to late notice of business tort claims falling within “advertising injury” or “personal injury” coverage. Illinois, on the other hand, employs a “reasonableness” test; under this test, prejudice to the insurer is an element to be considered, but if the date of notice is not reasonable, then the insured may not obtain policy benefits. Prejudice to the insurer is the test in the remaining forums (including California, Pennsylvania, Michigan, and Massachusetts) and a minority place the burden of showing no prejudice on the insured (namely, Connecticut, Florida, and Ohio).52

Providing the insurer with prompt notice of cease and desist claims will preclude any possible loss of policy benefits.53

This suggests first, that there may be malpractice exposure for counsel addressing cease and desist claims who fail to advise their clients to give notice of the cease and desist claims, and second, that such claims might potentially fall within insurance coverage.

Other insurers have sought to avoid liability by strengthening their arguments regarding notice requirements in jurisdictions where the approach of ContextMedia may not be as readily accepted.54 These insurers have added express endorsements to their policy that disqualify claims where the insured failed to give notice of the cease and desist letter. Typical of these is Atain’s recent “Known Injury and Damage Exclusion Personal Advertising Injury”

49. Sentinel Ins. Co. v. Cogan, 202 F. Supp. 3d 831, 839 (N.D. Ill. 2016). 50. Sentinel, 202 F. Supp. 3d at 838. 51. Horace Mann Ins. Co. v. Barbara B., 4 Cal. 4th 1076, 1086, 17 Cal. Rptr. 2d 210, 217, 846 P.2d 792, 799 (1993) (“[Even] when the underlying action is a sham, the insurer can demur or obtain summary judgment on its insured's behalf[.]”). 52. David A. Gauntlett, IP Attorney’s Handbook for Insurance Coverage in Intellectual Property Disputes, Ch. 6, p. 71 (2d ed. 2014). 53. Insurance Coverage of IP Assets, § 3.15[C]. 54. Hartford Cas. Ins. Co. v. ContextMedia, Inc., No. 12-cv-9975, 2014 U.S. Dist. LEXIS 120037 (N.D. Ill. Aug. 28, 2014).

1050 Vol. 107 TMR form.55 Under this endorsement language, insurers may argue that knowledge of a cease and desist claim prior to policy inception must be disclosed even if it was not otherwise required by the specific questions on the policy application.

Where insurers seek to preclude coverage for “suits” simply because of the failure to report a “cease and desist” claim, policyholders can argue that an insurer should not be able to obtain the benefits of an unwritten exclusion under the guise of contract “interpretation.”56 This is an especially persuasive argument where notice of a “suit” is not possible, because insurers routinely argue that a claim that is formalized in a cease and desist letter with a demand for money is not a suit.57

Policyholders should be vigilant in reviewing their policies and resist insurer attempts to preclude coverage simply because a cease and desist letter is received and not reported to an insurer prior to the policy’s inception.58

The better options are either to (a) provide prompt notice to the insurer of any cease and desist claims; or (b) negotiate added policy language (an endorsement) with the insurer specifically recognizing that cease and desist letters are routinely received by the insured and future tender of notice as to a cease and desist claim will not be referenced by the insurer as a basis for claiming that late notice of any other cease and desist claim precludes coverage as to any such claim received by the insured before the policy inception. So, under this endorsement, the mere fact that notice is not provided as to one cease and desist claim or only as to one such claim should not

55. The Atain Special Insurance Company of Farmington Hills, Michigan policy form, A00087307/2012 - US Sup 00087302/2008, provides: “known injury or damage this insurance does not apply to “personal and advertising injury” arising from an offense: (a) that occurs during the policy period and, prior to the policy period an insured . . . knew that the personal advertising injury “occurred prior to the policy period, in whole or in part. . . .” “Personal and advertising injury” arising from defense shall be deemed to have been known, to have occurred at the earliest time when any insured . . . : (1) reports all, or a part, of the “personal and advertising injury” to us or any other insurer; (2) receives a written or verbal demand or claim for damages because of the “personal or advertising injury;” or (3) becomes aware by any other means that “personal or advertising injury” has occurred or has begun to occur.” (Emphasis added). 56. Fireman’s Fund Ins. Cos. v. Atl. Richfield Co., 94 Cal. App. 4th 842, 852 (2001) (“[A]n insurance company’s failure to use available language to exclude certain types of liability gives rise to the inference that the parties intended not to so limit coverage.”). 57. Hester v. Navigators Ins. Co., 917 F. Supp. 2d 290, 292 (S.D.N.Y. 2013) (“[B]ecause the Cease & Desist Letter is not a ‘suit,’ Navigators was not obligated to begin any defense of Hester upon his receipt of the Cease & Desist Letter.”). 58. U.S. Fire Ins. Co. v. Button Transp., Inc., No. A108419, 2006 Cal. App. Unpub. LEXIS 3472, at *29, 33 (Cal. Ct. App. Apr. 26, 2006) (“ ‘. . . [I]mplied obligation of good faith and fair dealing requires the insurer to settle in an appropriate case although the express terms of the policy do not impose such a duty.’ . . . Thus, the implied covenant of good faith and fair dealing requires an insurer to settle a covered claim rather than simply wait to see if a lawsuit is filed and to pay a judgment, if settlement is necessary to protect the interests of its insured.”).

Vol. 107 TMR 1051 preclude coverage for other cease and desist claims received before policy inception or at any time.

IV. “PERSONAL AND ADVERTISING INJURY” COVERAGE CASES

This section will analyze five (5) distinct offenses that have evolved from the 1986 ISO version to the present 2014 ISO CGL policy form, clarifying circumstances in which these offenses may implicate potential coverage in a variety of trademark infringement fact scenarios. It is critical to bear in mind that, after adoption in 2001 of the ISO trademark infringement exclusion, a lawsuit must present claims beyond those for trademark infringement alone to implicate coverage. Coverage typically requires “trademark plus” fact scenarios.

A. “Misappropriation of Advertising Ideas” [1986 ISO] 1. Scope of Meaning

The “misappropriation” offense has been held in appropriate advertising-driven fact scenarios to encompass some claims for business method patent infringement; distribution of stolen customer lists; various forms of trademark, trade dress, and trade name infringement; as well as a range of false advertising claims. As one court observed:

[M]isuse is an appropriate synonym for the policy term “misappropriation”. . . . [A]dvertising . . . is an adjective, and it is employed in the sentence to describe the kind of ‘idea’ that must be misappropriated or misused in order for there to be coverage . . . . Misuse is the preferred dictionary definition of misappropriation to which a lay person would try to engage in meanings for this undefined policy term.59 Arguably, this definitional fluidity comes from the fact that the

phrase “advertising idea” as understood by linguists is a noun-noun compound that does not limit the connective possibilities between those terms. “Advertising idea” may include ideas about, for, concerning, respecting, or in advertising, to name but a few of the possible permutations of this undefined combination of lay terms. While “advertising” as used in the phrase “advertising idea” may appear to function as an adjective, linguists generally do not assume any interconnected linking tissue between these conjoined words.60

59. Applied Bolting Tech. Prods., Inc. v. U.S. Fid. & Guar. Co., 942 F. Supp. 1029, 1033 (E.D. Pa. 1996). 60. Insurance Coverage of IP Assets, at § 3.03[D][3][b], p. 3-38 n.88, citing Eve & Herb Clark, When Nouns Surface As Verbs, 55 Language 767-811 (1979), Pam Downing, The Creation and Use of English Compound Nouns, 53 Language 810-842 (1977).

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2. Fact Scenarios Analyzing Coverage a. Coverage Found

In Lebas,61 following what became the clear majority trend, the California Court of Appeals required an insurer to defend against trademark infringement claims under the “misappropriation” offense in the “advertising injury” policy language. This came only after the Court granted a rehearing, heard full oral argument, and considered the American Intellectual Property Law Association’s (“AIPLA”) amicus brief in support of the insured’s position. The court reasoned that a general meaning “to take wrongfully” would certainly fall within the meaning of “misappropriate”62 and therefore, the trademark infringement claim fell within the scope of coverage. The Lebas court acknowledged Advance Watch (discussed in the next section) but declined to follow it.63

The Supreme Court of South Carolina expressly rejected limiting misappropriation of advertising ideas or style of doing business to the common law tort of misappropriation.64

In State Auto Prop., the Fourth Circuit addressed the alleged misuse of the NISSAN mark, which is “instantly recognizable . . . as a symbol of high-quality automobiles.”65 Recognizing that the mark itself was an “advertising idea,”66 the court stated:

We do not accept the view that a trademark is merely a label or an identifier . . . . A trademark, by identifying and distinguishing

61. Lebas Fashion Imps. of United States v. ITT Hartford Ins. Grp., 50 Cal. App. 4th 548, 562, 59 Cal. Rptr. 2d 36, 44 (1996) (“It appears to us, reading the policy as a layman would, that an objectively reasonable purpose of the phrase ‘misappropriation’ of either an ‘advertising idea’ or a ‘style of doing business’ is an attempt to restrict or more narrowly focus the broader coverage potentially encompassed by the general term “unfair competition” which was utilized in the earlier policy language. When read in light of the fact that a trademark infringement could reasonably be considered as one example of a misappropriation, and taking into account that a trademark could reasonably be considered to be part of either an advertising idea or a style of doing business, it would appear objectively reasonable that ‘advertising injury’ coverage could now extend to the infringement of a trademark.”). 62. Id. 63. Id. at 566 n.14 (“In reaching [its] conclusion, the court of appeals in Advance Watch did not apply, as we are required to do under California law, the principle that disputed policy language must be examined through the eyes of a layman rather than an attorney or an insurance expert.”). 64. Super Duper, Inc. v. Penn. Nat’l Mut. Cas. Ins. Co., 683 S.E.2d 792, 796, 385 S.C. 201, 209-210 (S.C. 2009) (“Generally, misappropriate is ‘to appropriate dishonestly for one’s own use . . . [or] to appropriate wrongly or misapply in use.’ . . . Trademark infringement is squarely within this definition.”). 65. State Auto Prop. & Cas. Ins. Co. v. Travelers Indem. Co. of Am., 343 F.3d 249, 258 (4th Cir. 2003). 66. Id. (“[A] trademark plays an important role in advertising a company’s products. Thus, at the very least, a trademark has the potential to be an advertising idea.”).

Vol. 107 TMR 1053 the trademark holder’s products, promotes those products to the public.67

Even a product’s physical features, such as a loud speaker handle, may fall within the misappropriation offense.68 The manner in which the product features were promoted in catalogs evidenced a causal nexus to advertising.69

Few courts have questioned whether trade dress infringement should fall within the misappropriation offense. The Eleventh Circuit, applying Florida law, conceded that:

“. . . Because trademark and trade dress serve this function [to identify the source of the products and distinguish the products from similar products], the concept of ‘advertising idea’ or ‘style of doing business’ may reasonably be interpreted to include these types of claims.” . . . It is only a short step, then, to conclude that the “misappropriation” of an advertising idea or style of doing business may include trade dress infringement.70 In Allou Health and Beauty, Nexxus, a brand name beauty

products manufacturer, asserted trademark infringement against a generic brand. The court found a sufficient causal connection between the plaintiff’s advertising activities and the injury alleged in the underlying action to afford coverage.71 As a federal district court in Texas stated:

Numerous courts throughout the country have agreed with Plaintiffs that coverage for trademark and trade dress infringement claims is provided under the “advertising injury” offense of “misappropriation [of] style of doing business.”72

b. No Coverage Found In an earlier article written for this publication in 1999, the

then raging dispute over trademark infringement coverage centered on whether the then operative personal and advertising injury

67. Id. n.12. 68. El-Com Hardware, Inc. v. Fireman’s Fund Ins. Co., 92 Cal. App. 4th 205, 214, 218-19 (2001), pet. for review den., 2001 Cal. LEXIS 8430 (Nov. 28, 2001). 69. Id. at 218-19 (“A manufacturer’s display and presentation of its products to a significant number of its client base, particularly at a site other than the manufacturer’s factory or showroom, would be commonly understood to fall within the definition of advertising, to wit, calling public attention to the merits of one’s product so as to encourage purchase of the product.”). 70. Hyman v. Nationwide Mut. Fire Ins. Co., 304 F.3d 1179, 1189 (11th Cir. 2002), citing Adolfo House Distrib. Corp. v. Travelers Prop. & Cas. Ins. Co., 165 F. Supp. 2d 1332, 1339 (S.D. Fla. 2001). 71. Allou Health & Beauty Care, Inc. v. Aetna Cas. & Sur. Co., 269 A.D.2d 478, 480; 703 N.Y.S.2d 253 (N.Y. 2000). 72. Bay Elec. Supply, Inc. v. Travelers Lloyds Ins. Co., 61 F. Supp. 2d 611, 616 (S.D. Tex. 1999).

1054 Vol. 107 TMR offense “misappropriation of advertising ideas or style of doing business” might encompass trademark infringement claims.73

On one side of the fence was the pro-insurer decision, Advance Watch, from the Sixth Circuit Court of Appeals.74 Adopting a narrow construction of the operative offense, the court determined that coverage was limited to the common law tort of misappropriation. While still the law in the Sixth Circuit, Advance Watch has been the subject of concerted attack as discussed in the next section.

c. Criticisms of No Coverage Found Cases Advance Watch was initially followed in California by Reboans

I, where the court opined: Because an objectively reasonable insured would expect coverage only for listed torts, and since common law misappropriation is inapplicable to trademarks, an objectively reasonable insured would not expect trademark infringement to be covered.75 On reconsideration, Reboans I was transferred to Judge Jensen,

who sat in the Northern District of California, Oakland Division, after the judge who decided Reboans I retired from the bench. In deciding Reboans II, Judge Jensen relied on a different offense, infringement of title—a provision not addressed in Reboans I. The court held that it would be “objectively reasonable” for the insured to expect a claim for trade dress infringement to fall under “misappropriation” or “style of doing business” given the “numerous courts” that have held so.76

A subsequent decision from Michigan inspired an Ohio district court to distance its views from that of the Sixth Circuit in Advance Watch by predicting that the Ohio Court of Appeals would not follow the Advance Watch approach.77

73. Graff, 89 TMR 939 (1999). 74. Advance Watch Co., Ltd. v. Kemper Nat’l Ins. Co., 99 F.3d 795 (6th Cir. 1996). 75. Am. Econ. Ins. Co. v. Reboans, Inc., 852 F. Supp. 875, 879 (N.D. Cal. May 5, 1994), rev’d, 900 F. Supp. 1246 (N.D. Cal. 1994) (“Reboans I”) 76. Am. Econ. Ins. Co. v. Reboans, Inc., 900 F. Supp. 1246, 1254-55 (N.D. Cal. Dec. 27, 1994) (Reboans II). 77. AMCO Ins. Co. v. Lauren-Spencer, Inc., 500 F. Supp. 2d 721, 730 (S.D. Ohio 2007), citing Am. States Ins. Co. v. Hayes Specialties, Inc., No. 97-020037 CK 4, 1998 WL 1740968, at *3 (Mich. Cir. Ct. Mar. 6, 1998) (“Advance Watch stands alone in a sea of case law which holds that the policy term ‘misappropriation of advertising ideas or style of doing business’ encompasses trademark infringement. There is no need here to engage in any great dissertation on the law. Suffice to say, the Court has reviewed these cases and in particular those decided since Advance Watch and agrees with defendant that the analysis and reasoning of the Sixth Circuit is not only unpersuasive and flawed, but demonstrates a lamentable lack of understanding and grasp of the law of trademark/trade dress, and ultimately led to an unduly narrow holding and somewhat bizarre and tortured application

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In Sport Supply, which has been sharply criticized, the Fifth Circuit selectively drew one inference from the nature of a trademark and determined that it rendered coverage unavailable.78 In 2012, Looney Ricks, a subsequent Fifth Circuit case addressing the infringement of copyright claims under Louisiana law, found Sport Supply’s analysis unpersuasive.79 Addressing the breadth of the breach of contract exclusion, which the court found required a “but for” relationship, even within the broad “arising out of” language at issue, it distanced itself from the Sport Supply analysis. The Looney Ricks court directly addressed the assertion that trademark infringement could not constitute misappropriation of advertising idea or style of doing business and questioned the narrow analytic premises of that opinion.

B. “Infringement of Title” [1976/1986 ISO] 1. Scope of Meaning

“Title” is defined as “a mark, style or designation; a distinctive appellation; the name by which anything is known.”80

Most courts have held that infringement of title is not limited to literary or artistic titles,81 but not so broad as to encompass title in the sense of ownership of property82 or the mere legal right to title.83 Because legal uncertainty exists as to the meaning of “infringement of title,” courts routinely hold that it encompasses a of Michigan insurance law. This case has been roundly criticized and at present appears to be only cited as an example of what the law is clearly not.”). 78. Sport Supply Grp., Inc. v. Columbia Cas. Co., 335 F.3d 453, 463 (5th Cir. 2003) (“The Macgregor mark, like most trademarks, is a label that serves primarily to identify and distinguish certain MacMark products. [But it would not] by itself, appear to serve as a ‘marketing device[] designed to induce the public to patronize’ establishments with Macgregor products.”). 79. Looney Ricks Kiss Architects, Inc. v. State Farm Fire & Cas. Co., 677 F.3d 250 (5th Cir. 2012) (applying Louisiana law). 80. Black’s Law Dictionary 1485 (6th ed. 1990). 81. Hosel & Anderson, Inc. v. ZV II, Inc., 2001 Copr. L. Dec. P 28252, 2001 WL 392229, *2 (S.D. N.Y. 2001) (interpreting policy that defines “Advertising Injury” to include “[i]nfringement of copyright, slogan, or title of any literary or artistic work).”). 82. Black’s Law Dictionary (6th ed. 1990); P.J. Noyes Co. v. Am. Motorists Ins. Co., 855 F. Supp. 492, 495, 31 U.S.P.Q.2d 1790 (D.N.H. 1994) (rejected by Advance Watch Co., Ltd. v. Kemper Nat. Ins. Co., 99 F.3d 795, 40 U.S.P.Q.2d 1545, 1996 Fed. App. 0350P (6th Cir. 1996)) (“The allegation that Noyes used the name ‘Dust Free Precision Pellets’ in their advertising and literature and packaging, arguably falls within the ambit or . . . infringement of title or slogan.”). 83. RGP Dental, Inc. v. Charter Oak Fire Ins. Co., 2005 WL 3003063, *3-4 (D.R.I. 2005) (“Plaintiff then offers that ‘Support Design’s claim for unfair competition . . . is essentially a claim that RGP has unlawfully infringed on its legal right to exclusive use of the chair’s design . . . ‘ . . . The word ‘title’ merits at least 10 distinct definitions in Webster’s Dictionary, Merriam-Webster’s Collegiate Dictionary 1238 (10th ed. 1994), but only one of these is reasonable when the phrase ‘infringement of copyright, title or slogan’ is read in an ordinary, common sense manner.”).

1056 Vol. 107 TMR mark, style, or designation;84 a distinctive appellation;85 the name by which anything is known;86 a design element;87 or even a mark, model number, and label.88

2. Fact Scenarios Analyzing Coverage a. Coverage Found

The “infringement of title” offense does not track any recognized cause of action. Courts have recognized that “infringement of title” can encompass trademark infringement claims based on the plain meaning of the term “title”:

A title is “a descriptive name.” Webster’s Third New International Dictionary 2400 (2002). . . . Therefore, trademarks, titles, and slogans are heavily related and can be synonymous. Thus, coverage for “infringement of copyright, title or slogan” may envelop trademark infringement. See Union Ins. Co. v. Knife Co., Inc., 897 F. Supp. 1213, 1217 (W.D. Ark.

84. First State Ins. Co. v. Alpha Delta Phi Fraternity, 39 U.S.P.Q.2d 1905, 1912-1913, 1995 WL 901452 (Ill. App. Ct. 1st Dist. 1995) (“Infringement of Trademark . . . exists if words or designs used by the defendant are identical with or so similar to plaintiff’s that they are likely to cause confusion, or deceive or mislead others.” Black Law Dictionary (6th ed.). Based on the definitions of “title” . . . we find that the underlying complaint alleges infringement of title . . . potentially within the coverage . . . where “Alpha Delta Phi” and “Alpha Delta” fit those descriptions.). 85. Acuity v. Bagadia, 2008 WI 62, 310 Wis. 2d 197, 750 N.W.2d 817 (2008) (Black’s Law Dictionary (6th ed.) “[a] mark, style, or designation; a distinctive appellation.”). 86. W. Wis. Water, Inc. v. Quality Beverages of Wis., Inc., 2007 WI App 188, 305 Wis. 2d 217, 738 N.W.2d 114, 121-22 (Ct. App. 2007) (“Crystal Canyon’s trademark infringement is an ‘infringement of . . . title’ and is covered conduct . . . . The [Charter Oak Fire Ins. Co. v. Hedeen & Cos., 280 F.3d 730, 736, 61 U.S.P.Q.2d 1557, 98 A.L.R.5th 687 (7th Cir. 2002)] court expressly rejected the proposition that infringement of title ‘unambiguously referr[ed] only “to the non-copyrightable title of a book, film, or other literary or artistic work.”’. . . [T]he drafters of the policy language were not articulating recognized causes of action, but rather categories into which certain conduct might fall.”). 87. Bridge Metal Indus., LLC v. Travelers Indem. Co., No. 11-4228-CV, 2014 U.S. App. LEXIS 4463, at *18-19 (2d. Cir. Mar. 11, 2014) (The court characterized a trade dress case as implicating coverage for infringement of title under Traveler’s modified coverage, noting that the court in CGS Indus., Inc. v. Charter Oak Fire Ins. Co., 720 F.3d 71, 81 (2d Cir. 2013) (applying New York law) held that “the insurer had a duty to defend in CGS Industries due to a ‘handful’ of cases that ‘define[d] title in a way that could arguably include a design or symbol similar to the pocket stitching at issue here.’ Id. at 79-81.” As some courts extended the meaning of the term “title” to “‘arguably include a design or symbol,’ [CGS Industries, 720 F.3d. at 80]—[this] encompassed confusion over not only trademarks, but also the related concept of trade dress. . . . Thus, because there was ‘a legal uncertainty as to insurance coverage,’ Hugo Boss, 252 F.3d at 622 (italics omitted), due to doctrinal confusion regarding the concept of ‘title’ at the time of the Policy, Travelers’s duty to defend the underlying actions was triggered.”). 88. Aearo Corp. v. Am. Int’l Specialty Lines Ins. Co., 676 F. Supp. 2d 738, 746 (S.D. Ind. 2009) (Use of Climb-Tech’s name, mark, model number and label triggered a defense in light of the Seventh Circuit and two Indiana federal district courts’ analysis, finding the phrase “infringement of title” broad enough to encompass trademark infringement claims.).

Vol. 107 TMR 1057

1995) (holding trademark infringement can be described as infringement of a title or slogan as “both titles and slogans . . . can undoubtedly be protected as trademarks”).89 Earlier decisions echoed the view that claims for trademark

infringement readily fell within the coverage for infringement of title.90 A number of decisions have concluded that coverage for “infringement of title” falls within the 1986 ISO CGL offense of “infringement of copyright, title or slogan” and encompasses a number of title infringement claims, whether or not asserted as an express claim for trademark infringement. Indeed, some policy forms, such as that issued by Chubb, extended coverage to “infringement of trademarked titles.”91 In Houbigant, the particular policy language at issue extended coverage to a trademarked title. The court found that Houbigant’s use of a house and product mark, Chantilly, fell within the definition of a trademarked title.92 The same can be said of the word “fullblood,” where the term was used to identify bulls and commonly understood to be a “title.”93 This offense can be readily extended to cover unfair competition where a claimant seeks recovery for confusing use of a similar, but not identical title, as an alternative basis of liability for trademark infringement.

89. Super Duper v. Pa. Nat’l Mut. Cas. Ins. Co., 385 S.C. 201, 212, 683 S.E.2d 792, 797 (2009). 90. Acuity v. Bagadia, 750 N.W.2d 817, 826 (Wis. 2008) (“Symantec owns trademarks in each of the following: Symantec(R) . . . . Each of these designations is either the title of a software program they name or the brand under which those programs are sold . . . . Accordingly, UNIK engaged in an enumerated offense when it infringed Symantec’s trademarks.”). 91. Villa Enters. Mgmt. Ltd. v. Fed. Ins. Co., 360 N.J. Super. 166, 185 (2002) (“[N]o tortured examination of various definitions of ‘title’ need be made. Under the Federal policy before us, advertising injuries arising from a claim of infringement of a trademarked or service-marked title (i.e., any trademarked or service-marked name) is entitled to defense and indemnification whereas advertising injuries arising from a claim of infringement of other trademarked or service-marked words, symbols or devices are not covered, nor claims of infringement based on certification marks, collective marks and unregistered trade names.”). 92. Houbigant v. Fed. Ins. Co., 374 F.3d 192, 200 (3d Cir. 2004) (applying New Jersey law) (“Thus, we . . . define trademarked title as any name, appellation, epithet, or word used to identify and distinguish the trademark holder’s goods from those manufactured or sold by others. Houbigant’s house mark and product mark (e.g., ‘Chantilly’) falls within this definition.”). 93. Am. Simmental Ass’n v. Coregis Ins. Co., 282 F.3d 582 (8th Cir. 2002) (“Blue Dane accused ASA of wrongfully using the ‘fullblood’ title to advertise bulls, thereby causing Blue Dane injury. Thus, under a plain and ordinary meaning analysis, Blue Dane alleged an ‘unauthorized taking’ of Blue Dane’s ‘advertising idea,’ which ‘infringed’ upon Blue Dane’s use of the term ‘fullblood’ and caused injury.”).

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b. No Coverage Found The contrary minority view is that infringement of title must be

limited to a literary or artistic title.94 Courts that limit the scope of the “infringement of title” offense

to the taking of the title of an artistic work ignore that the insurers could have limited this offense in the policy if that was their intention.

Cases adopting this narrow view either adopt Advance Watch and apply its “misappropriation” analysis in the “infringement of title” context,95 or address variant versions of the standard form ISO CGL policy that use the “literary or artistic title” definition instead of the prior undefined phrase “infringement of title.” Thus, the court in Palmer concluded that the title “Valencia” as used to designate a residential community was not an artistic or literary title as required by the policy’s express language.96 The Palmer court conceded that a different construction would be compelled if the policy did not contain a trademark exclusion.97 The Palmer court did not explain why the exclusion’s language had to be read to limit the scope of the policy provision rather than simply describe one specific set of excluded activities that might otherwise fall within the scope of coverage.

c. Criticisms of No Coverage Found Cases The Third Circuit, applying New Jersey law, subsequently

rejected Palmer’s narrow reading of the term “title,” as limited to a literary or artistic title. It preferred to follow the New Jersey state trial court opinion in Houbigant.98

94. W. Wis. Water, Inc. v. Quality Beverages of Wis., Inc., 738 N.W.2d 114, 121-22 (Wis. Ct. App. 2007) (“The [Charter Oak Fire Ins. Co. v. Hedeen & Cos., 280 F.3d 730, 736 (7th Cir. 2002)] court expressly rejected the proposition that infringement of title ‘unambiguously referr[ed] only “to the noncopyrightable title of a book, film, or other literary or artistic work.”’ . . . [T]he drafters of the policy language were not articulating recognized causes of action, but rather categories into which certain conduct might fall.”). 95. ShoLodge, Inc. v. Travelers Indem. Co. of Ill., 168 F.3d 256, 259-260 (6th Cir. 1999) (“The infringement of title of an artistic work, which is generally too short to be copyrighted, is directly related to the infringement of copyright law, which protects the artistic work itself. To include infringement of ‘names’ generally within this phrase would be to improperly expand the subject matter of the clause.”). 96. Palmer v. Truck Ins. Exch., 21 Cal. 4th 1109, 1117, 1118, 988 P.2d 568, 574, 575 (1999) (“Because these names can be trademarked, adopting this definition of ‘title’ carves out a limited exception and gives effect to every part of the Policy’s trademark exclusion clause.”). 97. Id. at 1118-19 (“Although other courts . . . have broadly defined ‘title’ to encompass any name or property right, we do not find these decisions persuasive. . . . [T]hey involve policies that only contain the coverage clause—and not the trademark exclusion clause.”). 98. Houbigant, Inc. v. Fed. Ins. Co., 374 F.3d 192, 199 (3d Cir. 2004) (“As an initial matter, there can be no dispute that ‘title’ has several meanings, including: (1) ‘an identifying name given to a book, play, film, musical composition or work of art’; (2) ‘[a] general or

Vol. 107 TMR 1059

The Houbigant court explained that Palmer’s narrow interpretation of trademarked title, driven by the policy’s exclusionary language:

ignores the statutory distinction between “trademarks” and “trade names.” The Lanham Act defines a “trademark,” in relevant part, as “any word, name, symbol, or device, or any combination thereof . . . used by a person . . . to identify and distinguish his or her goods. . . from those manufactured or sold by others and to indicate the source of the goods[.]” 15 U.S.C. § 1127 (emphasis added). In contrast, “trade name” is defined as “any name used by a person to identify his or her business or vocation.” Id. (emphasis added). Thus, the statutory definition of trademark limits the scope of the term trademarked title and distinguishes it from trade names.99 The Houbigat court also concluded that it was unreasonable to

presume that a purchaser of such a policy would conclude that it only covers literary artistic titles and not ordinary product titles.100

C. “Infringement of Slogan” [1976/1986/ 2001/2004/2007 ISO]

1. Scope of Meaning Coverage for “infringement of slogan” does not require that the

word or words that constitute a slogan be a trademark, much less a registered trademark, as some variant policy forms require.

The 1976/1986 ISO CGL form included the offense of “infringement of . . . slogan” as part of the covered offense “infringement of copyright, title or slogan.” Such an offense cannot be limited to any singular tort such as copyright infringement, as slogans generally cannot be copyrighted.101

Later policy forms exclude coverage for any advertising injury arising out of infringement of trademark except “infringement of slogan.”

A slogan is any “attention-getting device, phrase, moniker, or utterance that is used to promote products or services.”102 A slogan descriptive heading, as of a book chapter[‘]; and (3) ‘[a] descriptive appellation: EPITHET[‘] Villa, 821 A.2d at 1181 (quoting Webster’s II New College Dictionary at 1157).”). 99. Id. at 199 (“Moreover, limiting trademarked titles to literary or artistic works would ‘create an ambiguity rather than resolve one[.]’ id. Not only would it ‘send insureds on a quixotic quest for literary works the title of which coincidently mirrored the registered title alleged to have been infringed,’ Id., it would create endless litigation over what constitutes literary or artistic work.”). 100. Id. at 200. 101. Compendium of U.S. Copyright Practices, Chapter 700:8 (2014). 102. Ultra Coachbuilders, Inc. v. Gen. Sec. Ins. Co., 2002 WL 31528474, *3 (S.D.N.Y. 2002) (“Infringement of the phrase creates a duty of defense if it is potentially a slogan . . . . ‘A slogan is a brief attention-getting phrase used in advertising or promotion or a phrase used

1060 Vol. 107 TMR can be but does not have to be a registered trademark. But some courts have limited coverage to fact scenarios where the registered mark is not a house mark or product mark, such as the Ford house mark for motor cars or the MUSTANG product mark for a particular car, respectively.103

A string of cases have pushed the envelope in defining the appropriate scope of the express coverage for “infringement of slogan” to encompass short phrases identified in the complaint as trademarks,104 previously used monikers,105 and abbreviated phrases.106 Some courts have ruled that “infringement of slogan” may include, but need not be limited to, coverage of “infringement of trademarked or service marked slogans.”107 It is irrelevant

repeatedly, as in promotion.’ Palmer v. Truck Ins. Exch., 21 Cal. 4th 1109, 90 Cal. Rptr. 2d 647, 988 P.2d 568, 53 U.S.P.Q.2d 1185 (1999) . . . Ford also claims it uses the phrase [QVM or Quality Vehicle Modifier] to promote both the program itself and use of its other products. . . . “ A phrase, word, or utterance, whether registered or not as a trademark, may trigger advertising injury even with a trademark exclusion if it is used while advertising to attract attention or promote services or products. In the Ultra Coach case, the confusingly similar abbreviations VQM and QVM were alleged to attract attention to both programs and other products of the underlying plaintiff and thus were found to be slogans which trigger a defense.). 103. Hugo Boss Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608, 619-20, n.7, 59 U.S.P.Q.2d 1161 (2d Cir. 2001) (A slogan can only function as a separate trademark if it creates a separate impression from the house mark, citing Genovese Drug Stores, Inc. v. TGC Stores, Inc., 939 F. Supp. 340, 346, 1997-1 Trade Cas. (CCH) &p; 71745 (D.N.J. 1996); In re Nat’l Training Ctr. of Lie Detection, Inc., 226 U.S.P.Q. 798, 799, 1985 WL 72086 (T.T.A.B. 1985) (inquiring whether the slogan create[s] a commercial impression separate and apart from the other material on the [product])). 104. Cincinnati Ins. Co. v. Zen Design Grp., Ltd., 329 F.3d 546, 556, 67 U.S.P.Q.2d 1141, 2003 Fed. App. 0158P (6th Cir. 2003) (Court concluded that the underlying action for trademark and trade dress infringement alleged a potentially covered “advertising injury” offense of “infringement of . . . slogan,” even though there was no express cause of action for an infringement of slogan. The court defined slogans as “phrases used to promote or advertise a house mark or product mark” and found it plausible that THE WEARABLE LIGHT could be interpreted as a slogan used to promote the product mark SAPHIRE and not a separate product mark). 105. Finger Furniture Co., Inc. v. Travelers Indem. Co. of Connecticut, 2002 WL 32113755, *10 (S.D. Tex. 2002) (“TruServ claimed that its ‘advertising idea,’ ‘TRUE VALUE’ was used ‘extensively’ to ‘sell products.’” As a result, the court concluded that, “‘TRUE VALUE’ could certainly be considered a ‘title or slogan,’ and an infringement of that mark potentially fits within the Policy, under the fourth definition of ‘advertising injury.’”). 106. Ultra Coachbuilders, Inc. v. Gen. Sec. Ins. Co., 2002 WL 31528474, *3 (S.D. N.Y. 2002) (Even though there was no express cause of action for an infringement of slogan, the underlying action alleged a potentially covered “advertising injury” offense of “infringement of . . . slogan,” because there was a reasonable possibility that the descriptive phrase, “Quality Vehicle Modifier,” is a slogan. “While the phrase ‘Quality Vehicle Modifier’ is the descriptive name of a service program, Ford also claims it uses the phrase to promote both the program itself and use of its other products, Ford vehicles, to limousine converters.”). 107. Santa’s Best Craft, LLC v. St. Paul Fire and Marine Ins. Co., 2004 WL 1730332, at *7 (N.D. Ill. 2004), aff’d, 611 F.3d 339 (7th Cir. 2010) (applying Illinois law) (The exception to the intellectual property exclusion, providing coverage for “trademarked slogans,” at least potentially applies to the slogans “Patent-pending ‘Stay-On’ feature keeps bulbs lit”; “New

Vol. 107 TMR 1061 whether the claim describes the protectable single word108 or phrase as a slogan109 so long as the claimant110 used the word or phrase to attract the attention of others.111

2. Fact Scenarios Analyzing Coverage a. Coverage Found

Many courts have concluded that slogans and titles can be synonymous because “both titles and slogans . . . can undoubtedly be protected as trademarks[.]”112 Addressing the interrelationship between slogan and trademarks, the Wisconsin Supreme Court noted:

“A slogan or any other combination of words is capable of trademark significance, if used in such a way as to identify and distinguish the seller’s goods or services from those of others.”113 Applying the broad definitions, and analyzing an exception to a

trademark infringement exclusion for trademarked slogans, the Technology”; “String Stays Lit even if a bulb is loose or missing!”; and “worry-free lighting,” thereby implicating a duty to defend). 108. Single words can be powerful slogans, i.e., “FREEDOM” as used in the movie Braveheart, “TRIPMATE” for a cartographic product, Am. Emp’rs Ins. Co. v. Delorme Publ’g Co., 39 F. Supp. 2d 64, 77 (D. Me. 1999), or “CARNIVAL” to describe seafood. Carnival Brands, Inc. v. Am. Guar. & Liab. Ins. Co., 98-958 (La. App. 5 Cir 01/26/99), 726 So. 2d 496. 109. Hudson Ins. Co. v. Colony Ins. Co., 624 F.3d 1264, 1269, 97 U.S.P.Q.2d 1306 (9th Cir. 2010), citing Cincinnati Ins. Co. v. Zen Design Grp., Ltd., 329 F.3d 546, 67 U.S.P.Q.2d 1141, 2003 FED App. 0158P (6th Cir. 2003) (The Ninth Circuit affirmed the district court’s decision finding the “Steel Curtain” designation for the Pittsburgh Steelers’ front four to be a slogan, even where there was no articulated claim for slogan infringement). 110. Street Surfing, LLC v. Great Am. E&S Ins. Co., 776 F.3d 603, 609 (9th Cir. 2014) (Relying upon a decision applying Missouri law, Interstate Bakeries Corp. v. OneBeacon Ins. Co., 686 F.3d 539, 546 (8th Cir. 2012), the court determined that promotion by the mark owner, Street Surfer, was not sufficient to provide coverage because the phrase at issue was not used as a slogan by the claimant or the insured infringer). A vigorous dissent in Interstate Bakeries noted the majority’s failure to apply the broad duty to defend required by Missouri law; California also embraces a broad duty to defend. The Street Surfing court cited but did not distinguish Hudson Ins. Co., supra., which found “Steel Curtain” was used as a slogan by the Pittsburgh Steelers. 111. Gartner, Inc. v. St. Paul Fire and Marine Ins. Co., 2010 WL 918075, *7 (D. Conn. 2010), judgment aff’d, 415 Fed. Appx. 282 (2d Cir. 2011) (The phrases or initials used could not be considered “advertising material” because there was no mention of their use to attract the “attention of others for the purpose of seeking customers or increasing sales or business.” Nor did they constitute slogans, defined as “a brief attention-getting phrase used in advertising or promotion or a phrase used repeatedly, as in promotion,” or function as titles, defined as “‘the distinctive name, appellation or epithet,’ including a product name”). 112. Super Duper v. Pa. Nat’l Mut. Cas. Ins. Co., 385 S.C. 201, 212, 683 S.E.2d 792, 797 (2009), citing Union Ins. Co. v. Knife Co., Inc., 897 F. Supp. 1213, 1217 (W.D. Ark.1995). 113. Acuity v. Bagadia, 750 N.W.2d 817, 825 n.10 (Wis. 2008) (citing J.A. Brundage Plumbing & Roto-Rooter, Inc. v. Mass. Bay Ins. Co., 818 F. Supp. 553, 559 (W.D.N.Y. 1993)) (quoting J. Thomas McCarthy, Trademarks & Unfair Competition, supra note 21 (2d ed. 1984)); see also Super Duper, Inc., 385 S.C. at 212 (“A slogan is ‘a brief striking phrase used in advertising or promotion.’ Webster’s Third New International Dictionary 2145 (2002)”).

1062 Vol. 107 TMR Seventh Circuit affirming a district court opinion, concluded that claims involving the following slogans implicated a duty to defend: “Patent-pending ‘Stay-On’ feature keeps bulbs lit”; “New Technology”; “String Stays Lit even if a bulb is loose or missing!”; and “worry-free lighting.”114

The Sixth Circuit concluded that the phrase “THE WEARABLE LIGHT” could be a slogan used to promote the product marked “SAPPHIRE,” as it was separate from the product mark.115 The same was true of the phrase “TRUE VALUE” which was both an advertising idea, as well as a title or slogan.116

An abbreviation can be a slogan where its primary use is as a descriptive phrase that functions as a slogan.117 In Ultra Coachbuilders, the court ruled that because there was a reasonable possibility that the descriptive phrase “Quality Vehicle Modifier” abbreviated as “QVM” was a slogan, a duty to defend arose.

b. No Coverage Found In Bodywell, the court expressed concern that the mere use of

“buzz words” is, in and of itself, insufficient to reveal infringement of slogans.118 Thus, the allegations that Bodywell advertised, promoted, offered to sell, and sold products that were closely related to SAN’s products and “used marks, words, and symbols” that were identical to or confusingly similar to SAN’s “Tight Marks,” were not sufficient to state a claim for infringement of slogan. The court in Lexmark similarly emphasized that the claimant did not assert a proprietary interest in a phrase or certain terms in a manner that manifests their use as a slogan.119 Likewise, the court in Sorbee120 concluded that the advertising phrases “low calorie,” “sugar free,”

114. Santa’s Best Craft, LLC v. St. Paul Fire & Marine Ins., 2004 U.S. Dist. LEXIS 14760, (N.D. Ill. July 28, 2004) aff’d 611 F.3d 339 (7th Cir. 2010) (applying Illinois law). 115. The Cincinnati Ins. Co. v. Zen Design Grp., Ltd., 329 F.3d 546 (6th Cir. 2003) (applying Michigan law) (Slogans defined as “phrases used to promote or advertise a house mark or product mark.”). 116. Finger Furniture Co. v. Travelers Indem. Co., No. H-01-2797, 2002 WL 32113755, at *10 (S.D. Tex. Aug. 19, 2002). 117. Ultra Coachbuilders, Inc. v. Gen. Sec. Ins. Co., No. 02 CV 675(LLS), 2002 WL 31528474, at *3 (S.D.N.Y. July 15, 2002). 118. James River Ins. Co. v. Bodywell Nutrition, LLC, 842 F. Supp. 2d 1351, 1355 (S.D. Fla. 2012). 119. Lexmark Int’l, Inc. v. Transp. Ins. Co., 327 Ill. App. 3d 128, 142, 761 N.E.2d 1214 (Ill. App. Ct. 2001) (“BDT never claimed ownership or exclusive right to the language it accused Lexmark of using.”). 120. Sorbee Int’l Ltd. v. Chubb Custom Ins. Co., 735 A.2d 712 (Pa. 1999).

Vol. 107 TMR 1063 “fat free,” and “cholesterol free” were not slogans, because they did evidence original ideas.121

c. Criticisms of No Coverage Found Cases The concept that the slogan must be novel in order to be

actionable such that infringement of slogan creates coverage imputes as part of the offense the boldfaced limiting terms: infringement of a novel, unique or proprietary slogan. Such a narrow reading is but one possible construction and should not eliminate other constructions that are within a fair understanding of the policy language.

Another questionable distinction is the view that coverage cannot arise when the liability attaches for use of an infringed mark and not of the slogan itself. This assumes that “infringement of slogan” is a recognized cause of action (when it is not) and that the failure to assert such a claim necessarily brings the claim outside the policy’s scope. This is not necessarily so.122

In Hudson, the Ninth Circuit concluded that the slogan “Steel Curtain” was used as a shorthand denomination for the Pittsburgh Steelers players promoted by the NFL. The facts of the underlying complaint evidenced that the phrase met the definition of a slogan as a “brief attention-getting phrase used in advertising or promotion.”123 The court rejected the insurer’s argument that the NFL complaint evidenced lack of standing to enforce the slogan rights of the Pittsburgh Steelers team, where the NFL complaint alleged that “NFL Properties promotes the intellectual property of the NFL and the Member Clubs” and “protects the marks owned by the Member Clubs against misuse in various forms.”124 121. Id. at 714-15, 716 (“The terms at issue here do not constitute an original, novel idea that was created by Simply Lite and stolen by Sorbee. They are straightforward descriptive material not formed or sequenced in any way so as to constitute novel or special usage. . . .”). 122. But see, Aloha Pac., Inc. v. Cal. Ins. Guar. Ass’n, 79 Cal. App. 4th 297, 317, 93 Cal. Rptr. 2d 148, 161 (Cal. Ct. App. 2000) (“According to Palmer, ‘[a] slogan is ‘a brief attention-getting phrase used in advertising or promotion’ or ‘[a] phrase used repeatedly, as in promotion.’ Appellants are not shown to have complained in the federal action of Island’s use of slogans, and the federal court found Island infringed marks and trade dress, not slogans. Thus, the injury did not ‘aris[e] out of . . . infringement of title [of literary or artistic works] or slogan’ (the coverage clause) . . . .” (citation omitted)). 123. Hudson Ins. Co. v. Colony Ins. Co., 624 F.3d 1264, 1267 (9th Cir. 2010). 124. Id. at 1269-70 (“[There is] doubt . . . that a complaint must support all elements of a cause of action to state potential liability. CNA Casualty rejected the argument that there was no coverage for a potential malicious prosecution claim even though it was clear that the malicious prosecution claim could not be brought because an essential element was missing (prior termination of the earlier proceeding in favor of the party alleging malicious prosecution). See CNA, 222 Cal. Rptr. at 281 & n.4. That the insurer ‘may have known of a good defense, even an ironclad one, to the malicious prosecution claim did not relieve it of its obligation to defend its insured.’ Id. at 281 n.4; see also id. at 284 n.7 (‘[T]he absence of an element of a properly pleaded cause of action is of no moment in determining [the] duty to defend. For that matter, neither did the fact that there was no colorable basis for Federal

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A subsequent Ninth Circuit opinion in Street Surfing, while acknowledging Hudson, emphasized the importance of the claimant’s use of the slogan itself. The claimant had registered the trademark STREETSURFER for use in a street sport that combined the modalities of surfing, skateboarding, and snowboarding into a singular sport. The court found the claimant-owners’ usage of STREETSURFER was as “a recognizable brand name to identify his products, not as a phrase promoting that brand” and such use was insufficient to qualify as a slogan for purposes of an infringement of slogan claim.125

Street Surfing relied upon an Eighth Circuit case, Interstate Bakeries where the court reached the same conclusion under a media policy, where the term “slogan” was specifically defined. The failure of the claimant to use the phrase as a slogan was problematic.126

D. Infringement of Trade Dress in Your “Advertisement” [1998/2001/ 2004/2007 ISO]

1. Scope of Meaning Trade dress encompasses the total appearance and image of a

product. These include features such as its size, texture, shape, color, or color combinations, graphics, and even particular advertising and marketing techniques used to promote its sale.127

There has been an explosion in insurance coverage cases where policyholders have sought coverage seeking to fall within the trade dress offense as suits often seek liability under the theory, but do not use the term trade dress in the lawsuit. As the coverage analysis looks to factual allegations, not labels, of causes of action, courts have had to parse those facts carefully to find which claims fall within the coverage.

jurisdiction [defeat this] obligation.’ (quoting Ruder & Finn Inc. v. Seaboard Sur. Co., 52 N.Y.2d 663, 422 N.E.2d 518, 523, 439 N.Y.S.2d 858 (N.Y. 1981)).”). 125. Street Surfing, LLC v. Great Am. E&S Ins. Co., 776 F.3d 603, 609 (9th Cir. 2014) (“[W]hen Great American reviewed the allegations in Noll’s complaint, it would have ascertained only that Noll used “Streetsurfer” as a recognizable brand name to identify his products, not as a phrase promoting that brand. Because Street Surfing points to no facts alleged in the complaint or otherwise that would have given rise to an inference that slogan infringement would be at issue in the Noll action, its claim for coverage under that provision fails.”). 126. Interstate Bakeries Corp. v. OneBeacon Ins. Co., 686 F.3d 539, 546 (8th Cir. 2012) (applying Missouri law) (“[S]logan [includes]: (1) ‘a word or phrase used to express a characteristic position or stand or a goal to be achieved’ . . . .”). 127. Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 764 n.1 (1992). See Insurance Coverage of IP Assets, Ch. 17.03 – Infringement of Trade Dress in Your “Advertisement.”

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2. Fact Scenarios Analyzing Coverage a. Coverage Found

Some discussion of the way in which a product is used, either via its packaging or other forms of promotional activity, must reference the total look design or shape as a characteristic and problematic usage in order to create potential coverage for “trade dress infringement in your ‘advertisement.’” In Ross Glove, the claimant asserted Lanham Act trade dress infringement claims. Because the packaging at issue constituted advertising related to the assertion of such claims, the court found that a duty to defend existed.128

In Creation Supply,129 a marker company was sued for trademark infringement, trade dress infringement, and unfair competition. Creation was sued for selling markers that, like its competitor, had a squarish shape. The insurer argued that there was no connection between the trade dress infringement and advertisement. The Illinois Appellate Court found that because Creation’s retail display contained a photograph of the infringing marker, the causal nexus requirement of use “in your ‘advertisement’” was satisfied.130 Creation Supply demonstrates just how fact-sensitive coverage cases can be and the level of detail often required to find coverage.

b. No Coverage Found In Bodywell,131 the absence of any allegation about product

packaging or product look, design or shape, precluded a duty to defend.

128. Acuity v. Ross Glove Co., 344 Wis. 2d 29, 39, 817 N.W.2d 455, 460 (Wis. App. 2012) (“Ross Glove maintains . . . that ‘[b]y packaging its products and promoting to and soliciting Cabela’s to sell its products, Ross Glove [called] attention to its products’ and engaged in ‘advertising.’”). 129. Selective Ins. Co. v. Creation Supply, No. 1-14-0152, 2015 Ill. App. Unpub. LEXIS 202 (Feb. 9, 2015). 130. Id. at *30. 131. James River Ins. Co. v. Bodywell Nutrition, LLC, 842 F. Supp. 2d 1351, 1355-56 (S.D. Fla. 2012) (“The underlying complaint contained no allegation that Bodywell used a product or packaging that was closely related to SAN’s product in its total look, design, or shape. Rather, the allegations are that Bodywell advertised, promoted, offered to sell, and sold products that were closely related to SAN’s products and used marks, words, and symbols that were identical to or confusingly similar to SAN’s ‘Tight Marks.’ SAN’s use of the “conclusory buzz words” ‘containers,’ ‘labels,’ and ‘packaging,’ unsupported by factual allegations, is not sufficient to trigger coverage.” (citation omitted)).

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E. Use of Another’s Advertising Idea in Your “Advertisement” [1998/2001/2004/2007/2014 ISO]

1. Scope of Meaning This offense has been held to encompass potential coverage for

business method patent infringement claims premised on the use of advertising techniques, trade secret claims, marketing secrets and unfair competition, as well as trademark infringement lawsuits. Prior to the 2002 ISO form’s adoption, this claim fell outside of any intellectual property exclusion.

Proper application of linguistic principles to the construction of this offense reveals its ambiguity. By applying dictionary definitions of the policy’s terms and reading the terms in context, “use of another’s advertising idea in your ‘advertisement’” means “promotion of one’s own products using another’s idea for calling attention to a product or business, especially by proclaiming desirable qualities so as to increase sales or patronage.”132

2. Fact Scenarios Analyzing Coverage a. Coverage Found

This offense triggers a duty to defend for claims of patent infringement, false advertising, and trade name infringement, to name but a few possibilities. Examples include claiming a drug is LIPITOR when it is not, as in Albers,133 and misuse of trade names to solicit a competitor’s business, as in Cloud Nine.134 In Albers, the court stated that “‘[u]se’ is a common and ordinary term, capable of ready discernment. Its reach is obviously much broader than that afforded to the legal definition of ‘misappropriation.’”135

The “in your ‘advertisement’” prong of the offense can be met with relative ease. In Street Surfing,136 the court ruled that a

132. American Simmental Ass’n v. Coregis Ins. Co., 282 F.3d 582, 587 (8th Cir. 2002) (applying Montana law). 133. Ohio Cas. Ins. Co. v. Albers Med., Inc., 2005 WL 2319820, *4 (W.D. Mo. 2005) (“[B]y labeling a substance—regardless of its efficacy or actual chemical composition—as Lipitor when the substance was not really the product produced by Pfizer under that name, Albers allegedly used Pfizer’s idea for calling public/consumer attention to its product.”). 134. Ohio Cas. Ins. Co. v. Cloud Nine, LLC, 464 F. Supp. 2d 1161, 1168 (D. Utah 2006), rev’d on other grounds, 458 Fed. Appx. 705 (10th Cir. 2012) (“In claiming that the Cloud Nine Defendants unlawfully used Edizone’s trade names on their websites, Edizone is claiming use of Edizone’s advertising ideas in Cloud Nine’s advertisements.”). 135. Ohio Cas. Ins. Co. v. Albers Med., Inc., No. 03-1037-CV-W-ODS, 2005 WL 2319820, at *4 (W.D. Mo. Sept. 22, 2005) (“It’s reach is obviously much broader than that afforded to the legal definition of ‘misappropriation.’ . . . An ‘ “advertising idea” generally encompasses “an idea for calling public attention to a product or business, especially by proclaiming desirable qualities so as to increase sales or patronage.” ’ ”). 136. Street Surfing, LLC v. Great Am. E&S Ins. Co., 752 F.3d 853, 861-62 (9th Cir. 2014) (“[W]e agree with the district court that affixing Street Surfing’s logo to the Wave broadcast

Vol. 107 TMR 1067 retailer’s use of a trademarked logo on a product received from manufacturer, met the “in your ‘advertisement’” component (and also found that the action potentially falls within coverage for use of another’s advertising idea but denying coverage because of publication prior to inception of the policy).

Similarly, in Air Engineering, coverage extended to a trade secret misappropriation suit where primary focus of the claims involved use of an Internet advertising system that provided links to product and purchasing information.137 The referenced ads evidenced advertising activity. Links from the ads to the insured’s goods and products constituted an “advertisement” within the website subsection of the policy’s definition.138

Drawing attention to the distinction between the new “use of another’s advertising idea in your ‘advertisement’” offense from that for misappropriation of advertising ideas, a district court in Illinois concluded that because a trademark was a “a designation affixed to goods to identify their source,” it easily qualified as an “advertising idea.”139

Even cases analyzing more restrictive policy language, such as policies used by Hartford140 and St. Paul,141 have concluded that a defense arose where the underlying allegations were based on the insured’s marketing and advertisements.

information about Street Surfing’s products by informing the public of the Wave’s origin for the purpose of attracting future customers who might like what they saw. Accordingly, the logo constituted an ‘advertisement’ under the policies.”). 137. Air Eng’g, Inc. v. Indus. Air Power, LLC, 828 N.W.2d 565 (Wis. App. 2013). 138. Id. at 572 (“The Internet Advertising System designs and places ads when certain search terms are entered, which ads contain domain names leading to information about available products and how to purchase such products. . . . [T]hese ads give notice to potential customers about Industrial’s goods, products, or services and are placed with the purpose of attracting customers. Therefore, using the Internet Advertising System to place these ads is advertising activity. Furthermore, these links are ‘about’ Industrial’s goods and products and therefore are potentially an advertisement under the website subsection of the policy definition. The complaint alleges that Industrial engaged in an advertising activity.”). 139. Cent. Mut. Ins. Co. v. StunFence, Inc., 292 F. Supp. 2d 1072, 1079 (N.D. Ill. (E. Div.) 2003) (“Additionally, Gallagher claimed that StunFence made statements in trade industry periodicals that StunFence owned and developed the technology and maintained proprietary rights over that technology—characteristics that purportedly describe the Power Fence.”). 140. Australia Unlimited, Inc. v. Hartford Cas. Ins. Co., 198 P.3d 514, 519-21 (Wash. App. 2008) (Analyzing offense for “copying, in your ‘advertisement[,]’ a person’s or organization’s ‘advertising idea’ or style of ‘advertisement.’” “Here, Crocs not only made general allegations of trade dress infringement, it also specifically included in its trade dress description its ‘marketing and sales materials’ that ‘share an overall unique look and feel’ that serve to identify Crocs as the origin. . . . In contrast to the protection offered by patents, trade dress protection is based on marketing and advertisements.”). 141. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1026 (9th Cir. 2008) (applying California law) (Coverage arose for trade dress infringement under offense for “unauthorized use of any advertising idea or advertising material, or any slogan or title, of others in your advertising[.]”).

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b. No Coverage Found In RSP Products, the absence of any express allegations of trade

dress infringement was found problematic where the only coverage asserted was under the 1998 ISO “use of another’s advertising idea.” RSP sought coverage for allegations in the underlying complaint titled “unfair competition.” The court denied coverage because while trade dress infringement was covered, unfair competition was not. The two were distinct causes of action, with the former covered and the latter excluded.142

In Pro-Seal, the Michigan Supreme Court took a narrow view of this offense because it concluded the claims did not meet the “advertisement” element.143 The claims at issue were directed to imitating or infringing trademarks or product marks, and using trade secrets, blueprints, engineering drawings, packaging materials, and sales practices that misrepresented Pro-Seal seals as being Flowserve seals. The court decided that since the gravamen of the claim did not support coverage, no defense was owed.

The Street Surfing144 decision, discussed above, emphasized the importance of securing insurance before a new business activity is undertaken and remaining attentive to the material provided in a policy application, as coverage was denied where the insured “began a wrongful course of conduct, obtained insurance coverage, continued its course of conduct, then sought a defense from its insurer when the injured party sued.”145 It was noteworthy that the insured approached the claimant for a license under the STREET SURFER trademark, was rebuffed, and then later elected to promote its own products under the label STREET SURFING.

The Street Surfing panel drew a distinction between the two key lines of authority dealing with when the offense took place relative 142. Greenwich Ins. Co. v. RPS Prods., 379 Ill. App. 3d 78, 87, 318 Ill. Dec. 79, 87, 882 N.E.2d 1202, 1210 (2008) (“RPS replacement filter packaging and nationwide advertising contain false and misleading statements and descriptions concerning replacement air filter applications, contain misrepresentations of fact, and constitute unfair competition[.]”). 143. Citizens Ins. Co. v. Pro-Seal Serv. Grp., Inc., 477 Mich. 75, 85, 86, 730 N.W.2d 682, 687 (2007) (Shipping a seal to a customer in a Flowserve container was not “notice that is published to the specific market segment in which Pro-Seal and Flowserve compete about the seals for the purpose of attracting customers or supporters. . . . Here, defendant sent a seal to a specific customer in a Flowserve container for the purpose of completing a single transaction. At best, Pro-Seal’s argument that it expected that other customers might view the package at the distribution center and, as a result, would be encouraged in doing business with defendant was an incidental and remote benefit that does not fundamentally alter the fact that this was a single transaction with a specific customer. . . . We conclude that the purpose for placing a Pro-Seal label on the Flowserve container in this instance was to identify for that specific customer the source of the seal to allow that specific customer to contact defendant with any questions or complaints about that product. 144. Street Surfing, LLC v. Great Am. E&S Ins. Co., 776 F.3d 603 (9th Cir. 2014). 145. Id. at 615 (“At its core, this case involves a company that began a wrongful course of conduct, obtained insurance coverage, continued its course of conduct, then sought a defense from its insurer when the injured party sued.”).

Vol. 107 TMR 1069 to when coverage was in place and whether a new offense occurred during the policy period: (1) Taco Bell146 from the Seventh Circuit holding that a “fresh wrong” did not require a novel set of features whose actionable character was clear, and (2) Kim Seng,147 from the California Court of Appeals, holding that there was no distinction in the liability-creating use of the QUE HUONG mark that preceded coverage and the later adoption of added marks including QUE HUONG with other terms during the policy period. The offense implicated in the Kim Seng case required “misappropriation of another’s ‘advertising idea,’” rather than “use of another’s ‘advertising idea’” at issue in Street Surfing.148 The Kim Seng court did not explain why the mark QUE HUONG necessarily defined the scope of the “advertising idea” that Kim Seng misappropriated, especially where the use of the distinct phrase, “Old Man Que Huong Brand” was considered by the jury and held not to infringe QUE HUONG. The Kim Seng court, relying on a defamation suit where simple republication of the defamatory statement was at issue,149 concluded that coverage was not available because “[a]t some point a difference between the republished version [occurring during the policy period]. . . would be so slight as to be immaterial [as compared to what occurred prior to the policy period.]” The plaintiff in that case had no claim as to any words used by Kim Seng other than the words “Que Huong.”150 By contrast, in Street Surfing, distinct unfair competition claims were asserted. But the Street Surfing court’s reasoning ignores this critical distinction. Had a distinct claim for unfair competition, in addition to trademark infringement, been asserted in the Kim Seng case, the court’s analysis suggests its ruling might have differed.

146. Taco Bell Corp. v. Cont’l Cas. Co., 388 F.3d 1069 (7th Cir. 2004) (applying Illinois law). 147. Kim Seng Co. v. Great Am. Ins. Co. of N.Y., 179 Cal. App. 4th 1030, 101 Cal. Rptr. 3d 537 (2009). 148. Street Surfing, 776 F.3d at 615 (“Street Surfing argues that this case is analogous to Taco Bell because, during the coverage period, it published advertisements for ‘Lime Green Street Surfing Wheels for the Wave’ and the ‘New Ultimate Street Surfer Wheel Set,’ and these advertisements differed from any pre-coverage advertisements. Conversely, Great American contends that this case is indistinguishable from Kim Seng. We conclude that Street Surfing’s post-coverage advertisements are substantially similar to its pre-coverage advertisement and therefore that the prior publication exclusion precludes coverage of the Noll action.”). 149. Kim Seng, 179 Cal. App. 4th at 1041, citing Ringler Associates Inc. v. Maryland Casualty Co. (2000) 80 Cal. App. 4th 1165. 150. Kim Seng, 179 Cal. App. 4th at 1042 (“Even with the addition of descriptive words and logos, the use of the term ‘Que Huong’ still suggests that the Kim Seng product is from the same source as products bearing the original ‘Que Huong’ mark—the Great River product.”).

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V. PERTINENT EXCLUSIONS A. First Publication Exclusion [All ISO Policies]

1. Policy Language This insurance does not apply to: (1) advertising injury: . . . (b) arising out of oral or written publication of material if the first publication took place before the beginning of the policy. Insurers frequently rely on this exclusion to limit coverage to a

singular year or avoid coverage for all claims after the first assertion of liability. But the exclusion is not so easily manipulated. The ISO Policy exclusion includes predicate language that states that this insurance does not apply to “advertising and personal injury arising out of . . . .” This language means that no duty to defend can be eviscerated by an exclusion without first addressing coverage under the predicate offense potentially eliminated by the proffered exclusion.

The insurer’s preferred response to any potentially covered intellectual property claim is to argue that the facts creating potential coverage predate the policy’s inception and rely on the publication of the same or similar material. A number of defenses to this exclusion exist.

First, injurious conduct must predate the policy’s inception or there would be no “personal and advertising injury” as a predicate to application of this exclusion. “Before even considering exclusions, a court must examine the coverage provisions to determine whether a claim falls within the policy terms.”151 An exclusion cannot only eliminate that which was otherwise covered.

Second, a “fresh wrong” may arise that will fall outside the exclusion such as a distinct “advertisement” even though part of a singular advertising campaign may manifest a different subtle aspect of the advertising message being communicated, such as a Chihuahua who pokes its head out of a cardboard cut-out. That was not previously demonstrated as part of a psycho Chihuahua campaign.152

151. Waller v. Truck Ins. Exch., 11 Cal. 4th 1, 10 (1995) (“Before even considering exclusions, a court must examine the coverage provisions to determine whether a claim falls within the policy terms.”). 152. Taco Bell Corp. v. Continental Cas. Co., 388 F.3d 1069 (7th Cir. 2004) (“The charge of misappropriation of the idea of the Chihuahua’s head popping out of a hole is a claim of advertising injury, meritorious or not; and Taco Bell bought insurance against having to pay the entire expense of defending against such claims. . . . Wrench’s complaint charges the misappropriation of the subordinate ideas as separate torts, and those torts occurred during the period covered by Zurich’s policy.” (emphasis added)).

Vol. 107 TMR 1071

Some courts have held that this provision applies only to libel, slander, and invasion of privacy torts because only these offenses are based upon “oral or written publication of material.”153

For the exclusion to apply to libel, slander, and the invasion of privacy torts, the publication of material that preceded the policy’s inception must have been injurious.154 Liability that first attaches for intellectual property rights that do not come into existence until after policy inception falls outside the exclusion.155 Advertisements that differ from those issued during a preceding policy period are covered,156 so long as they reveal a “fresh wrong.”157 Because insurers could have chosen more precise limiting language, mere similarity is insufficient to bar coverage.158

Where the pleadings do not specify the first date of alleged wrongful conduct for which coverage arises, there is no bar to a defense, especially where the facts suggested it could be stated with more specificity.159

153. Arnette Optic Illusions, Inc. v. ITT Hartford Grp., Inc., 43 F. Supp. 2d 1088 (C.D. Cal. 1998) (abrogated on other grounds by, United Nat. Ins. Co. v. Spectrum Worldwide, Inc., 555 F.3d 772, 89 U.S.P.Q.2d 1618 (9th Cir. 2009)) (adopting Irons Home analysis limiting application of exclusion to offenses for libel, slander, and invasion of privacy); See David A. Gauntlett, IP Attorneys’ Handbook for Insurance Coverage in Intellectual Property Disputes 347 (2d ed. 2014) (“The court’s determination that four minus two equals four, not two, suggests a need to revisit basic math. Although all offenses necessarily are implicated by the definition of advertising injury, the operative first-publication exclusion defines the term ‘advertising injury’ to include all four operative defenses (a) through (d). . . . By the court’s definition, all sections—even those that implicate only infringement and/or misappropriation without any necessity of an oral or written publication of material—must flow within the exclusion. However, this is but one possible construction, albeit not the most reasonable, and should therefore not prevail in light of the logic of MacKinnon, which the court cites but does not consider for this point.”). 154. David A. Gauntlett, Insurance Coverage of Intellectual Property Assets § 3.03 (2000) (Exception should only apply to torts and not other types of advertising injury). 155. Bay Elec. Supply, Inc. v. Travelers Lloyds Ins. Co., 61 F. Supp. 2d 611, 619 (S.D. Tex. 1999) (The First Publication Exclusion did not apply because the Lanham Act § 32(1) specifically requires that suit be brought by the “registrant.” The trademarks at issue were registered in 1997, and the policy was acquired in 1995.). 156. Santa’s Best Craft, LLC v. St. Paul Fire and Marine Ins. Co., 2004 WL 1730332, *9-10 (N.D. Ill. 2004) (Use of two of four slogans after inception triggered a defense: “New Technology” and “Worry-Free Lighting.”). 157. Taco Bell Corp. v. Cont’l Cas. Co., 388 F.3d 1069 (7th Cir. 2004) (The prior publication exclusion did not apply based upon a single commercial that aired prior to the second insurer’s policy period.). 158. Int’l Commc’n Material Inc. v. Emp’rs Ins. of Wausau, 1996 WL 1044552, at *4 (W.D. Pa. 1996) (“If Wausau had intended that the exclusion apply to advertising campaigns or material that is ‘similar to’ material published before the inception of the policies, it could have provided such language.”). 159. CamSoft Data Sys., Inc. v. S. Electronics Supply, Inc., 2011 WL 1743609, *4 (M.D. La. 2011), mot. denied, 2011 WL 2637001 (M.D. La. 2011) (“[T]he Complaint does not allege that the publication of material at issue (such as the marketing discussed in paragraph 106) occurred at the July 2004 meeting” and thus prior to the inception of the policy suit.).

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The exclusion may apply where injurious use of a singular trademark precedes policy inception, and use of same mark is a basis for potentially covered claim,160 even though additional descriptive terminology is added.161 But, the exclusion does not apply when the policyholder’s liability-creating occurrence first arose after the policy’s inception.162 Because the duty to defend is triggered by the possibility of coverage, when the date of first publication cannot be conclusively ascertained by reference to the complaint, the insurer’s duty to defend cannot be negated “in all possible worlds.”163

2. Fact Scenarios Analyzing Coverage a. Coverage Found

Those cases reaching contrary results typically involve the exact same liability-creating event before and after policy inception. The first publication exclusion does not apply when there is a possibility that the conduct giving rise to the complaint could have occurred, for the first time, within the policy period.164 The same is

160. Scottsdale Ins. Co. v. Sullivan Props., Inc., No. Civ. 04-00550HGBMK, 2006 WL 505170, at *11 (D. Haw. Feb. 28, 2006) (“The term ‘material’ means Defendants’ infringing, or allegedly infringing, use of the ‘Kapalua’ trade names and trademark whether on the internet or in other advertising and promotional materials. The . . . Underlying Complaint accuses Defendants of infringing the ‘Kapalua’ name--the very same trade name that it infringed several years earlier.”). 161. Kim Seng Co. v. Great Am. Ins. Co. of N.Y., 179 Cal. App. 4th 1030, 101 Cal. Rptr. 3d 537 (2d Dist. 2009), as modified on denial of reh’g, (Dec. 7, 2009) (No “fresh wrongs” evidenced potential coverage under the Taco Bell test. Potential coverage was barred where the court found slight distinctions in the description of the marks “before and after” policy insufficient. The addition of descriptive words and logos in the use of the term “Que Huong” suggested that Kim Seng’s product was from the same source as the original QUE HUONG mark—the Great River product. Kim Seng Co. v. Great Am. Ins. Co. of N.Y., 179 Cal. App. 4th at 1042. No distinct basis for liability was imposed by republication of “Que Huong” associated with the water buffalo design mark. The trademark infringement arose from use of the words “Que Huong” as part of a trademark that was confusingly similar to Great River’s QUE HUONG mark.). 162. Looney Ricks Kiss Architects, Inc. v. Bryan, Case No. 07-0572, 2014 U.S. Dist. LEXIS 31436, at *16-17, n.8 (W.D. La. (Shreveport Div.) Mar. 10, 2014) (applying Louisiana law) (“While the record establishes that much, and possibly all, of the infringing material was published prior to April 2008, the Court believes it is required to examine the alleged infringing material used in advertising prior to April 17, 2008 and then compare such to any material first published during the relevant policy periods of Tudor and Chartis.” Citing Everett Assocs., Inc. v. Transcon. Ins. Co., 57 F. Supp. 2d 874 (N.D. Cal. 1999) “The first publication exclusion did not bar insured from coverage where each advertisement would be considered separately for purposes of patent infringement and some of the advertisements were published after the commencement of the policy period.”). 163. Atl. Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1038 (2002). 164. Hudson Ins. Co. v. Colony Ins. Co., EDCV0701497SGLOPX, 2008 WL 5504572, at *2 (C.D. Cal. Dec. 16, 2008) aff’d on other grounds, 624 F.3d 1264 (9th Cir. 2010) (“The Colony policy was incepted May 14, 2005. Although this allegation leaves open the possibility that first publication occurred during the first two weeks of May (and thus, would be outside the

Vol. 107 TMR 1073 true when there can be no possible liability because the nature of the wrongful act was not actionable (and thus no offense occurred) before policy inception.

b. No Coverage Found In Street Surfing, the court distinguished the factual assertions

in Taco Bell from those in the underlying Noll complaint because the latter made no mention of any specific advertisements, but rather general allegations that Street Surfing injured Noll by using the “Street Surfing” name and logo on its product, “the Wave,” and in its advertisements.

The court suggests that there were unique, post-policy inception, common law misappropriation torts asserted that were not evident before the policy’s inception. This is an overbroad construction of the Seventh Circuit’s ruling in Taco Bell, which did not require such particularity in the pleadings.

Given the history of the trademark infringement exclusion, it was not the mere use of the term “Street Surfing,” but its association in the public mind with the sport activity that created liability. The court ignored the true genesis of the coverage for “use of another’s advertising idea in your ‘advertisement’” offense and failed to recognize how it evolved distinctly in later policy years.

The court reasoned that subsequent advertising material “differentiate[d] the publications, but not the alleged wrongs.”165 Like in Taco Bell, this reasoning failed to focus with granularity on what the alleged wrongs were. The underlying plaintiff in Street Surfing alleged two distinct wrongs: (1) Street Surfing’s pre-policy use of the infringing logo on its website, and (2) its post-policy advertisements that articulated details about the new sport of “street surfing.” In failing to make a distinction between “street surfing” used as the logo, and “street surfing” used as the idea for a new sport, the court mistakenly applied the first publication exclusion to both. The “first publication” exclusion expressly requires as a prerequisite to application of the exclusion, per the policy language, “personal or advertising injury”, i.e., “injury arising out of ‘use of another’s advertising idea in your “advertisement.” In other words, the policy must be read in light of the defined terms that require a focus only on the covered claims in analyzing the exclusion. The distinct use of the “advertising idea” of engaging in the sport of “street surfing” did not occur prior to the policy’s inception. Until advertisements explicitly used the “advertising idea” of street surfers practicing a new sport, there could be no “use of another’s ‘advertising idea.’” The first publication exclusion relevant policy period), it also raises the possibility that first publication occurred within the relevant policy period.”). 165. Street Surfing, LLC v. Great Am. E&S Ins. Co., 776 F.3d 603, 614-15 (9th Cir. 2014).

1074 Vol. 107 TMR should not have barred a defense because the only “advertising idea” Street Surfing used prior to the policy’s inception was the logo and not the idea of advertising a new sport.

Finding the “prior publication” exclusion precluded a defense for trademark infringement and related common-law and statutory violations brought by the Navajo Nation in a suit filed in federal court in Pennsylvania in Urban Outfitters I,166 the court noted that Hanover had no duty to defend because the alleged infringement began 16 months before insurance coverage incepted. Acknowledging that the “personal and advertising injury” provisions unambiguously covered Urban Outfitters’ alleged trademark infringement and related common-law and statutory violations, the court concluded that the “first publication” exclusion barred a defense. The complaint lacked chronological detail and was cryptic. The absence of such clarity favored the insurer.

The Third Circuit in Urban Outfitters II167 focused on specific complaint allegations of wrongful acts “at least as early as March 16, 2009” and “since March 16, 2009.” Rejecting Urban Outfitters’ argument that a “fresh wrong” occurred post-policy inception and citing Street Surfing,168 the court redefined a “fresh wrong” as a “ ‘new matter’ . . . that is not ‘substantially similar’ to the material published before the coverage period.”169[p]ost-coverage ads were not “fresh wrongs” because (1) the underlying plaintiff did not “allege that the post-coverage advertisements were separate torts occurring during the policy period” and (2) the advertisements “arose out of each term’s similarity to [plaintiff’s] advertising idea.”170 The Third Circuit’s “separate torts” analysis is not supported by

any authority. In effect, the court articulates a narrower standard, barring a duty to defend under the “prior acts” exclusion, where the complaint does not allege a substantive difference between allegedly infringing advertisements, published before and during the relevant policy period, and instead alleges mere “variations,” occurring within a common, clearly identifiable advertising objective that did not give rise to “fresh wrongs.” Id.

In determining whether two or more sets of advertisements share a common objective, courts may look to whether the plaintiff charged the insured with separate torts or an agglomeration. Other significant factors include whether the

166. Hanover Ins. Co. v. Urban Outfitters, Inc., No. 12-cv-3961, 2013 U.S. Dist. LEXIS 116889 (E.D. Pa. Aug. 19, 2013). 167. Hanover Ins. Co. v. Urban Outfitters, Inc., 806 F.3d 761 (3d Cir. 2015). 168. Street Surfing, LLC v. Great Am. E&S Ins. Co., 776 F.3d 603, 612 (9th Cir. 2014). 169. St. Surfing, 776 F.3d at 605. 170. Urban Outfitters, 806 F.3d at 768.

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complaint describes a significant lull between pre- and post-coverage advertising initiatives and whether the advertisements share a common theme relating to the alleged violation.171 The court acknowledged, but failed to adopt, the analytical

identity demanded by Taco Bell,172 stating: Navajo Nation did not charge Urban Outfitters with committing separate torts before and during Hanover’s coverage period. Nor did it hint at a hiatus in Urban Outfitters’ tortious pursuits between March 2009 and the complaint’s filing. Navajo Nation alleged that Urban Outfitters “started using the ‘Navajo’ and ‘Navaho’ names” via all relevant instrumentalities of infringement (use “in its product line, or in connection with the sale of its goods, online, in its catalogs, and in its physical stores”) well before Hanover’s coverage period commenced.173 Narrowly reiterating the “fresh wrong” doctrine based on a

“substantially similarity” test, which was adopted by Street Surfing, LLC, 776 F.3d 603, the court concluded that a line of products used the “Navajo” name post-policy inception, which were “variations occurring within a common, clearly identifiable advertising objective.”

This “separate torts” approach is especially problematic where the outside contours of the tort are unclear, as was the case in Taco Bell.174 The Taco Bell court determined that an advertising campaign to promote a feisty barking Chihuahua by Taco Bell did not preclude coverage where one episode that had a Chihuahua pop its head out of a cardboard box had not been within the scope of the original idea presented to Taco Bell. That case analyzed coverage under the common law misappropriation offense for claims that included the ambiguous “misappropriation of advertising ideas” offense covered by the policy’s 1986 ISO CGL provision. Courts have found this provision both broader than mere trademark infringement claims175 and inherently ambiguous.176 The breadth of

171. Id. at 768. 172. Taco Bell Corp. v. Cont’l Cas. Co., 388 F.3d 1069, 1072-04 (7th Cir. 2004). 173. Urban Outfitters, Inc., 806 F.3d at 769. 174. 388 F.3d at 1072. 175. Lebas Fashion Imports of USA, Inc., 50 Cal. App. 4th at 564 (“Hartford’s contention that the phrase ‘misappropriation of an advertising idea or style of doing business’ is necessarily limited to a common law tort, which excludes a claim for trademark infringement, depends upon an unreasonably narrow construction of the single word, ‘misappropriation.’”). 176. Id. at 565 (“There is nothing about the terms ‘misappropriation of an advertising idea’ or ‘misappropriation of a style of doing business,’ neither of which constitutes a recognized tort, which compels us to conclude one way or the other as to just how broadly or narrowly they should be read.”)

1076 Vol. 107 TMR the “misappropriation of advertising idea” policy language means that it can include both statutory and common law misappropriation claims. Again, it is the factual allegations, not labels of causes of action, that control in coverage analysis.

Notably, the Urban Outfitters177 case does not describe with specificity what coverage arose in light of the particular factual allegations that evidence coverage that also fell outside the exclusion. The court substituted its conclusion that there was thematic consistency between the post policy inception advertising examples following the Navajo Nations theme, focusing on their common objective (just as Taco Bell noted all the advertisements shared a common theme) but parted company with Taco Bell in not finding a distinct episode that fell outside the scope of the exclusion to evidence a “fresh wrong.”

The “common advertising objective” test muddies the waters interminably because it does not provide any precise delineation of how the interaction between the covered offense and the exclusion arises. The Third Circuit Panel’s departure from proper analysis is characteristic of appellate decisions that jump to exclusionary language without carefully evaluating what covered conduct might exist that potentially gave rise to a defense.178 This approach is especially problematic (as here) where the predicate defined phrase required identification of the operative offense (here, privacy invasion) was incorporated into the “first publication” exclusion as the predicate conduct to which the exclusion could only apply—“personal and advertising injury.”

B. Knowledge of Falsity [ISO] 1. Policy Language

This insurance does not apply to: a. “Personal injury” or “advertising injury”: (1) Arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity. . . . This insurance does not apply to “personal or advertising injury” that was caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict “personal and advertising injury.’” (Emphasis added.) The “knowledge of falsity” exclusion should not bar a defense

for claims where “knowledge of falsity” is not an element of the

177. Urban Outfitters, 806 F.3d 761. 178. But, see Waller v. Truck Ins. Exch., 11 Cal. 4th 1, 44 Cal. Rptr. 2d 370, 900 P.2d 619 (1995).

Vol. 107 TMR 1077 offense at issue in the underlying action. It is rarely appropriate to bar a duty to defend since an actor’s scienter will rarely be known, if ever, until after an adjudication of liability against the insured in the underlying action.

2. Knowledge of Falsity Fact Scenarios Analyzing Coverage a. Coverage Found

The Knowledge of Falsity Exclusion is limited to reputation and privacy invasion torts. Intellectual property torts do not require proof of the falsity of statements or a defendant’s knowledge of the falsity as an element of liability.179 Reckless indifference is insufficient to evidence “knowledge of falsity.”180 Nor does the mere award of punitive damages, without more, establish this exclusion’s applicability.181 While enough to preclude one panel of the Seventh Circuit from recognizing a defense due to this exclusion,182 mere labels for conduct as “fraudulent” have not withstood scrutiny under substitute governing state law analysis of the same issues.183 The term “false” in the exclusion will not eviscerate coverage for conduct whose truth or untruth is immaterial to the establishment of liability.184

179. Finger Furniture Co., Inc. v. Travelers Indem. Co. of Connecticut, 2002 WL 32113755, *13 (S.D. Tex. 2002) (“Because Finger could have been found liable under the TruServ Complaint without any finding that it had knowledge of the alleged falsity, the cited exclusion does not bar coverage for the underlying suit.”). 180. Elcom Techs. v. Hartford Ins. Co. of Midwest, 991 F. Supp. 1294, 1298 (D. Utah 1997) (applying Pennsylvania law) (“Phoenex’s false advertising claim, however, does not require an intent to deceive or knowledge of falsity . . . . That claim can be proved by establishing that Elcom acted with reckless indifference in advertising the ezPHONE as the only patented wireless telephone jack on the market.”). 181. W. Wis. Water, Inc. v. Quality Beverages of Wis., Inc., 2007 WI App 188, 305 Wis. 2d 217, 237, 738 N.W.2d 114, 124 (Ct. App. 2007) (“There is no requirement that the proponent prove intent to deceive [to prove trademark infringement] . . . . [T]he fact that the jury awarded punitive damages based on its finding that Crystal Canyon acted ‘in intentional disregard of Western’s rights’ . . . is not the equivalent of an intent to deceive and cannot be invoked to demonstrate knowledge of falsity.”). 182. Del Monte Fresh Produce N.A., Inc. v. Transp. Ins. Co., 500 F.3d 640, 645 (7th Cir. 2007) (“Del Monte does not point to a single factual allegation that is not a part of a specific allegation of fraud . . . . Therefore, the complaints . . . fall squarely within the exclusion . . . for . . . statements made by the insured . . . with knowledge of falsity.”). 183. Axiom Ins. Managers, LLC v. Capitol Spec. Ins. Corp., 876 F. Supp. 2d 1005, 1014 (N.D. Ill. (E.D.) 2012) (“[T]he defamation claim did not require proof that Axiom knew the statements about Indemnity’s financial condition were false . . . . The facts alleged in the Texas suit complaint did not demonstrate that Indemnity could only recover with proof that would make the material published with knowledge of falsity and/or knowing violation of rights of another[.]”). 184. Atl. Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1040, 123 Cal. Rptr. 2d 256 (2d Dist. 2002) (“Even though it may ultimately be determined that Atlantic Mutual has a viable defense to coverage by virtue of the application of the ‘first publication’ exclusion,

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b. No Coverage Found Some decisions applying New York law have applied this

exclusion to bar coverage where findings suggest that a defendant is a “serial infringer” or intended to undertake infringing activity.185 New York authority from its highest court emphasizes that establishing liability in trademark claims does not require “knowledge of falsity.” Such knowledge is not an element of a trademark claim. Even reckless conduct will not trigger application of this exclusion.186

3. Knowing “Personal and Advertising Injury” [ISO] a. Coverage Found

Like deceptive trade practices, trademark infringement is not an inherently “knowing” offense activity. An insurer owes a defense unless the factual allegations only permit liability to attach for conduct falling within the exclusion. Such facts can rarely be known until a final adjudication.187

Finding this exclusion of no moment, the Second Circuit observed: Despite the boilerplate allegation of willful misconduct, . . . such a claim does “not require proof of intent to deceive.” . . . Our inquiry ends there: as at least one of the claims in the Underlying Action did not require intent, Charter was required to defend the entire action.188 The “knowing violation” exclusion does not apply when “there

are claims set forth in the complaint that survive the ‘knowing

this can only affect its liability for indemnification . . . . That potential . . . cannot be negated short of an actual trial[.]”). 185. A.J. Sheepskin and Leather Co., Inc. v. Colonia Ins. Co., 273 A.D.2d 107, 108, 709 N.Y.S.2d 82, 83 (1st Dep’t 2000) (Exclusion applied when conduct was allegedly “knowing and intentional,” because insured was found by jury to be a “serial infringer” such that insured anticipates its conduct would be wrongful when it was undertaken. The court confused “knowing and intentional conduct” with “knowledge of falsity.”). 186. Town of Massena v. Healthcare Underwriters Mut. Ins. Co., 98 N.Y.2d 435, 445, 749 N.Y.S.2d 456, 779 N.E.2d 167 (2002) (statements made with reckless disregard for truth not within exclusion, and defense for same is compelled). 187. Ohio Cas. Ins. Co. v. Cloud Nine, LLC, 464 F. Supp. 2d 1161, 1168 (D. Utah 2006) (“[T]he causes of action asserted against the Cloud Nine Defendants do not necessarily require that, in order to find liability, the defendant have knowledge of falsity or knowledge that its conduct would cause advertising injury. See 15 U.S.C. § 1114(1) (setting forth elements of trademark infringement); . . . Utah Code Ann. § 13-11a-3 (defining deceptive trade practices); . . . .”). 188. CGS Indus. v. Charter Oak Fire Ins. Co., 720 F.3d 71, 83 (2d Cir. 2013) (applying New York law).

Vol. 107 TMR 1079 violation’ exclusion.” A mere allegation of willful and malicious conduct does not, itself, relieve the insurer of any duty to defend.189

b. No Coverage Found In Signal, Gucci sued a Guess licensee for trade dress

infringement in the underlying suit, leading to an adverse bench trial judgment, which Zurich refused to cover.190 Finding willful misconduct based on “repeated and detailed findings regarding Signal’s willfulness,”191 the court agreed that no coverage arose but deferred ruling on the issue until facts were developed.192 Zurich agreed to defend but refused to pay Signal’s independent counsel.193

C. Intellectual Property Exclusion Insurance underwriters have sought to limit intellectual

property coverage since tenders of intellectual property suits under CGL policies commenced in the late 1980s. While some insurers elected to remove “personal and advertising injury” coverage to assure that no case with an intellectual property claim could fall within CGL coverage, others sought to limit what they perceived as the most problematic coverage — claims for patent and trademark infringement. This effort met with mixed success until ISO limited the scope of such coverage in 2002 with an express intellectual property exclusion.

Even after adoption of the intellectual property exclusion by ISO, however, a number of trademark infringement lawsuits included factual assertions that potentially implicated coverage that fell both within the mere limited “personal and advertising injury” offense and outside the express intellectual property exclusion.

1. ISO Version a. Policy Language of IP Exclusion

This insurance does not apply to . . . “Personal and Advertising Injury” arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights.

189. Air Eng’g, Inc. v. Indus. Air Power, LLC, 2013 WI App 18, 346 Wis. 2d 9, 828 N.W.2d 565. 190. Signal Prods. v. Am. Zurich Ins. Co., 2:13-cv-04581-CAS-(AJWx), 2013 U.S. Dist. LEXIS 179933 (C.D. Cal. Dec. 19, 2013). 191. Id. at *19. 192. Id. at *19 (“When Signal intentionally copied Gucci trade dress—including ‘attempting to copy the Gucci brown/beige color scheme” and seeking to “mimic coatings used on Gucci fabrics’ . . the resulting infringement was “caused by or at the direction of the insured with the knowledge that the act would violate the rights of another.”). 193. Id. at *19.

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Under this exclusion such other intellectual property rights do not include the use of another’s advertising idea in your ‘advertisement.’ However, this exclusion does not apply to infringement, in your ‘advertisement,’ of copyright, trade dress or slogan.”

b. Fact Scenarios Analyzing Coverage (1) Coverage Found

In Creation Supply,194 the insurer argued that because Creation Supply was sued for trademark infringement, the intellectual property exclusion applied to bar coverage. The court dismissed this argument because the policy language contained an express exception to the exclusion that narrows the exclusion’s application.195 The exception encompassed copyright infringement, trade dress infringement, and slogan infringement.196 The insurer owed a duty to defend, because the underlying suit also alleged trade dress infringement, and trade dress infringement was an exception to the intellectual property exclusion.197

(2) No Coverage Found In Willowood,198 a pesticide distributor entered into a business

venture with a pesticide manufacturer to sell a new pesticide named TEBUCON. When the deal fell apart, Willowood, the distributor, continued to use the TEBUCON mark. The manufacturer sued Willowood for using the mark. Willowood submitted claims to its insurance companies, who then sued for declaratory judgment.199 After first disposing of coverage for disparagement and trade libel, the court found that the IP exclusion applied to bar coverage because, although the TEBUCON mark was not registered, the definition of trademark “include[s] a ‘name or symbol identifying a product’ registered or established by use.”200 (Emphasis added.)

Likewise, in Security Safe, the Sixth Circuit found that the intellectual property exclusion precluded coverage, because the

194. Selective Ins. Co. v. Creation Supply, No. 1-14-0152, 2015 Ill. App. Unpub. LEXIS 202 at *27 (Feb. 9, 2015). 195. Id. at *27-28. 196. Id. 197. Id. 198. Crum & Forster Specialty Ins. Co. v. Willowood USA, LLC, Civ. No. 6:13-cv-01923, 2014 U.S. Dist. LEXIS 153363 (D. Or. Oct. 27, 2014). 199. Id. at *3-6. 200. Id. at *43-44 (emphasis added).

Vol. 107 TMR 1081 policy “unambiguously exclude[d] coverage for such injury arising from trademark infringement.”201

Willowood and Security Safe demonstrate the importance of characterizing the underlying claims to fit within the express exceptions of the policy. Creative characterization often takes an encyclopedic knowledge of the countrywide case law, sensitivity to the underlying facts, and close attention to each and every policy provision. In the context of intellectual property exclusions, avoiding the exclusion involves asserting claims that are not dependent on infringement of intellectual property rights, or fitting the asserted claim into one of the express exceptions to the exclusion. Given the prevalence of “notice pleading,” neither of these paths to coverage is obvious except in the narrowest of circumstances.

2. Non-ISO Provisions a. Exclusionary Provisions That Are Not

Conspicuous, Plain, and Clear Exclusions for intellectual property have grown especially

restrictive in the last few years. Examples from Travelers, Hartford, Chubb, and Great American shown below present broad intellectual property exclusions. These policies offer the most limited intellectual property coverage available for CGL risks. When faced with representation of an insured who purchased one of these policies, consider whether the insurer appropriately provided notice of the effect in reducing coverage of various provisions in the policies’ language. Failing to advise policyholders of available coverage that has been eliminated by inclusion of conditional coverage in a phrase buried in an intellectual property exclusion may render the exclusion provision unenforceable.202

b. Broker Liability for Failure to Advise Policyholder of Limitation in Coverage

Brokers who promote problematic policies must ensure that the policyholders who buy them are aware of their coverage

201. Liberty Corporate Capital Ltd. v. Sec. Safe Outlet, 577 Fed. Appx. 399, 408 (6th Cir. 2014) (applying Kentucky law). 202. Princeton Express & Surplus Ins. Co. v. DM Ventures USA LLC, 209 F. Supp. 3d 1252, 1258 (S.D. Fla. 2016) (“Under Florida law, insurance coverage is illusory when policy provisions, limitations, or exclusions completely contradict the insuring provisions. . . . Tire Kingdom v. First Southern Ins. Co., 573 So. 2d 885, 887 (Fla. 3d DCA 1990) (‘An insurance policy cannot grant rights in one paragraph and then retract the very same right in another paragraph called an “exclusion.” ’).”).

1082 Vol. 107 TMR limitations203 and informed of their options to procure appropriate coverage.204

c. Pertinent Non-ISO Intellectual Property Exclusions (1) Travelers

Travelers’ Web Xtend Liability (CG D2 34 01 05) eliminates coverage for “f. the use of another’s advertising idea in your ‘advertisement’ ” and “g. infringement of . . . trade dress in your ‘advertisement.’ ”

One court suggested that a sentence in an intellectual property exclusion that does not purport to apply to all otherwise covered claims would need to be read in context of the entire contract before determining its effect.205

In Michael Taylor Designs, the district court found the intellectual property exclusion problematic but did not deem the exclusion unenforceable. On appeal, the appellate court never reached the issue because it affirmed the district court’s opinion finding that Travelers had a duty to defend.206

(2) St. Paul We won’t cover injury or damage . . . that results from . . . infringement or violation of any of the following rights or laws . . .: [other intellectual property] . . . [unless it] results from . . . use of any trademarked slogan; or trademarked title of others in your advertising. Under St. Paul’s policy, conduct may fall outside the intellectual

property exclusion so long as other allegations set forth conduct not

203. Jones v. Grewe, 189 Cal. App. 3d 950, 954 (1987) (“An insurance agent has an obligation to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured.”). 204. Nowlon v. Koram Ins. Ctr., Inc., 1 Cal. App. 4th 1437, 1447 (1991) (“A broker’s failure to obtain the type of insurance requested by an insured may constitute actionable negligence and the proximate cause of injury.”). 205. Premier Pet Products, LLC v. Travelers Prop. & Cas. Co. of Am., 678 F. Supp. 2d 409, 417 (E.D. Va. 2010) (“An ‘endorsement is not a complete contract in itself.’ Id. Certainly a five-page endorsement that purports to change sections of the original sixteen-page policy cannot be read to replace entirely the underlying policy. The Court will consider, to the extent necessary, the entirety of the contract before it.”). 206. Michael Taylor Designs, Inc. v. Travelers Prop. Cas. Co. of Am., 761 F. Supp. 2d 904, 913 n.9 (N.D. Cal. 2011) aff’d on other grounds, 495 F. App’x 830 (9th Cir. 2012) (“The apparent practice of providing policy holders with pages and pages of provisions that may or may not be in force, depending on what endorsements apply, is not to be commended. Given current technology, there would appear to be little practical impediment to preparing customized policy documents for each policy holder that either omit deleted verbiage entirely or plainly identify it as having been removed by endorsement.” (emphasis added)).

Vol. 107 TMR 1083 described by the exclusion.207 Under St. Paul’s reading of its policy, the enforceability of this exclusion remains controversial.208

This insurance does not apply to: . . . “advertising injury” arising out of or directly or indirectly related to the actual or alleged publication or utterances of oral or written statements, whether made in advertising or otherwise, which is claimed as an infringement, violation, or defense of any of the following rights or laws: 1. copyright, other than infringement of copyrighted

advertising materials; 2. patent; 3. trade dress; 4. trade secrets; or 5. trademark or service mark or certification mark or collective

mark or trade name, other than trademarked or service marked titles or slogans.

St. Paul’s intellectual property exclusion, like Travelers, contained the relevant sentence in later versions of the policy. Finding coverage simply requires enforcement of the exceptions.209

(3) Hartford Exclusion—Personal and Advertising Injury HC 00 8812 10—Cyberflex Amendment of Coverage B—Personal and Advertising Injury . . . . [T]here is no coverage under personal and advertising injury or damage alleged in any

207. Kla-Tencor Corp. v. Travelers Indem. Co. of Ill., 2003 WL 21655097 (N.D. Cal. 2003) (The insurer denied coverage on the basis that the allegations against the insured fell within the intellectual property exclusion which exempted coverage for publication or utterances related to infringement. The insurer claimed that the statements, allegedly made by the insured, were made in connection with its effort to defend its patent claims. The court ruled that the third party had alleged that the insured made untrue statements regarding its financial condition, future viability, and its having lost large orders. Those allegations made no mention of the insured’s patents and could have formed the basis of the interference with contractual relations and prospective economic advantage claims. As such, the statements gave rise to a potential liability covered under the policy.). 208. S.B.C.C., Inc. v. St. Paul Fire & Marine Ins. Co., 186 Cal. App. 4th 383, 396, 397 (2010) (No) (“South Bay emphasizes that only one of SJC’s claims was for trade secrets violation, and not all of the information taken from SJC was a ‘work of the mind.’ . . . [T]here is no coverage for ‘any other injury or damage that’s alleged in any claim or suit which also alleges any such infringement or violation.’ . . . Here St. Paul has demonstrated, ‘by reference to undisputed facts, that the claim cannot be covered.’”). 209. Santa’s Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 348 (7th Cir. 2010) (“We agree with the district court that, even if the IP exclusion applied, the trademark exception would require St. Paul to defend the action given the uncertainty whether the court in the underlying action would have decided the slogan qualified as trademarkable. But, because St. Paul has not met its burden to prove that the IP exclusion applies in the first instance, we need not reach this alternative holding.”).

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claim or suit that alleges infringement or violation of any intellectual property right. Applying a “but for” analysis, the Fourth Circuit concluded that

Hartford’s Intellectual Property Rights Exclusion relieved the insurer of any duty to defend.210 The same analysis was adopted despite the prevalence of unfair competition claims “when a suit brought against the insured contain[ed] only allegations arising out of trademark or trade name violations.”211 The “mere possibility that an unfair competition claim can exist independent of an allegation of trademark violation does not mean that an independent claim was raised in [the underlying] complaint.”212 But for the alleged trademark violation, there would be no unfair competition claim.213

It is the author’s view that both cases posited the wrong question by focusing on the tort elements to establish liability214 and failing to consider possible indemnity exposure for unfair competition if the trademark infringement claims later proved unenforceable, 215 especially as the gravamen of a suit is of no moment in evaluation of the duty to defend.216

210. Superformance Int’l, Inc. v. Hartford Cas. Ins. Co., 332 F.3d 215, 223 (4th Cir. 2003) (“All of the claims made in the complaints against Superformance—trademark infringement, trade dress infringement, and trademark dilution, as well as unfair competition based on those violations—are varieties of trademark claims protected by the Lanham Act and State analogues.”). 211. Marvin J. Perry, Inc. v. Hartford Cas. Ins. Co., 412 Fed. Appx. 607, 610 (4th Cir. 2011). 212. Id. at 612 (“[T]here is no indication as to how the style of P & W’s website had developed a meaning such that utilizing a similar style would constitute unfair competition. Instead, the complaint makes clear that the reason that the web presentation was potentially confusing to customers was because the trade name ‘Marvin J. Perry & Associates’ and trademarked logo containing the same were utilized throughout the website.”). 213. Id. at 612 (“Ultimately, as the district court stated, ‘the independent unlawful conduct that caused P & W’s business injury, which is the gravamen of P & W’s underlying complaint and an element of the tort [of unfair competition] is based upon MJP’s use of its trade name, trademark, logo, and website . . . in violation of P & W’s registration and ownership of that name and mark[.]’ As such, any allegation of unfair competition would necessarily be excluded from coverage as a claim ‘arising out of any violation of any intellectual property rights, such as . . . trademark, trade name . . . or other designation of origin or authenticity.’”). 214. E.S.Y., Inc. v. Scottsdale Ins. Co., 139 F. Supp. 3d 1341, 1355 (S.D. Fla. 2015) (“The Policy does not define ‘advertising idea.’ ‘Yet, the Eleventh Circuit, applying Florida law, has construed the term to mean “any idea or concept related to the promotion of a product to the public.”’”). 215. Axiom Ins. Managers, LLC v. Capitol Specialty Ins. Corp., 876 F. Supp. 2d 1005, 1013 (N.D. Ill. 2012) (“[Nor need] the complaint allege or use language affirmatively bringing the claims within the scope of the policy.”) (internal quotes omitted); 216. Pension Tr. Fund v. Fed. Ins. Co., 307 F.3d 944, 951 (9th Cir. 2002) (“[The duty to defend does not] turn on whether facts supporting a covered claim predominate or generate the claim.”).

Vol. 107 TMR 1085

(4) Chubb Two versions of Chubb’s intellectual property exclusions were

held invalid because they were illusory: This insurance does not apply to any actual or alleged bodily injury, property damage, advertising injury or personal injury arising out of, giving rise to or in any way related to any actual or alleged: . . . assertion; or . . . infringement or violation; by any person or organization (including any insured) of any intellectual property law or right, regardless of whether this insurance would otherwise apply to all or part of any such actual or alleged injury or damage in the absence of any such actual or alleged assertion, infringement or violation.217 The same result arose, with a slight variation in the policy

language by Chubb. Although the provision was not illusory per se, the court still found the exclusion insufficiently clear to avoid a duty to defend.218

Nonetheless, not all jurisdictions have taken the same view, so companies seeking insurance should be careful to only select those policies that have the broadest coverage available for their anticipated liability exposures.219

(5) Great American Endorsement—“Exclusion of Claims and ‘Suits’ Alleging Infringement of Intellectual Property”

I. Coverage B—Personal and Advertising Injury Liability. . . . 2. Exclusions, I. Infringement of Copyright, Patent, Trademark or Trade Secret, is deleted and replaced by the following:

217. Align Tech., Inc. v. Fed. Ins. Co., 673 F. Supp. 2d 957, 961 (N.D. Cal. 2009); see also Aurafin-OroAmerica, LLC v. Federal Ins. Co., 188 Fed. Appx. 565, 567 (9th Cir. 2006) (“It is unclear what the exclusion meant when it excluded statements made in “defense of” intellectual property rights.”). 218. Align Tech., 673 F. Supp. 2d at 969 (“Federal’s language does not put an insured reasonably on notice that Federal will not cover claims in a lawsuit whenever that lawsuit also includes a claim for intellectual property. Thus, the ‘regardless’ clause does not conclusively eliminate coverage for all of the claims in the Cross-Complaint.”). 219. Princeton Express & Surplus Ins. Co. v. DM Ventures USA LLC, 209 F. Supp. 3d 1252, 1260 (S.D. Fla. 2016) (the Exclusion here essentially eliminates all advertising injury coverage. Because the policies provide that they cover advertising injury, and then the Exclusion provides that advertising injury is excluded, the provisions are completely contradicted. The Exclusion does not carve out a particular type of advertising injury—such as those that violate a statute as in Interline Brands—but, instead, excludes all advertising injury. Giving effect to the Exclusion would make the advertising injury coverage illusory, which is prohibited by Florida law).

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i. Claim or Suit Alleging Infringement of Intellectual Property

(l) Any claim or “suit” . . . arising out of any . . . misappropriation, infringement, or violation of . . . copyright . . . patent . . . trademark . . . trade name . . . trade secret . . . trade dress . . . service mark . . . slogan . . . service name . . . other right to or law recognizing an interest in any expression, idea, likeness, name, style of doing business, symbol, or title . . . laws or regulations concerning piracy, unfair competition, unfair trade practices, or other similar practices; or . . . any other intellectual property right or law. Great American’s intellectual property exclusion is potentially

broad because, after a reciting other intellectual property claims, it includes the term “unfair competition.” In application, however, courts have construed the exclusion narrowly.220

D. “Failure to Conform” The 2001 ISO policy form provided an exclusion as follows: (c) Quality or Performance of Goods—Failure to Conform to

Statements “Personal and advertising injury” arising out of the failure of goods, products, or services to conform with any statement of quality or performance made in your “advertisement.” This “failure to conform” or “failure of warranty” exclusion

should rarely bar coverage for trademark infringement/unfair competition claims. No “performance” or “quality” is under attack in a typical trademark infringement lawsuit. Rather, the dispute often centers around who owns or possesses the right to enforce intangible property rights or avoid consumer confusion over the scope and meaning of the asserted trademarks.

1. Coverage Found The “failure to conform” exclusion is typically limited to breach

of warranty claims.221 Although it is often discussed by insurers in lawsuits for false advertising, it often has no application to claims

220. JAR Labs. LLC v. Great Am. E & S Ins. Co., 945 F. Supp. 2d 937, 946 (N.D. Ill. 2013) (“Illinois policy, legal authority, and the language of the exclusion itself all militate in favor of construing the ‘unfair competition’ exclusion as targeting a narrow subset of intellectual property violations that does not include . . . false advertising and related claims.”). 221. Hamon v. Digliani, 148 Conn. 710, 718, 174 A.2d 294 (1961) (“Where the manufacturer or producer makes representations in his advertisements or by his labels on his products as an inducement to the ultimate purchase, the manufacturer or producer should be held to strict accountability to any person who buys the product in reliance on the representation and later suffers injury because the product fails to conform to them.”).

Vol. 107 TMR 1087 between competitors.222 For example, a statutory claim, for misstating that goods were Indian made when they were not, fell outside this exclusion.223

2. No Coverage Found Courts finding no coverage have often interpreted the exclusion

in isolation from the coverage grant, but the situations in which the exclusion applied should have been circumscribed by the relevant facts.224 The exclusion has been a bar to coverage for false advertising claims even when the facts evidenced disparagement based on false negative comparative statements.225 In Clarcor,226 3M’s complaint was excluded under the policy’s “failure to conform” exclusion because Clarcor’s product allegedly did not conform to its advertisement.

In Harleysville227 the court failed to address the applicability of the exclusions in all possible worlds, including one where negative

222. Elcom Techs. v. Hartford Ins. Co. of Midwest, 991 F. Supp. 1294, 1298 (D. Utah 1997) (applying Pennsylvania law) (“Because Phoenex’s false advertising claim does not allege that Elcom’s product failed to rise to the level advertised, the failure to conform exclusion does not apply to that claim.”); DecisionOne Corp. v. ITT Hartford Ins. Grp., 942 F. Supp. 1038 (E.D. Pa. 1996) (Exclusion inapplicable unless the complaint contains specific allegations that the goods fail to conform to the quality or performance advertised; i.e., the exclusion applies principally to insurer claims for breach of warranty, not claims by competitors for unfair competition asserted by one business against another.). 223. Jewelers Mut. Ins. v. Milne Jewelry Co., 83 U.S.P.Q.2d 1665, 2006 WL 3716112, *3 (D. Utah 2006) (“In other words, Plaintiff argues that the term ‘quality’ refers to a certain characteristic, and that being of Native American origin is a quality contemplated by the policy. Defendant replies that the term ‘quality’ in the policy relates not to a characteristic, such as Native American authenticity, but rather, to the fitness of the product . . . . The term ‘quality’ as written in the policy is reasonably susceptible to more than one meaning, and therefore, must be construed against Plaintiff.”). 224. Liberty Mut. Fire Ins. Co. v. Mark Yacht Club on Brickell Bay, Inc., No. 09-20022-CIV-MOORE/SIMONTON, 2009 U.S. Dist. LEXIS 75225, at *14 (S.D. Fla. Aug. 25, 2009) (“Before determining whether the Policy’s exclusions preclude coverage, it must first be determined whether the underlying complaint states facts that potentially fall within the scope of the Policy’s coverage.”). 225. Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, LLC, 364 N.C. 1, 692 S.E.2d 605, 621-22 (2010) (Assuming that covered liability was premised on false advertising, not disparagement, the exclusion applied because “defendants’ statements about their own products were literally not true . . . . [W]hile SCJ did allege that defendants’ advertisements portrayed SCJ’s products in a negative light, the alleged falsity of that portrayal lies solely in the alleged failure of defendants’ products to be of the quality and as effective as defendants claimed.”). 226. Clarcor, Inc. v. Columbia Cas. Co., 2010 WL 5211607, *5 (M.D. Tenn. 2010) (Clarcor “designed the packaging for Purolator products to convey the false and misleading claims that Purolator filters perform equally to, if not better than, 3M’s Filtrete filters. Several aspects of the Purolator package design create this false impression, including the numerical performance claims of ‘overall filtration efficient,’ the claimed ‘respiratory protection factor,’ and similarities in color.”). 227. Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, LLC, 364 N.C. 1, 692 S.E.2d 605, 621-22 (2010).

1088 Vol. 107 TMR statements about the claimant’s products in competitive advertisements evidenced potential coverage for implicit disparagement as courts of appeals have found.

For example, in Inspired Technologies,228 the Eighth Circuit Court of Appeals found coverage where some factual allegations of false advertising fell outside the scope of the “failure to conform” exclusion.

E. “Breach of Contract” 1. Coverage Found

The contract breach referenced is not between the insureds and the insurer, but between the insured and third parties. It provides that the policy does not apply to “‘[a]dvertising injury’ . . . arising out of breach of contract.”229

The “breach of contract” exclusion is applicable only to the particular conduct that creates potential liability.230 It does not apply when the allegations are not premised on a breach of contract theory.231

In Bridge Metal, the Second Circuit court observed that “[u]nder New York law, such an exclusion is governed by a ‘but for’ test, such that the exclusion applies “only if the advertising injury suffered . . . would not exist but for the breach of contract . . . .”232

228. AMCO Ins. Co. v. Inspired Techs., Inc., 648 F.3d 875, 882-83 (8th Cir. 2011) (“The district court thus focused on some of the conduct alleged to prove the claim rather than the global claim itself. . . . As several of our sister circuits have recognized, ‘[i]t is well-settled that no proof of intent or willfulness is required to establish a violation of Lanham Act §43(a) for false advertising.’ . . . Accordingly, because AMCO failed to satisfy its burden of demonstrating as a matter of law that all of 3M’s claims against ITI clearly fell outside of the Policy’s coverage, the district court’s summary judgment concluding that AMCO owed ITI no duty to defend was improper.”). 229. Bridge Metal Indus., LLC v. Travelers Indem. Co., No. 11-4228-CV, 2014 U.S. App. LEXIS 4463, at *12 n.2 (2d. Cir. Mar. 11, 2014) (The harm that National suffered arose at least in part, from claims that were outside the scope and the “breach of contract” exclusion. “It is at least a plausible interpretation that but-for causation is lacking in this case, since National’s right to protect its trade dress—which antedated the confidentiality agreement with Bridge Metal—could be infringed regardless of the contract. The ‘operative act giving rise to any recovery,’ Mount Vernon, 645 N.Y.S.2d 433, 668 N.E.2d at 406, was the alleged copying of National’s designs, not the breach of the confidentiality agreement.”). 230. Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 16 (1995). 231. See Ass’n Cas. Ins. Co. v. Major Mart, Inc., No. 1:12CV022-SA-DAS, 2013 WL 3409217, at *4 (N.D. Miss. July 8, 2013) (A tortious interference claim, premised on pricing beer products at the price the insured requested, which purportedly damaged the claimant was found outside the “breach of contract” exclusion. As that Court observed, “Association casually cannot point to any alleged breach of contract by Major Mart in contesting the pricing of the products.” Id. at *5. This, despite insurer’s contention that this event “ignited the entire basis for the Counterclaim.”). 232. Id. at 19-20.

Vol. 107 TMR 1089

2. No Coverage Found The majority of the cases that discuss the “breach of contract”

exclusion in the context of trademark infringement do so when the coverage arises under the offense of “publication of disparaging material.” No coverage cases addressing coverage for trademark infringement claims arising out of “use of another’s advertising idea in your ‘advertisement’” have barred coverage under the “breach of contract” exclusion. A typical case involving trademark infringement under the analogous misappropriation offense is Aearo v. Am. Int’l Specialty Lines Ins. Co.233

In Aearo, Aearo entered into a contract with Climb Tech to distribute Climb Tech’s products. Aearo manufactured and distributed safety equipment. Climb Tech manufactured fall protection equipment.234 The deal included a confidentiality and non-compete agreement.235 When Climb Tech ended the relationship, Aearo released new products that were allegedly identical to the previously distributed Climb Tech products. The similarities included the use of Climb Tech’s mark, name, labels, marketing materials, model numbers, specifications, images, photographs, and descriptions.236

The court found that Aearo had misappropriated Climb Tech’s “advertising ideas or style of doing business,” giving rise to “Advertising Injury” coverage. The insurer argued that “breach of contract” exclusion barred coverage. The court disagreed, stating that the “breach of contract exclusion would apply only if the claim in question would not have existed but for the insured’s alleged breach of contract. . . . The trademark infringement claim, however, is based on a legal theory entirely different from a claim for breach of contract.”237

As in Aearo, the court in Natural Organics,238 applying the breach of contract exclusion to a claim arising out of publication of disparaging material, stated that the basis for potential coverage was not linked to a breach of contract.239

233. Aearo v. Am. Int’l Specialty Lines Ins. Co., 676 F. Supp. 2d 738 (S.D. Ind. 2009). 234. Id. at 741. 235. Id. 236. Id. at 741-42. 237. Id. 750-51 (“Climb Tech’s rights in its trademark, the rights on which it is able to sue for trademark infringement, came into being before any contract with Aearo was signed and were independent of any such contract”). 238. Natural Organics, Inc. v. OneBeacon Am. Ins. Co., 102 A.D.3d 756, 759 (N.Y. App. Div. 2013). 239. Id. at 759 (“Independent of the breach of contract claim, for which there is plainly no coverage, the press release allegedly violated the Lanham Act by suggesting to NPN’s customers that its products were not genuine, or that the remaining inventory was somehow unauthorized . . . .”).

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VI. ISSUES FOR COUNSEL IN TRADEMARK INFRINGEMENT LITIGATION

A. Issues for Plaintiff’s Counsel Counsel representing a rights owner asserting infringement

should be aware that the complaint language can affect the availability of insurance coverage for the defendant. Drafting a pleading in a manner that implicates insurance coverage for the infringer can be a legitimate goal for the rights owner, as coverage may facilitate prompter settlements with insurer funding if the claimant’s allegations appear incontestable. When the issues and potential factual disputes are more nuanced and the law is unclear, drafting a pleading that facilitates insurance coverage for defense counsel can be problematic. Indeed, in such cases, settlement resolution may be more complicated as the presence of covered and uncovered claims may render simple resolution of the case challenging.

Where the principal relief sought is injunctive, some plaintiff’s counsel prefer that defendants secure insurer-appointed defense counsel, especially in those jurisdictions that vest control of defense counsel with the insurer absent an actual conflict of interest.240 This is because they may not assert all strategically beneficial defenses that will make securing such relief problematic, rendering the case less expensive to pursue and more likely to lead to a positive result. Moreover, independent counsel will know that avoiding injunctive relief is critical to an insured, but of no economic concern to an insurer whose liability for indemnity is limited to covered damage claims against the insured.

Moreover, facts sufficient to evidence a duty to defend may not be sufficient to reveal an obligation to require a settlement. The latter obligation can be dependent on a number of timing issues. Timing issues include the applicability of the “first publication” exclusion and whether the facts that caused significant damage occurred within the course of the insured’s advertising activities and the insured’s policy period. These concerns are especially salient when the jurisdiction permits reference to facts beyond the complaint. Such jurisdictions allow the insurer to consider extrinsic facts “known to the insurer,” or, in California, “available to an insurer,” in evaluating the duty to defend and ultimately the duty to settle pending claims.241

240. See Ins. Cov. of IP, § 7.02[B][1], pp. 7-14–7-15 n.28. Such jurisdictions following an “actual conflict of interest” standard include Texas, Arizona, Georgia, Kansas, Louisiana, Mississippi, New Mexico, Texas, and Washington. 241. Ins. Cov. of IP, Admission of Extrinsic Code § 9.02[A], p. 9-21 n.82—Alaska, Illinois, Louisiana, Minnesota, and New York. Chart B-26, Column 2.

Vol. 107 TMR 1091

Plaintiffs who plead claims in an attempt to avoid coverage may be foiled by defense counsel’s introduction of extrinsic evidence to clarify the duty to defend, such as deposition testimony, or motions filed in the underlying action.242 Moreover, “a broad prayer for such other and further relief” may be sufficient, in some jurisdictions, to create a duty to defend,243 but not in other forums.244 Indeed, the ordinary meaning of damages includes both legal and equitable claims as that term is used in insurance policy.245 But when only restitutionary remedies are at stake, some courts have denied coverage.246

242. Millennium Labs., Inc. v. Darwin Select Ins. Co., No. 12-cv-2742 H (KSC) Doc. 112, 10:14-18, 11:3-4 (S. D. Cal. May 13, 2014) [Order Granting Plaintiff’s Motion For Partial Summary Judgment] (“We are the only lab to offer a compliant LSA program; [. . . ] . . . They have nothing to sell against us but bad science and illegal inducements . . . Millennium Labs’s deposition of Ameritox CEO Ancelmo Lopes in the underlying Ameritox action confirms a potential disparagement claim: Q: It’s Ameritox’s position in the case that Millennium has disparaged it repeatedly in the marketplace. Correct? A: Yes.”). 243. Energex Sys. Corp. v. Fireman’s Fund Ins. Co., No. 96-CIV-5993 (JSM), 1997 U.S. Dist. LEXIS 8894, at *13-14 (S.D.N.Y. June 25, 1997) (“Finally, defendant contends that there is no duty to defend because the Anton/Bauer complaint seeks injunctive relief and not damages. While Anton/Bauer’s prayer for relief does not specifically seek damages, it does seek whatever relief the Court deems just and proper. Under New York law, this encompasses a claim for damages and the insurer must defend. Doyle v. Allstate Ins. Co., 1 N.Y.2d 439, 443, 154 N.Y.S.2d 10, 13 (1956).”); B.H. Smith, Inc. v. Zurich Ins. Co., 285 Ill. App. 3d 536, 541, 221 Ill. Dec. 700, 703, 676 N.E.2d 221, 224 (1996) (“ ‘If, [a plaintiff] succeeds in proving that he is entitled to equitable relief, equity may grant damages in addition to or as an incident of some other special equitable relief or, where the granting of equitable relief appears to be impossible or impracticable, equity may award damages in lieu of the desired equitable remedy. Doyle v. Allstate Ins. Co., 1 N.Y.2d 439, 443, 136 N.E.2d 484, 486, 154 N.Y.S.2d 10, 13 (1956).’ ”). 244. Gemmy Indus. Corp. v. Alliance Gen. Ins. Co., 190 F. Supp. 2d 915, 919 n.6 (N.D. Tex. 1998), citing The Feed Store, Inc. v. Reliance Insurance Co., 774 S.W.2d 73, 74-75 (Tex. App.–Houston [14th Dist.] 1989, writ denied). 245. Minn. Mining & Mfg. Co. v. Travelers Indem. Co., 457 N.W.2d 175, 179-80 (Minn. 1990). 246. Bank of the W. v. Super. Ct., 833 P.2d 545, 554 (1992) (“[I]nsurable damages do not include costs incurred in disgorging money that has been wrongfully acquired.”); but see, Limelight Productions, Inc. v. Limelite Studios, Inc., 60 F.3d 767, 769 (11th Cir. 1995) (“We find no merit to the argument that ill-gotten profits are not damages covered by the insurance policies. Congress recognized that in this kind of lawsuit a plaintiff’s resulting lost profits often will be difficult or impossible to establish. As an alternative, Congress allows a presumption that any profits the defendant gained because of its violation would have accrued to the plaintiff but for that violation. 15 U.S.C. § 1117(a)(1). Congress authorizes plaintiffs to recover these ill-gotten profits as the presumed equivalent of plaintiff’s own lost profits. Moreover, Courts in this Circuit have interpreted Lanham’s damages provision to embody both actual damages under 15 U.S.C. 1117(a)(2) and presumed damages (or ill-gotten profits) under 15 U.S.C. 1117(a)(1).”).

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B. Issues for Defendant’s Counsel 1. Legal Malpractice for Failure to Notify Insurers of

Potentially Covered Claims Defense counsel has a primary obligation to advise its client of

the duty to notify insurers of a claim, which in many jurisdictions can include a mere cease and desist letter as well as a filed lawsuit.247 Indeed, legal malpractice claims have been prosecuted against intellectual property defense counsel for failing to advise their clients of insurance coverage. In Jordache II,248 the California Supreme Court implicitly recognized that outside defense counsel may be held liable for legal malpractice for failure to advise the client about insurance coverage rights even when insurance issues are outside the scope of retention and the client never asks the lawyer to investigate the issue.

Emblematic of the malpractice issue is Darby & Darby I.249 There, the court stated, “[t]his court is persuaded that the plaintiff’s failure to investigate the defendants’ insurance coverage or alert them to the potential availability of insurance to cover their litigation expenses may have constituted legal malpractice.”250 Modifying the earlier ruling, in Darby & Darby II the appellate division251 distinguished Jordache I252 because: “[t]he vast majority of [case law evidencing that CGL policies may cover intellectual property infringement suits] developed after the period of plaintiff’s representation of defendants[.]”253

Coverage case law after Darby & Darby clarified why insurance coverage issues can no longer be avoided by IP counsel. As the court stated in Shaya,254 “[w]e cannot say, as a matter of law, that a legal malpractice action may never lie based upon a law firm’s failure to

247. Hartford Cas. Ins. Co. v. ContextMedia, Inc., No. 12-cv-9975, 2014 U.S. Dist. LEXIS 120037 (N.D. Ill. Aug. 28, 2014) (failure to give notice of a cease and desist letter activated late notice prohibitions in an insurance policy even though the eventual suit was noticed promptly). 248. Jordache Enters., Inc. v. Brobeck, Phleger & Harrison, 18 Cal. 4th 739 (1998). 249. Darby & Darby, P.C. v. VSI Int’l, Inc., 178 Misc. 2d 113, 117-18, 678 N.Y.S.2d 482, 486 (Sup. Ct. 1998) aff’d as modified, 268 A.D.2d 270, 701 N.Y.S.2d 50 (2000) aff’d, 95 N.Y.2d 308, 739 N.E.2d 744 (2000). 250. Ross v. Briggs & Morgan, 540 N.W.2d 843, 847 (Minn. 1995). 251. Darby & Darby, P.C. v. VSI Int’l, Inc., 268 A.D.2d 270, 272, 701 N.Y.S.2d 50 aff’d, 95 N.Y.2d 308, 739 N.E.2d 744 (2000). 252. Jordache Enters. v. Brobeck, Phleger & Harrison, 56 Cal. Rptr. 2d 661 (1996), rev’d 18 Cal. 4th 739, 958 P.2d 1062 (1998). 253. Darby & Darby, 268 A.D.2d at 272-73. 254. Shaya B. Pac., LLC v. Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 A.D.3d 34, 41, 827 N.Y.S.2d 231 (2006).

Vol. 107 TMR 1093 investigate its client’s insurance coverage or to notify its client’s carrier of a potential claim.”255

2. Notifying Appropriate Insurers Promptly Failure to provide notice of a claim “as soon as practicable” or

“immediately” can threaten a loss of coverage.256 In forfeiture jurisdictions, such as Illinois, prejudice to the insurer from delay is not a factor. New York was a forfeiture jurisdiction before it amended its statutory scheme in 2012. The amendments followed the legislature’s comment that “the pre-existing rule was a trap for the unwary.”257

The majority of jurisdictions require a showing of prejudice from delay to preclude all of the insurer’s duties under the policy. However, several key jurisdictions, including Florida and Ohio, put this burden on the insured, not insurer. In light of these rules, prompt notice to an insurer under all potentially applicable claims is requisite.

3. When It Is Unclear Which Insurer Is At Risk, More Than One May Be Potentially Liable

It is often unclear from the face of the complaint which policy year is implicated in an occurrence-based policy program. Where the facts do not indicate when the first wrongful conduct arose that evidenced a potentially covered “personal and advertising injury” offense, more than one insurer may be liable.

Various courts (either applying California law or principles consistent with its law) have described a variety of factual allegations that are sufficient to bring a suit within the policy coverage. Allegations that have triggered possible liability under the policy period258 include keywords like “long-standing,”259

255. See David A. Gauntlett, IP Attorneys’ Handbook for Insurance Coverage in Intellectual Property Disputes (2010). 256. Gemmy Indus. Corp., 190 F. Supp. 2d at 921. 257. Am. Home Assurance Co. v. Republic Ins. Co., 984 F.2d 76, 77-78 (2d Cir. 1993), cert. denied, 508 U.S. 973. 258. See Atl. Mut. Ins. Co. v. J. Lamb, Inc., 100 Cal. App. 4th 1017, 1039 (where, although underlying complaint did not specify date of insured’s first offending conduct, the court concluded that based on those allegations alone, the possibility of coverage existed). 259. Castle & Cooke, Inc. v. Great Am. Ins. Co., 711 P.2d 1108, 1113 (Wash. Ct. App. 1986).

1094 Vol. 107 TMR “continuous conduct,”260 “recently,”261 “no earlier than,”262 or “sometime in.”263

4. Securing the Right to Independent Counsel The insured’s ability to choose its own counsel, described in

most jurisdictions as independent counsel, will depend on the presence of a conflict of interest between the insurer and insured. Recently, many insurers have been coy about what rights they are reserving, and what, if any, circumstances could arise that would permit them to rearticulate the reservation of rights to assert an additional grounds to bar indemnification as facts develop in the underlying case. The insurers wish to have complete discretion over how they respond to fact developments in the complaint. They want to be able to, at any time, rearticulate grounds for denying indemnity while in the interim, control the selection of counsel. A recent Minnesota decision decried such an approach.264

a. Assuring Insurers Pay a Reasonable Rate Typically, where the insurer cannot establish that a reasonable

rate is consistent with the fees charged by experienced intellectual property litigation counsel, partial reimbursement can be structured, or counsel selected typically works on a blended rate that conforms to the rates proposed by insurers for such litigation activity.

260. JACO Envt’l, 2009 WL 1591340 at *6. 261. Carnival Brands, Inc. v. Am. Guar. & Liab. Ins. Co., 726 So. 2d 496, 500 (La. Ct. App. 1999). 262. Arnette Optic Illusions, Inc. v. ITT Hartford Grp., Inc., 43 F. Supp. 2d 1088, 1097-98 (C.D. Cal. 1998). 263. Hudson I, 2008 WL 5504572 at *2 (holding that while the allegation—that at “some time in May, 2005,” claimant “became aware” that insured was selling counterfeit jerseys—left open the possibility that offending conduct occurred before May 14th when the policy period commenced, it simultaneously raised the possibility that the first publication occurred after May 14th, after the policy period commenced) (emphasis added). 264. Select Comfort Corp. v. Arrowood Indem. Co., Civil No. 13-2975 (JNE/FLN), 2014 U.S. Dist. LEXIS 118494, at *18-19 (D. Minn. Aug. 26, 2014) (“Arrowood’s communications show a cautious attempt to preserve the right to challenge coverage based on the intentionality question along with the ability to argue that it was not reserved. Although parts of the communications may be characterized as ambiguous, the same principle behind the rule that ambiguities in insurance contracts are construed against the insurer, see Thommes v. Milwaukee Ins. Co., 641 N.W.2d 877, 879-80 (Minn. 2002), counsels in favor of resolving the ambiguity in its reservation of rights communications against it. . . . That reservation [regarding the intentionality of the referenced conduct] implicated a fact issue that would have been decided in the Stearns Action and so a conflict of interest existed that converted its duty to defend into a duty to reimburse the reasonable costs of separate counsel.”).

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C. Retaining Coverage Counsel In big-ticket IP litigation, retaining coverage counsel familiar

with intellectual property litigation is recommended. On the plaintiff’s side, coverage counsel can help plead into or out of coverage. For the defense side, coverage counsel is best positioned to assist in establishing a right to insurance under appropriate policies. Coverage counsel can also secure prompt reimbursement of counsel at reasonable rates funded by insurer contributions and obtain evaluations of and finding for settlements as well as addressing a number of other challenging insurance coverage impacted fact scenarios.

VII. CONCLUSION Insurers continue to write policies in a manner that makes

securing coverage in a trademark infringement lawsuit challenging. Insurers who write policies on ISO forms have sought to tighten coverage for over a decade, commencing in 2002 with the introduction of an intellectual property exclusion to otherwise broad coverage for “personal and advertising injury.” Non-ISO insurers have sought to restrict coverage for trademark infringement lawsuits, even before ISO did. But, where trademark lawsuits are conjoined with claims for unfair competition premised at least in part on consumer confusion claims or tortious interference counts, a duty to defend may arise despite robust trademark exclusions. Also, U.S. companies faced with a claim should always peruse all potentially applicable policies including policies held by any Canadian subsidiaries to see if they possess earlier policy forms, as many do in the broker-driven Canadian insurance landscape.

For those seeking to secure coverage for trademark infringement claims, policies issued with ISO policy language are preferable to customized policy forms. In the author’s experience, ISO policy forms often provide greater coverage than alternative coverage available through specialized forms offered by other insurers. In any event, before purchase each year, every insurer’s policy form should be reviewed with care to confirm that the policy issued has not been re-written or modified in a manner that reduces the scope of the policy’s “personal and advertising injury” coverage. Particular care is needed in the review of policy endorsements that may redefine certain policy terms in a narrower manner than they were previously defined in the policy, often without notice to the insured of any reduction in policy coverage. Nor should robust intellectual property exclusions which purport to eliminate any coverage where an excluded intellectual property is included, be routinely accepted by policy holders without challenge. Resisting such endorsements is essential to preserve what policyholders

1096 Vol. 107 TMR understood they were buying in securing coverage for “personal and advertising injury” claims.

Vol. 107 TMR 1097

INTERNET SURVEYS IN INTELLECTUAL PROPERTY LITIGATION:

DOVERYAI, NO PROVERYAI1

By Himanshu Mishra∗ and Ruth M. Corbin∗∗ ∗∗∗

CONTENTS

I. Introduction ...................................................................... 1099

II. The Need for Internet Survey Standards in the Courts .. 1100

III. Relevance, Reliability, and Validity ................................. 1101

A. Relevance .................................................................... 1102

B. Reliability .................................................................... 1102

C. Validity ........................................................................ 1103

IV. Panel Selection and Reliability—Issues and Remedies ... 1105

A. Problems with Internet Panels ................................... 1107

1. Identity ................................................................... 1107

2. Representativeness ................................................. 1107

3. Motives of Volunteers ............................................. 1109

B. Risk Management of Internet Panels......................... 1110

V. Participant Response and Survey Validity ...................... 1113

A. Duplicates ................................................................... 1113

1. A Russian proverb that means Trust but Verify. ∗ Dr. Himanshu Mishra is David Eccles Professor of Marketing at the University of Utah. Dr. Mishra’s research focuses on consumer decision-making, behavioral decision theory, and consumer psychology. He has served as an expert witness in Lanham Act trademark litigation involving secondary meaning, likelihood of confusion, and deceptive advertising surveys. He may be contacted at himanshu.mishra@utah.edu. ∗∗ Dr. Ruth M. Corbin is Chair of the forensic research firm, Corbin Partners Inc., Mediator at Corbin Estates Law, and Adjunct Professor at Osgoode Hall Law School, Toronto, Canada. She is the author of the Canadian Trademark Law Benchbook chapter on social scientific evidence, and chair of the Dispute Resolution Committee of the Market Research and Intelligence Association. She may be contacted at rcorbin@corbinpartners.com. ∗∗∗ The authors outline practical solutions to support the reliability and validity of online surveys from a social science perspective. While illustrative legal authority is cited, a full analysis of the case law is beyond the scope of the article. The authors acknowledge with thanks the careful reviews of TMR editors.

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B. False Responses .......................................................... 1114

C. Attentiveness .............................................................. 1114

VI. Designing the Survey to Minimize Faking, Inattention, and Cheating .................................................................... 1116

A. Addressing Faking ...................................................... 1116

B. Addressing Inattention to Instructions and Questions .................................................................... 1117

C. Addressing Cheating................................................... 1119

VII. Post survey Verification and Analysis ............................. 1120

VIII. Conclusions ....................................................................... 1121

Vol. 107 TMR 1099

I. INTRODUCTION In many countries, including the United States and Canada, it

is well established that surveys are admissible as evidence in intellectual property disputes.2 Surveys were traditionally carried out by interviewers, surveying people in person or by telephone.3 Towards the end of the 20th century, technology made it possible to conduct surveys over the Internet without an interviewer. While corporations embraced Internet surveys,4 courts were initially more cautious about their inherent limitations.5 After all, the identity of the survey participants was not verifiable by sight or sound; participants’ understanding of questions, on which a legal issue might turn, could not be confirmed in person; no interviewer was present to keep participants engaged. However, as with other technological breakthroughs, Internet surveys yielded new benefits that were too valuable to ignore, including cost-efficiency and wider coverage of populations than in-person surveys could ever practically achieve. Litigants are now successfully convincing courts to accept Internet surveys: the authors did not locate any decision published within the last five years rejecting Internet survey evidence solely because of its method of administration. But a definitive statement of the requirements necessary for such a survey to meet the high evidentiary standards of modern litigation is still lacking.

To meet this need, this article presents guidelines for addressing the specific vulnerabilities of Internet surveys, and proposes a consistent standard for use by courts to assess the weight to be accorded such surveys for resolution of intellectual property disputes. Most of the case law and examples in the article arise from 2. See, for example, Ruth M. Corbin & Kelly Gill, Survey Evidence and the Law Worldwide (2006) and Claus Eckhartt (ed.), Trademarks 2017 (2016), the latter containing separate chapters on evidentiary practices in more than three dozen countries, and identifying countries where survey evidence is now explicitly admissible. 3. See, e.g., the many hundreds of pre-2000 cases cited in Ruth M. Corbin and A. Kelly Gill, Survey Evidence and the Law Worldwide (2006). 4. See Dick McCullough, Web-based Market Research: The Dawning of a New Age, Marketing News, Sept. 14, 1998, for one of the earliest discussions of using Internet surveys to guide business decisions. 5. See, e.g., Columbia Univ. v. Columbia/HCA Healthcare Corp., 964 F. Supp. 733, 747 (S.D.N.Y. 1997) (Plaintiff introduced an “Internet health survey” conducted by defendant showing that four out of 1700 respondents answered yes to the question whether they had ever used a Columbia facility before and identified plaintiff’s facility or a doctor associated with plaintiff as the facility; “although evidence of some confusion,” the Internet survey was “entitled to little if any weight both because of the extremely small numbers involved and because there was no showing that supported the trustworthiness of the survey methodology”); see also Robert H. Thornburg, Trademark Surveys: Development of Computer Based Survey Methods, 4 J. Marshall Review of Intellectual Property Law 91, 114, 117 (2005) (noting use and acceptance of online and computer-based surveys in 2005 was not well received by the courts and estimating a lapse of six years from introduction of Internet technology to ready acceptance by courts of Internet-based survey evidence).

1100 Vol. 107 TMR United States and Canada, two countries where guidance on standards for litigation surveys is thoroughly documented.6 However, the scientific principles on which these standards are founded are applicable to surveys worldwide. Thus, the conclusions of the article can plausibly extend to all countries where survey evidence is accepted by courts and tribunals. Applying these guidelines will help counteract the potential vulnerabilities of Internet surveys and bring the evidence in line with the scientific principles governing surveys before the Internet era. Ignoring the guidelines leaves the resulting evidence susceptible to criticism and discounting by the courts.

II. THE NEED FOR INTERNET SURVEY STANDARDS IN THE COURTS

Internet surveys are past the stage of being novel. Now widely employed by businesses and by university researchers, Internet surveys are referred to by the Insights Association7 as today’s “most popular means of collecting data.”8 Popularity alone may not be a solid basis for reliance on Internet surveys as evidence in court. However, consistent use of Internet surveys to support decision-making demonstrates a level of confidence in the methodology by businesses and survey professionals that provides a reasonable basis for courts to accept such surveys as expert evidence. For example, Rule 703 of the United States Federal Rules of Evidence provides that an expert may base his or her testimony on data if the data is “of a type reasonably relied upon by experts in the…field” in forming opinions or inferences.9 Experts need only point to the surging use of Internet surveys by companies and in other social science research to justify their own willingness to “reasonably rely” upon such surveys. Indeed, experts have successfully relied on Internet-administered surveys in a number of trademark cases.10 6. Federal courts in United States and Canada commissioned guidelines for judges’ use in assessing survey evidence. See Shari Seidman Diamond, Reference Guide on Survey Research, in Reference Manual on Scientific Evidence 229 (2d ed. Fed. Jud. Ctr. 2000); Chapter 9, Surveys and Other Marketplace Evidence, by Ruth M. Corbin published in Canadian Trademark Law Benchbook (2014 ed., originally commissioned by the Federal Court of Canada and now published commercially by Carswell). 7. Insights Association establishes best practices and enforces professional standards for the American market research industry. It was formed through the merger of two organizations CASRO (founded in 1975) and MRA (founded in 1957). See http://www.insightsassociation.org/about (last visited July 24, 2017). 8. http://www.insightsassociation.org/article/online-mr-quality-ignorance-bliss (last visited July 17, 2017). 9. Fed. R. Evid. 703. 10. See, e.g., PBM Prods., LLC v. Mead Johnson & Co., 639 F.3d 111, 124 (4th Cir. 2011); 1-800 Contacts, Inc. v. WhenU. com, 309 F. Supp. 2d 467 (S.D.N.Y. 2003), preliminary injunction reversed on other grounds and remanded, 414 F.3d 400 (2d. Cir., 2005) without addressing the admissibility of the survey evidence; Empresa Cubana Del Tabaco v. Culbro

Vol. 107 TMR 1101 Some court decisions explicitly acknowledge that a survey should not be deemed unsound merely because it was conducted online.11

Notwithstanding this authority demonstrating acceptance of Internet surveys, however, courts continue to question the weight that Internet surveys should be accorded.12 While there are many published discussions by legal researchers of advantages and disadvantages of Internet surveys compared to other methodologies,13 no explicit test or customized standards exist for evaluating Internet surveys in the litigation context. The question that matters most to trademark lawyers and courts is this: Can Internet surveys be trusted as a basis for reliable inferences about consumer perception?14 Commonly agreed-upon standards that can be used to answer this question are overdue.

III. RELEVANCE, RELIABILITY, AND VALIDITY A survey’s probative value may be weighed using the criteria of

relevance, reliability, and validity. These criteria are endorsed by the Supreme Court of Canada as the primary framework for evaluation.15 In the United States, the Reference Manual on Corp., 2004 U.S. Dist. LEXIS 4935, 70 U.S.P.Q.2d (BNA) 1650 (S.D.N.Y. Mar. 26, 2004), defendants’ motion for a stay of the injunction pending appeal denied at Empresa Cubana Del Tabaco v. Culbro Corp., 2004 U.S. Dist. LEXIS 7443 without re-evaluation of the previously admitted survey evidence; Best Vacuum, Inc. v. Ian Design, Inc., 2006 WL 3486879 (N.D. Ill. Nov. 29, 2006). 11. See, e.g., Anheuser-Busch, LLC v. Innvopak Sys. Pty. Ltd., 115 U.S.P.Q.2d 1816 (T.T.A.B. 2015) (“While we are mindful of the limitations and advantages of various types of surveys, it cannot be said that Opposer’s survey was unsound merely because it was conducted online”); R & R Partners, Inc. v. Tovar, 447 F. Supp. 2d 1141, 1154-55 (D. Nev. 2006) (finding no merit to defendant’s argument that the “expert did not identify any journals or other articles discussing the reliability of Internet surveys” where defendants “provided no evidence to indicate an actual flaw exists in the methodology of the survey”); T-Mobile US, Inc. v. AIO Wireless LLC, 991 F. Supp. 2d 888, 907 (S.D. Tex. 2014) (rejecting defendant’s argument that the survey should not have been conducted over the Internet). 12. See, e.g., Kraft Foods Group Brands LLC v. Cracker Barrel Old Country Store, 735 F.3d 735, 742 (7th Cir. 2013) (“[I]t’s very difficult to compare people’s reactions to photographs shown to them online by a survey company to their reactions to products they are looking at in a grocery store and trying to decide whether to buy.”); His & Her Corp. v. Shake-N-Go Fashion, Inc., 2015 U.S. Dist. LEXIS 44874, at *31 (C.D. Cal. Mar. 30, 2015) (“the Ninth Circuit has noted that the fact that a likelihood of confusion survey ‘was conducted over the internet (thereby failing to replicate real world conditions)’ can detract from the weight given to a survey”), citing Fortune Dynamic, Inc. v. Victoria’s Secret Stores Brand Mgmt., Inc., 618 F.3d 1025, 1037-38 (9th Cir. 2010). 13. See Gabriel M. Gelb & Betsy D. Gelb, Internet Surveys for Trademark Litigation: Ready or Not, Here They Come, 97 TMR 1073-88 (2007) (hereinafter, “Gelb & Gelb”); Hal Poret, Comparative Empirical Analysis of Online versus Mall and Phone Methodologies for Trademark Surveys, 100 TMR 756-807 (2010). 14. See, e.g., Shari Seidman Diamond & Jerre B. Swann, Trademark and Deceptive Advertising Surveys: Law, Science, and Design 308 (2012). 15. Masterpiece Inc. v. Alavida Lifestyles Inc., 2011 SCC 27 (S.C.C.); see also Ruth Corbin, The Moron in a Hurry: a Creature of Law or Science?, in Annual Review of Civil Litigation (Toronto: Carswell, 2015), recommending these criteria as the components of a

1102 Vol. 107 TMR Scientific Evidence16 enumerates questions for evaluating a survey’s trustworthiness, but the questions themselves are components of the same scientific criteria of relevance, reliability, and validity. Since these three criteria are universal principles of social science, it is reasonable to expect them to be appropriate standards for evaluation in other jurisdictions as well.

Relevance concerns the extent to which a survey tends to prove the matter sought to be proved (e.g., that confusion is likely, that the mark has acquired distinctiveness, or that the mark is generic). Reliability refers to “reproducibility” of the survey result, should the survey be administered to a different sample of people in the pertinent population on a different occasion. Validity refers to the extent to which a survey measures what it sets out to measure in its stated mandate or objectives.

A. Relevance Relevance of survey evidence will not ordinarily depend on the

method by which it is collected. Indeed, relevance of any evidence is a matter to be argued by the litigator and is the prerogative of the court to decide.17 Experts presenting Internet survey evidence may have an opinion on relevance, but it is an opinion that will not necessarily be welcomed.18 Experts are expected to stick to their own areas of expertise, namely, the reliability and validity of the information on which their opinion depends. For these reasons, “relevance” is not further addressed here.

B. Reliability Reliability, on the other hand, is a key requirement for data

quality, and the way the survey was conducted will greatly affect tripartite test for all social science evidence, building upon an earlier analysis by The Honourable Justice Todd L. Archibald and Jeremy Fox (2015), Examining the Reliability of Expert Soft Science Evidence in the Courtroom: The Art and Science of Persuasion, in Annual Review of Civil Litigation (Chapter IV) (Toronto: Carswell). 16. Shari Seidman Diamond, Reference Guide on Survey Research, in Reference Manual on Scientific Evidence 229 (2d ed. Fed. Jud. Ctr. 2000). 17. See, e.g., Fed. R. Evid. Rule 401 & Advisory Committee Notes (“Problems of relevancy call for an answer to the question whether an item of evidence, when tested by the processes of legal reasoning, possesses sufficient probative value to justify receiving it in evidence. Thus, assessment of the probative value of evidence that a person purchased a revolver shortly prior to a fatal shooting with which he is charged is a matter of analysis and reasoning”). 18. Determination of relevance to the “ultimate issue” is considered to be the purview of the court. For example, in R. v. Mohan, [1994] 2 S.C.R. 9, the court stated: “Relevance is a threshold to be decided by a judge, as a question of law.” In detailing her experience on the bench with survey evidence, retired Justice Barbara Reed of the Federal Court of Canada criticized several presumptions of a survey witness, in a case involving the PROZAC trade dress, including his rejection of the relevance of a line of questioning put to him by opposing counsel. See Justice Reed’s chapter in Ruth M. Corbin & A. Kelly Gill, Survey Evidence and the Law Worldwide (Markham: LexisNexis, 2006).

Vol. 107 TMR 1103 the reliability of the results. Imagine a survey presented with the caveat that, if the survey were administered again, the reported results may or may not be reproduced. What use would it be? Because reliability depends on obtaining a random, representative sample of the population, Internet surveys are “reliability-challenged.” There is no published list or so-called sampling frame of all Internet addresses available for obtaining a true random sample of the population via the Internet. Some cohorts of the population do not even use email or the Internet. Pew Research Center reported in 2016 that more than four in ten Americans over the age of 65 do not use the Internet. Usage is also below-average among lower income households and people living in rural areas.19 So some members of the overall population have no chance at all of being captured in a random sample obtained via the Internet. Internet survey critics would therefore seem to have an instant basis for a reliability challenge, given that Internet surveys could not possibly capture all segments of a population, particularly if non-Internet users are part of the target audience. As will be discussed in the next section, the challenge is not insurmountable. Reliability can be strengthened in well-defined ways, to meet a level of “best practice.”

C. Validity Reliability, while important, says nothing about the

truthfulness of survey responses or correctness of claims about what the survey measures, which instead are measures of the survey’s validity. 20

Validity generally refers to whether the right elements were measured in the right way.21 There are different ways of

19. Monica Anderson & Andrew Perrin, “13% of Americans don’t use the Internet. Who are they?”, report of Pew Research Center, September 2016, available at http://www.pewresearch.org/fact-tank/2016/09/07/some-americans-dont-use-the-internet-who-are-they/ (last visited Aug. 9, 2017). 20. Judges sometimes use the terms “reliability” and “validity” interchangeably, not recognizing the importance of distinguishing these scientific terms of art. See Ruth M. Corbin, When is a Bathroom Scale Unlike a Political Poll? When it’s Reliable, Vue 12, 12 (2006), for a detailed discussion of accepted distinction in science between reliability and validity, though they may on occasion be interdependent. 21. For example, in a survey of trademark confusion, the “right elements” are likely to be the perceptions of the disputed trademark features, and not the perceptions of the product overall. (That is, it is necessary to prove that the offending trademark elements are responsible for causing whatever confusion is found to exist.) Measuring the elements in the “right way” means asking about their source significance. (It would generally be insufficient, for example, to demonstrate that a certain trademark just brings to mind another owner’s product; it would need to be shown that consumers believe the two products to originate or be licensed by the same source.) An illustrative case is Walt Disney Productions v. Fantasyland Hotel Inc., [1994] A.J. No. 484, 20 Alta. L.R. (3d) 146 (Alta. Q.B.), aff’d [1996] A.J. No. 415, 38 Alta. L.R. (3d) 441 (Alta. C.A.). In that case, the survey question about “what comes to mind” produced word associations between West Edmonton Mall’s erotic “Fantasyland Hotel” and

1104 Vol. 107 TMR characterizing or confirming validity. “External validity” means that one would look to the world outside the laboratory or survey language, to confirm that the inferences hold true in everyday life. Elections, for example, allow one to validate the results of a pre-election poll. For trademark matters, actual instances of confusion for reasons similar to those discovered in the survey provide external validity of the survey results. “Convergent validity” refers to the congruency of measurements from different methodologies. For trademark matters, findings in telephone surveys or mystery shopping studies22 similar to results obtained in an Internet survey would provide convergent validity.23 “Face validity” means that the answers to the questions themselves provide de facto evidence. Answers to open-ended, undirected questions (“Any comments on the product you just saw?”) that reveal confusion have face validity. Each category of validity presents an opportunity for an expert to demonstrate an aspect of scientific integrity.

Validity is mainly a function of question wording and sequencing, and the extent to which the questions elicit truthful or mindful answers. There is no reason that Internet surveys cannot be as valid as surveys done by other methods. In fact, Internet surveys have features that can enhance validity. For example, without an interviewer present, participants may feel less inhibited when answering sensitive questions.24 Furthermore, computer programming can produce customized question wording that automatically incorporates answers previously given by a respondent verbatim. 25 Automatic programming is much superior to expecting live interviewers to go back to previous questions to interpret and extract what a respondent said earlier, or to follow complex instructions about which questions to skip to, depending on

Disney’s Fantasyland amusement park; the court found the evidence insufficient to sustain a finding of confusion. 22. Mystery shopping entails collection of first-hand information about the customer experience by researchers presenting themselves as customers. Trained researchers visit stores or other retail organizations, send Internet inquiries, or phone for service, posing as customers of the establishments they are contacting. See Ruth M. Corbin & Sarah Carnegie, Mystery Shopping Raised to Scientific Evidence, Vue, September (2009). 23. See Ruth M. Corbin & Fiona Isaacson, Surveys on a Tightrope—the Convergent Validity Net, 24 Intell. Prop. J, 265-78 (2012). 24. Paul J. Lavrakas & Jeffrey A. Stec, Survey Research in Litigation, in Litigation Services Handbook, 2016 Cumulative Supplement (Roman L Well, Daniel G. Lentz & Elizabeth A. Evans eds., 5th ed. 2016), at p. 36. 25. Gelb & Gelb, supra note 13, at p. 1077. An Internet survey can be programmed in such a way that it “presents initial questions, and then displays succeeding questions based in part on answers a respondent has given previously (a procedure known as ‘branching.’) Often, the questions displayed include a word or phrase provided by the respondent in a previous answer (known as ‘piping.’).”

Vol. 107 TMR 1105 a respondent’s earlier answers.26 The following examples of wording customization are adapted from fact scenarios of published cases, that used in-person surveys; the instructions in capital letters illustrate the opportunity for a seamless pre-programmed customization:

• “You said you thought French Press was a [INSERT ‘BRAND’ or ‘DESCRIPTIVE NAME’ DEPENDING ON PREVIOUS ANSWER]. Why do you say that?”27

• “Why do you believe this building block is made by [INSERT COMPANY NAME USED IN PREVIOUS ANSWER]”28

This type of customization personalizes the survey experience, thereby building rapport and facilitating truthful answers.

The main risks to the validity of Internet surveys are that anonymous respondents may consult other people or sources for answers to questions, or may be inattentive or unmotivated to answer thoughtfully. If an Internet survey, or any survey, is unable to elicit true attitudes or beliefs from respondents, then it cannot produce valid evidence of trademark perception.

As shown above, criticisms about reliability and validity can be isolated to specific elements of an Internet survey. Quality control measures are available to deal with these issues, and to strengthen reliability and validity of litigation surveys to meet a level of best practice. The quality control measures are explained in the next four sections.

IV. PANEL SELECTION AND RELIABILITY— ISSUES AND REMEDIES

Internet surveys conducted for litigation are usually administered through panels consisting of very large numbers of previously recruited volunteers who answer repeated surveys over the course of their panel membership.29

26. This modification of question wording in real time can also be achieved by a human interviewer who asks questions from an Internet-connected tablet. Even for such surveys, the presence of a human interviewer may be superfluous. 27. Bodum USA, Inc. v. Meyer Housewares Canada, Inc., 2013 FCA 240. 28. Battles were held in Canada, the United States and Britain over the trade dress of MEGA BLOKS, alleged to be confusing with that of LEGO. Canada’s Supreme Court decided the matter once and for all in Kirkbi AG v. Ritvik Holdings Inc., [2005] 3 SCR 302, 2005 SCC 65 (CanLII), with an outcome similar to that in other countries, namely, that LEGO could not protect as trademarks the functional aspects of its products. 29. Panels include hundreds of thousands to several million members. See Reg Baker et al., AAPOR Report On Online Panels, 74 The Pub. Opinion Q., 711-781 (2010). Industry guidelines do not discourage panel companies from retaining members as long as members stay active. See the website of recognized world survey association ESOMAR, addressing questions about Internet panels, at https://www.esomar.org/uploads/public/knowledge-and-standards/codes-and-guidelines/ESOMAR_26-Questions-To-Help-Research-Buyers-Of-Online-Samples.pdf (last visited July 23, 2017). The number of surveys that any one

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Such panels evolved out of necessity. Sampling the population randomly by Internet is not feasible for many reasons: First, there is no universal directory of email addresses. Even if there were, it would be impossible to know the extent of duplicate addresses for the same person, necessary to make claims of superior reliability. Second, privacy laws in certain jurisdictions 30 make it unlawful, or potentially unlawful, to send mass solicitations to private email addresses. Third, soliciting survey participation through clickable hyperlinks on websites is not likely to lure potential respondents to interrupt their Internet browsing to provide anonymous responses on remote topics for no compensation. Indeed, survey solicitation on sponsored Internet sites produces what are referred to deprecatingly as strictly “entertainment surveys”31—hardly a respectable foundation for litigation evidence.

For these reasons, volunteer Internet survey panels were created and are now offered by hundreds of commercial suppliers worldwide.32 Panels vary in size, some exceeding a million people. Panel members are asked for demographic information and details about their use of various products and services. This information is maintained in the panel database. For any given survey request, a panel manager can recruit panel members satisfying criteria of interest to a survey client. Some courts accept surveys wholly managed not by the testifying expert witness, but by third party panel administrators,33 seeming to stray farther from the hearsay rule of evidence than the normal leeway allowed for experts.34 individual could be invited to complete varies across panels. According to a 2012 study by Grey Matter Research, invitations to single panel members could exceed fifty per month, though the member might only answer or qualify for a small number of those. The study entitled “More Dirty Little Secrets of Online Panel Research” is available upon request at http://www.greymatterresearch.com/index_files/Online_Panels_2012.htm (last visited Oct. 29, 2017). 30. The nuances of different countries’ privacy laws are beyond the scope of this article. By way of example, Canada’s “anti-spam legislation” (CASL) explicitly prohibits mass emailing without consent of each recipient. See http://crtc.gc.ca/eng/internet/anti.htm for more detail on this legislation. 31. See Gelb & Gelb, supra note 14, at 1080. 32. ESOMAR defines panels as databases of potential research participants who declare that they will cooperate with future data collection requests if selected. (See https://www.esomar.org/what-we-do/about-us). Its guidelines promote transparency with clients and provides ways to ensure online sample quality. 33. In In re NJOY, Inc. Consumer Class Action Litigation, 120 F. Supp. 3d 1050, 1080-81 (C.D. Cal. 2015), the defendant attacked the plaintiffs’ Internet survey on the basis that “although designed and analyzed by [plaintiffs’ expert, it] was carried out by a third party survey company, Qualtrics.com.” The court rejected this argument, noting that defendant “cites no case law holding that surveys conducted by third parties are inherently ‘flawed’ or unreliable, and the court has located none. What little case law there is on the subject in fact suggests there is nothing inherently problematic with having a survey conducted by a third party.” 34. See, e.g., Ruth Corbin, R.S. Jolliffe, & A.K. Gill, Trial by Survey, (2000) in which the authors give a historical review of the Expert Opinion exception to the Hearsay Rule; the

Vol. 107 TMR 1107

A. Problems with Internet Panels 1. Identity

Internet panels raise questions of reliability: do we know who these Internet survey participants really are? Participants may or may not be completely honest at sign-up time, particularly if they are privacy-sensitive or if they worry about spam-email that might take advantage of their demographic information. Verifying information at the sign-up stage is the responsibility of a good panel company. But not all panel companies are diligent in this respect. In one passing off case regarding impression of car company slogans,35 a survey expert testified about the quality control used by the panel company to verify the identity of participants in the Internet panel [referred to for this case example as “PanelCo.”] The name, address, and telephone details of panel participants were reviewed at PanelCo’s sign-up stage, the expert reported, to validate participant authenticity at least at face value. An inspection was further done by PanelCo, the expert claimed, to verify whether the name was credible (he gave examples of names of famous people that would be rejected), whether the street address actually existed, and whether the postal codes matched the address location. Opposing counsel doubted the expert’s assurances of quality control, and engaged individuals to sign up with PanelCo, using readily detectable false information. Opposing counsel’s purpose was to see if falsehoods would be caught, as the expert had assured they would be. One of the hired individuals signed up under the name “Napoleon Bonaparte.” Another used a street name that did not exist in the given city. Another used a postal code inconsistent with the city. All individuals—having submitted easily checkable false information—were accepted as panel members, and were invited to participate in PanelCo surveys. This set of revelations was documented in an opposing expert’s affidavit. The case settled soon thereafter.

2. Representativeness Verifying respondent identities is not the only challenge.

Representativeness of a given single panel sample has also been challenged in the courts.36 Can any given panel be representative authors observe that courts still expect that experts will personally oversee the data collection process, in order to give the court first-hand confirmation of their confidence in the data underlying their opinion. 35. Bennett Dunlop Ford Sales Ltd. v. Kia Canada Inc., Federal Court of Canada File No: T- 1993-10, settled out of court after exchange of evidence, in 2014. 36. See Parallel Networks Licensing, LLC v. Microsoft Corporation, Civil Action No. 13-2073 (KAJ), 2017 U.S. Dist. LEXIS 29613, at *9-10 (D. Del. Feb. 22, 2017) (“According to Dr. Isaacson, survey respondents were recruited through an internet survey panel organized by Survey Sampling International (‘SSI’). … But Dr. Isaacson does not provide any details on

1108 Vol. 107 TMR of the population to be tested? If the same survey were run on two different panels, would similar results be obtained? Empirical investigation has yielded the disturbing finding that an identically worded survey, administered to participants with similar demographic profile on two different commercial panels, may produce markedly different results.37 Factors proposed as explanations for such variations across panels include the following:

• different contexts in which the survey is presented, or different visual layouts;

• different respondent motivation, arising from amounts of compensation offered by different panels; and

• different recruiting sources for the participants; • different expectations or frames of thinking based on the

wording of the “appeals” at the time of recruiting. Surveys that blend members from more than one panel may be

no better, because the variance, or “irrelevant noise” factor, may be significantly increased.38 The point to be made is that differences between Internet panel populations may be as large as differences among populations of two provinces or states. The people in the different panels may “seem” the same, but were pre-conditioned by very different environments, which may result in distinctly different attitudes on a given issue.39 High variance in a data set makes it harder to detect an effect that exists in the overall population (referred to in science as a “Type II error”40). Consider a likelihood of confusion case, wherein the plaintiff’s single panel-based Internet the particular panel he used for the survey. It is not clear if the panel drew from a representative sample of the United States population, of IT professionals, or from some other group….Without additional information, it is impossible to know whether the participants of the underlying panel deviate in some meaningful way from the target population. For example, it could be the case that some of Microsoft's customers are frugal and wish to save money—motivating them to hire less experienced IT professionals and to optimize their network configuration based on cost—while other customers are more interested in network performance—motivating them to hire experienced IT professionals and to configure their networks to minimize service times. If the SSI panel, used for the survey, screened individuals based on income, then the survey results could systematically over represent one set of Microsoft customers while under representing another”.) 37. See Jon Puleston & Mitch Eggers, Dimensions of Online Survey Data Quality. What Really Matters?, Proc. of ESOMAR Congress (2012). 38. See ESOMAR, 28 Questions to Help Buyers of Online Samples (2012), https://www.esomar.org/uploads/public/knowledge-and-standards/documents/ESOMAR-28-Questions-to-Help-Buyers-of-Online-Samples-September-2012.pdf (last visited Aug. 9, 2017) (hereinafter, “ESOMAR 28”). 39. See R. Walker, R. Pettit, & J. Rubinson, The Foundations of Online Research Quality–Executive Summary 3: Inter Study Comparability and Benchmark Analysis, New York: Advertising Research Foundation (2009). 40. Statistically, a Type II error means a failure to reject a false null hypothesis. Put differently, it means the inability to detect a causal effect in a survey sample when in reality the effect does exist in the universe. This is otherwise known as a “false negative.” A Type I error is a false positive, or the detection of an effect that is not actually present.

Vol. 107 TMR 1109 survey finds confusion between a junior and senior brand. The defendant proffers a blended-panel Internet survey (using two entirely different panels) that shows the opposite: no confusion. If the defendant’s survey has exaggerated variance, it may be the case that confusion exists but was not detected. In such a case, the opposite results shown by plaintiff’s and defendant’s surveys may be the result of different Internet panel selection, as opposed to (or perhaps in addition to) other differences in the stimuli or questioning.

Would a larger sample size selected from any panel not help control unwanted noise and increase representativeness? While it is statistically true that a large sample size reduces the influence of noise in detecting “true” effects, a large sample size is no panacea for poor representativeness. A well-known example comes from the 1936 US presidential election survey where Literary Digest surveyed nearly two and a half million people (a very large sample for the time), and predicted that Alfred Landon would win the election against Franklin D. Roosevelt. The survey was wrong. The tested population consisted of people listed in directories of citizens of upper income groups, whose views were not those of the majority.

3. Motives of Volunteers Another concern expressed about Internet panels is that they

consist largely of volunteers, who want to be part of the panel club, and are willing to answer several surveys a year in return for compensation or entries in contests. They are “motivated survey-takers,” for better or worse. Over-motivated survey respondents present cause for concern, whether the survey is conducted in person, by telephone, or over the Internet, because such respondents may have little or no investment in the truthfulness of their answers to any particular survey.

The issue arose in a high-profile pharmaceutical trademark case in Canada, concerning the PROZAC drug.41 A mall survey submitted by the plaintiff was entirely discounted by the court for its insufficient quality controls. Among the identified weaknesses was the survey company’s failure to screen out people who “hung out” in malls where survey companies operated, waiting to be paid for taking surveys, and communicating with each other about answers to the qualifying questions for that day’s survey. Justice Reed in that case famously coined the term “Mallies” to describe such people. Most Canadian trademark surveys since that case

41. Eli Lilly and Company v. Novopharm Ltd., 1997 CanLII 5008 (FC), aff’d [2001] 2 FC 502; Justice Barbara Reed, who presided over the dispute, subsequently described the survey evidence at trial in a chapter published in Ruth M. Corbin & A. Kelly Gill, Survey Evidence and the Law Worldwide: A Reference Text for Lawyers, Jurists and Social Scientists (2006).

1110 Vol. 107 TMR feature a qualifying question to screen out Mallies.42 Internet panels arguably contain a similar ingredient of motivated volunteerism that needs to be held in check.43

Where regulations for panel recruitment exist, they are designed principally to protect consumers from unwittingly giving up personal information without realizing that their personal information would be kept in the permanent records of a panel company.

International Organization for Standardization (“ISO”)44 regulation 26362:2009, embraced by many reputable panel providers, recommends a double opt-in measure for panel volunteers, by obtaining their consent at two separate points of the recruitment process. While protecting against panel companies’ abuse of consumer naiveté, the ISO standard surely reduces the variability of personality types that end up on panels, that is, by limiting them to people willing to invest time to pause, consider and agree to be a continuing volunteer. Again, one is reminded of some of the foregone advantages of earlier survey methods. Random telephone surveys, for example, were once lauded for their ability to capture people who would not ordinarily volunteer for surveys, but who could be persuaded on individual occasions to answer questions from a courteous interviewer at the other end of their phone line. The ISO standard for Internet panels reduces the chance of capturing less-willing respondents, thereby risking a loss of representativeness. This paradox needs to be addressed.

B. Risk Management of Internet Panels We have articulated thus far recognized risks of Internet

surveys with respect to the assembly of random samples, risks not present or not as significant with older-style methods. These risks can be managed; the first step in risk management is careful selection of a panel company. Panel companies suitable for 42. A typical wording is as follows: “Within the past 30 days, have you or have you not participated in a survey conducted in a mall?” 43. To the authors’ knowledge, this risk of distortion of results by “professional respondents” in Internet surveys has not been raised in adversarial legal argument. The recognized international standards organization for the survey industry, ESOMAR, does not set any guideline to address the risk identified here. 44. ISO is an independent, non-governmental international organization that brings together experts to develop voluntary, consensus-based, market relevant international standards. See https://www.iso.org/about-us.html (last visited July 17, 2017). Courts define ISO similarly. See Thatcher v. Trans World Airlines, 69 S.W.3d 533 (Mo. Ct. App. 2002) (“ANSI (American National Standards Institute), formerly known as ASA, is a voluntary membership organization that develops consensus standards nationally for a wide variety of devices and procedures. ISO is the international standards organization that performs a similar function”). The relevance of ISO standards is acknowledged in case law in other areas, such as products liability. See, e.g., Holst v. KCI Konecranes Int’l Corp., 699 S.E.2d 715, 390 S.C. 29 (Ct. App. 2010).

Vol. 107 TMR 1111 supplying data to litigation will have invested in the following quality controls, that expert witnesses will be expected to disclose:45

• Recruitment procedures that verify respondent identity and demographic information;

• Recruitment procedures that reach out to people who may not actively volunteer; and

• Neutral wording of recruitment invitations to avoid biasing the participants’ expectations, or understating the importance of thoughtful participation.

The international research association, the European Society for Opinion and Market Research (“ESOMAR”), suggests questions to be asked of potential online sample providers46 to permit clients to at least assess the fit between what they need and what a panel company offers. The standards verified through asking such questions can be documented in an expert report, and used to compare the credibility of competing surveys submitted to a court. ESOMAR’s recommended questions are enumerated in summary form below, accompanied by case references where courts have expressed explicit interest in the answers to just such questions.

• What is the source of the panel members? • Are there checks on respondents’ identity? In 3M v. Mohan,47

an online survey of doctors and nurses was given greater weight because the panel provider collected a substantial amount of identifying information about these medical professionals at the time of recruiting them onto the panel. Also, for purposes of sending out the monetary honoraria upon survey completion, the panel provider collected the mailing addresses of survey participants, thereby further verifying their identities.

45. Lack of clarity on how participants to a survey were solicited has attracted notice of courts. For instance, in Thermolife International, Llc v. Gaspari Nutrition, Inc., No. CV-11-01056-PHX-NVW, 2014 U.S. Dist. LEXIS 3426, at *6 (D. Ariz. Jan. 10, 2014), the court noted: “Mr. Berger’s report does not state when the survey was conducted or how survey participants were solicited,” and excluded the survey. On appeal, however, the Ninth Circuit found that the district court’s exclusion of Internet survey evidence was clearly erroneous because “[a]lthough the district court faulted the survey’s biased questions and unrepresentative sample, neither defect was so serious as to preclude the survey’s admissibility.” 648 Fed. Appx. 609, 614 (9th Cir. 2016), citing Fortune Dynamic, 618 F.3d at 1037-38. 46. ESOMAR is a non-profit organization that plays a significant role in market research industry by setting quality standards as well providing advocacy support. It has existed since 1947 and has 5000 individual and 500 corporate members. ESOMAR’s advice on panel assessment is contained in ESOMAR, 28 Questions to Help Buyers of Online Samples, at https://www.esomar.org/uploads/public/knowledge-and-standards/documents/ESOMAR-28-Questions-to-Help-Buyers-of-Online-Samples-September-2012.pdf (last visited Aug. 14, 2017). 47. 3M Co. v. Mohan, Civ. No. 09-1413 ADM/FLN, 2010 U.S. Dist. LEXIS 124672 (D. Minn. Nov. 24, 2010), aff’d No. 2011-1328, 2012 U.S. App. LEXIS 10753 (Fed. Cir. May 29, 2012).

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• Will it be possible to compare results of panel members based on the source from which they were recruited? This is called split-sample reliability testing,48 a quality control step long-recognized in the social science literature.

• Is the panel company ISO certified? 49 • What is done to ensure no duplicate responding? If more than

one panel is used, the researcher needs the cooperation of the panel providers to avoid duplication. Knowledge of the blending process also provides an insight into how de-duplication of respondents across sources is handled.

• Are ethnic minorities or other hard to reach groups, if pertinent to the dispute, captured in the panel in suitable proportion? Certain ethnic minorities have a distinctly higher proportion of mobile-only Internet access,50 and many Internet surveys are designed to only be used from computer screens as opposed to on mobile devices.51

• What is the nature of incentives offered for participation? Are incentives likely to encourage speeding, inattention, or dishonesty? The court in a class action case criticized the absence of clarity regarding incentives or compensation to prospective survey respondents.52

ESOMAR’s advice to put such questions to prospective panel suppliers is not itself a guarantee of high-quality data. Nevertheless, asking such questions, and accounting for answers, is a demonstration of desirable due diligence.

48. See Michael Furr, Split Half Reliability in Encyclopedia of Research Design (Neil Salkind ed., 2010), http://methods.sagepub.com/reference/encyc-of-research-design/n431.xml (last visited Oct. 15, 2016). 49. Access to ISO’s certification information is available at http://www.iso.org/iso/catalogue_detail?csnumber=43521 (last visited Aug. 9, 2017). 50. See, e.g., Monica Anderson, Racial and Ethnic Differences in How People Use Mobile Technology, Pew Research Center (2015), http://www.pewresearch.org/fact-tank/2015/04/30/racial-and-ethnic-differences-in-how-people-use-mobile-technology/ (last visited Aug. 9, 2017). This Pew Research Center report shows that in US “some 13% of Hispanics and 12% of blacks are smartphone-dependent, meaning they don’t have a broadband connection at home and have few options for going online other than their cellphone. In comparison, only 4% of white smartphone owners rely heavily on their cellphone for online access.” This disparity demonstrates the importance of incorporating a mobile-access component in online surveys. 51. On the other hand, where response by mobile devices is permitted, a concern has been raised about possibly lower quality of response. See Aigul Mavletova, Data quality in PC and mobile web surveys, 31 Soc. Sci. Computer Rev. 725-743 (2013). 52. In Re Front Loading Washing Machine Class Action Litigation, Civil Action No. 08-51 (FSH), 2013 U.S. Dist. LEXIS 96070, at *22 (D.N.J. July 10, 2013). An Internet-based consumer survey was conducted to determine the incidence of problems and the overall satisfaction or dissatisfaction among the LG washing machine owners. The court noted: “It is unclear whether the people who took the survey were paid or otherwise rewarded to take it,” and excluded the survey under Daubert.

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V. PARTICIPANT RESPONSE AND SURVEY VALIDITY Participants are the ultimate determiners of the quality of data

they provide. They are the hidden witnesses, on whose responses an expert relies in presenting an expert opinion to the court. This section enumerates issues arising from participants themselves, and identifies best practices to address these issues.

A. Duplicates An assumption underlying any survey is that a participant

completes the survey only once. Can a researcher be certain that each respondent is unique? Perhaps not. Data indicate that 45% of U.S. panel respondents are members of more than 5 panels.53 This multiple participation becomes a problem when more than one panel is used to obtain “hard-to-reach” respondents—such respondents may then happily complete the same survey more than once, for multiple rewards.

Multiple responses by the same individual create particular threats to defendants in confusion cases. Plaintiff surveys are typically treated as probative of material confusion if they produce evidence at least in the range of 10% to 20% confusion.54 Every time a confused respondent participates more than once, he or she brings the evidence closer to the minimum. Respondents may also sign up for the same panel under different email addresses, with false demographics. Falsely given demographics prevent a researcher from having a correctly balanced demographic sample, which in turn undermines statistical reliability. It may also undermine relevance, if the false information is pertinent to the trademark dispute. For example, if the audience sought for a toy trademark study is mothers of young children, then any panel participants falsely reporting on ages of their children, or their own gender, could be wrongly captured in the survey sample. Panel provider websites describe various tactics for verifying identity, including digital fingerprinting that records the IP addresses of respondents.55 But there is no uniform industry practice agreement.

53. See Online Panel Research: A Data Quality Perspective 43-44 (Mario Callegaro, Reginald P. Baker, Jelke Bethlehem, Anja S. Göritz, Jon A. Krosnick, & Paul J. Lavrakas, eds., 2014). 54. Gerald Ford, Survey Percentages in Lanham Act Matters, in Trademark and Deceptive Advertising Surveys 314 (Shari Diamond & Jerre B. Swann eds. 2012) (“While it is true that some courts have not accorded probative weight to survey results between 10 percent and 20 percent, numerous courts have found likelihood of confusion surveys with percentage results between 10 percent and 20 percent probative of a likelihood of confusion”). 55. Digital Fingerprint (or Device ID or Machine fingerprints or Machine ID) is defined by ESOMAR as “A technology-enabled system that establishes a set of configuration data about a research participant’s device (computer, smartphone, etc.), which can be used to create a machine or device fingerprint. Such systems assume the “machine fingerprint” uniquely identifies a device using settings and characteristics associated with an individual

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B. False Responses Respondents may falsely report product usage or job

responsibilities if they believe it would qualify them for a survey reward. This is problematic for trademark surveys, which depend on particular pertinent populations—namely those people who make purchases or influence purchases in the trademarked product/service category. Courts are aware of this vulnerability of Internet surveys. In Dwyer Instruments, Inc. v. Sensocon, Inc.,56 the court noted the need for the expert to address whether respondents sitting at the computer were actually part of the identified universe. In First National Bank of Omaha, Inc. v. MasterCard International, 57 the court noted: “The fact that respondents were required to take time to complete the internet survey in exchange for a small amount of money, moreover, suggests the possibility that the individuals who volunteered may not have been the professionals who make high-level decisions concerning the banks’ adoption of smart card programs. It is unclear whether, and to what extent, the survey reached the decision-makers whose potential confusion is relevant to this litigation.” In National Financial Partners Corp. v. Paycom Software, Inc.,58 the respondents to the online survey were those with job responsibilities in payroll, insurance, and personnel. The court here noted: “Of thirty-one survey participants contacted by an independent firm, ten were not actually qualified to take the survey. This calls into question how many of the other 201 participants were qualified.”59

C. Attentiveness Valid results depend on respondents’ reading the instructions,

reading each question carefully, and answering thoughtfully. Alas,

device or, potentially, an individual user account.” See https://www.esomar. org/uploads/public/knowledge-and-standards/codes-and-guidelines/ESOMAR-GRBN_Online-Sample-Quality-Guideline_February-2015.pdf (last visited July 17, 2017). One example of many that accomplishes digital fingerprinting is the OPTIMUSID technology designed by social media sampling firm, Peanut Labs. Peanut Labs has removed the webpage that described their OptimusID technology. However a news release that provides the same information is available at http://www.marketwired.com/press-release/peanut-labs-unveils-optimusid-to-resolve-online-market-research-data-quality-crisis-835622.htm. 56. Dwyer Instruments, Inc. v. Sensocon, Inc., Cause No. 3: 09-CV-10-TLS, 2012 U.S. Dist. LEXIS 21308 (N.D. Ind. Feb. 21, 2012). 57. First Nat’l Bank of Omaha, Inc. v. MasterCard Int’l Inc., 03 CIV. 707 (DLC), 2004 U.S. Dist. LEXIS 13162 (S.D.N.Y. July 15, 2004). 58. Nat’l Fin. Partners Corp. v. Paycom Software, Inc., No. 14 C 7424, 2015 U.S. Dist. LEXIS 74700 (N.D. Ill. June 10, 2015). 59. Checking on the integrity of the panel data base is a creative opportunity for an opposing firm, to expose one of the potential vulnerabilities of an Internet survey. When the panel is managed by a firm with rigorously implemented quality controls, the tactic is less likely to bear fruit.

Vol. 107 TMR 1115 that is not always the case. Reported studies have found that as many as 46% of respondents don’t read instructions carefully and 11% don’t read questions.60 Respondents who are part of multiple panels may be particularly disinclined to read surveys carefully because they participate in so many surveys and either want to get through the each survey as quickly as possible or assume they understand the questions based on past experience.61 Recent evidence shows that data contamination due to respondents’ careless and inattentive responding may lead to identifiable Type I and Type II errors,62 that is, finding an artificial effect such as confusion that may not actually exist, or alternatively failing to find a true effect such as confusion that does exist. In either case, validity is compromised: the survey is not measuring what it was designed to measure.

Ensuring that respondents read the instructions is critical for tests of genericism in the Teflon survey format.63 A Teflon survey is distinctive for its intended purpose, and not a format with which most consumers would be familiar (unless they are routine respondents to surveys). In the Teflon survey format, participants need to first be instructed on the difference between the terms “brand name” and “common name.” After being given one or more examples, they are then asked to distinguish each name on a list of names as being either a brand name or a common name. A Teflon survey can simply not be valid unless responders attend to the instructions.64

60. See Daniel M. Oppenheimer, Tom Meyvis & Nicolas Davidenko, Instructional manipulation checks: Detecting satisficing to increase statistical power, 45 J. Experimental Soc. Psychol., 867-872 (2009) (hereinafter, “Oppenheimer et al.”). 61. The average number of survey invitations to members of a panel in a month could be as low as 6.5 to as high as 52. See “More Dirty Little Secrets of Online Panel Research” (2012), http://www.greenbookblog.org/2012/01/30/more-dirty-little-secrets-of-online-panel-research-2/ (last visited Aug. 9, 2017). It is thus possible for a panel member to receive, on average, more than one survey invitation every day from a given panel. Moreover, 45% of panel members are participants in more than 5 panels and these members of multiple panels will presumably have even more opportunities to participate in surveys. 62. Jason L Huang, Mengqiao Liu & Nathan A, Bowling, Insufficient Effort Responding: Examining an Insidious Confound in Survey Data, 100 J. Applied Psychol. 828 (2015). 63. See, e.g., Gerald Ford, “Intellectual Property Surveys. Annual Cumulative Update 2010,” prepared for the International Trademark Association (INTA), and posted at http://www.inta.org/TrademarkBasics/FactSheets/Documents/INTALanhamActSurveysCumulUpdate2010.pdf (last visited August 9, 2017). Generally speaking, Teflon surveys require participants to categorize a given name as a brand name or common name, in order to determine whether the primary significance of the name to the consuming public is that of a brand or a generic term. 64. See, e.g., Sheetz of Delaware, Inc. v. Doctor’s Associates Inc., 108 U.S.P.Q.2d 1341 (T.T.A.B. 2013) (Teflon survey done without conducting a mini-test to confirm respondents understood the instructions discounted for this and other reasons; “[a]sking a respondent whether he or she understood the difference [between a brand name and a common name] is not the same as testing whether she or he understood the difference.”).

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Answering thoughtfully is also necessary to the validity of a survey in the Squirt Test65 format, a trademark survey format involving a closed-ended question about the sources of two products, with answer options inviting the respondent to distinguish between the “same company” or a “different company.” Answering thoughtfully continues to be necessary in answering the open-ended question that follows, a question like “Why do you say that?” Respondents are free to type in as little or as much as they wish. Overly speedy participants who don’t want to “think” too much may rob the survey-taker of potentially valuable information about their perceptions.

On the other hand, excessive time taken by respondents may be indicative of a different kind of problem. For example, in response to a survey in the Eveready Test66 format, where the question presented is “Who do you think puts out this product?”, respondents who want to be “right” (as research shows many respondents like to do) may try to look up the answer on the Internet. Or they may ask a family member. Or, if the option exists in the survey formatting, they may try to go back to change earlier responses to demonstrate consistency with what they plan to type next.

* * * The issues raised in this section are about the individuals

behind the numbers. Internet surveys achieve cost-effective reach of thousands of such individuals, without concern for their unique personal perspectives, motivations or answering styles. Yet the latter can introduce biasing effects. The next section explains principles of quality control that can be applied to control potential biases in three identified categories of risk: “faking,” “inattention,” and “cheating.”

VI. DESIGNING THE SURVEY TO MINIMIZE FAKING, INATTENTION, AND CHEATING

Internet surveys can be designed so as to minimize respondent behaviors such as “faking answers,” “inattention,” or “cheating.”

A. Addressing Faking Faking occurs when respondents deliberately provide

misleading or inaccurate responses to survey questions. As earlier discussed, one reason for faking may be to try to qualify for a survey 65. The Squirt test is named after for format set out in Squirtco v. Seven-Up Co., 628 F.2d 1086, 1089 n.4 (8th Cir. 1980), in which a survey participant views allegedly confusing products side by side or in short succession. 66. The Eveready test was first set out in Union Carbide Corp. v. Ever-Ready, Inc., 531 F.2d 366, 385-88 (7th Cir. 1976), and entails asking about the source of a product without display of any other product with which it may be allegedly confused.

Vol. 107 TMR 1117 without actually having the necessary pre-requisites—perhaps by falsely claiming to have bought a product relevant to the survey topic. Another reason for faking may be to appear to act consistently with social norms.

The problem of faked qualifications can be reduced by screening-questions that either identify those who are willing to give false answers, or make it difficult for “fakers” to guess how to answer qualifying questions to gain entry into the survey. One way of doing the former is to include questions in the survey to which affirmative responses are highly unlikely. For example, respondents who answer affirmatively to the following three questions are unlikely to be consistently telling the truth: Did you purchase scuba gear in the last 3 months? Did you go snow-skiing in the last 3 months? Did you visit a fly fishing store in the last 3 months? If the additional question “Did you buy a camera in the past 3 months?” is the actual qualifying question, then the earlier questions both help to detect likely liars, as well as make it very difficult for the respondent to guess which question is the true qualifier.

Detecting faked identification (for example, a child answering on her parents’ computer) may appear more difficult at first glance, because of respondents’ presumption that their answers will be anonymous. The authors ask each respondent to provide a name and telephone number and convenient time to be reached during a day, to allow a survey administrator to verify that it was the respondent who filled out the survey. Participants are still assured that their identification details will not be tied to their answers, and will be used for no other purpose than to verify their participation. Respondents unwilling to provide such information are prohibited from continuing.

B. Addressing Inattention to Instructions and Questions The second category of respondent issues that can be mitigated

is that of inattention, either to essential instructions or to the content of the questions themselves. Perhaps a respondent wants to get the survey over quickly, increasing his “pay per minute” for participating. Or, respondents may believe that they recognize the format from previous surveys (like the Teflon survey format for genericness surveys) and may feel they don’t need to pay as close attention to the instructions. Or, fatigue or distraction may lead them to answer questions quickly and without thought—even checking off boxes without reading the questions.

We first consider the need to ensure attention to survey instructions. One technique for doing so is the use of an instructional manipulation check (“IMC”).67 An IMC works

67. See Oppenheimer et al., supra note 60.

1118 Vol. 107 TMR approximately as follows. An initial screen page presents the instructions in the form of a title, a paragraph, a question with multiple choice response buttons, and a large “continue” button. Midway through the paragraph, respondents are instructed to ignore the multiple-choice buttons, avoid using the “continue” button, and simply click on the title to move to the next screen. Respondents who fail the manipulation check by doing one of the things they were instructed not to do are prompted that they are not paying enough attention and are taken back to the screen again till they get it right. Research has shown that such prompting to pay more attention does improve their answers, making their answers indistinguishable from the answers of those who “passed” the IMC initially. Without such prompting, the answers from those who initially failed the IMC digress from those who passed it.68 A Teflon survey can readily incorporate such a question by first explaining the difference between the terms “brand name” and “common name,” giving examples, and then testing respondents’ understanding with questions where the answer should be obvious—like distinguishing whether “Bacardi” is a brand name or a common name, or whether “milk” is a brand name or common name. Respondents who fail to get the concept after one or two tries can be eliminated from progressing through the survey. Such a pre-quiz to Teflon surveys is integral to its use.69

There is also the risk of inattention to the questions themselves. Careless responding can be detected through special sets of questions; respondents who then fall below a minimum “attention score” are terminated from the survey.

One such set of questions are “inconsistency items.” Pairs of questions can be included in the survey, relatively distant from each other, that request the same information with different wording. For example, asking for agreement or disagreement to the following two items should yield the same response if participants are paying attention: “I am an active person.” “I live an active lifestyle.”70 Another question type to detect inattention is the “bogus item.” Certain common-sense questions would be answered in a predictable way by respondents who are paying attention. Different answers would be a sign of inattention. Examples of such items include: “I was born on February 30th [check off yes/no].” “I have

68. See p. 870, Oppenheimer et al., supra note 60. 69. See, e.g., Ruth M. Corbin, Surveys and Other Marketplace Evidence, in Canadian Litigation, in Canadian Trade-mark Law Benchbook, (D. Cameron ed., 2015); Jacob Jacoby & Lynda Zadra-Symes, Legal Issues That Can Be Examined via Surveys, in Trademark Surveys, Volume I: Designing, Implementing and Evaluating Surveys (2013); see also a full reproduction of the wording of a Teflon survey in In re Calloway Golf Company [2001] TTAB, USPTO, Serial No. 75/389,003. 70. Some work uses 7-point scale items to test inconsistency. A dichotomized (yes/no) version is simpler to manage and analyze.

Vol. 107 TMR 1119 been to every country in this world [check off yes/no].” Another type is a “directed-answer question.”71 Similar to the IMC discussed earlier, a directed question tells a respondent which specific response option to choose. It might be a question buried in a list of activities for which a respondent is asked to indicate whether she participates in them “frequently,” “sometimes,” “rarely,” or “never.” The directed-answer item in the list is worded, for example: “This is a control question. Please mark “Rarely” and move on.” Respondents who click on any option other than “rarely” are deemed to be inattentive to that question. (How to deal with evidence of inattentiveness is discussed in a later section.)

The three types of questions just given are exemplars of tools for detecting careless responding. There is no established theoretical justification for any particular number of such questions to include, or where to place them. A decision on the “right” number should take into account the length of the survey itself. There is no suggestion that all should be employed. Due diligence is satisfied by any quality control measure that detects and controls for inattention.

C. Addressing Cheating Cheating involves attempting to improve answers by consulting

other sources, or going back to change earlier answers to ones that do not reflect true “first impression” (as trademark surveys generally want to capture).

Addressing the risk of respondents’ returning to earlier questions is the easiest to address. The survey simply needs to be programmed accordingly, to disallow returns to earlier screens.

Addressing the risk of respondents’ consulting extraneous sources can be addressed in part by putting a reasonable time limit on the survey. A reasonable time limit would not capture instances of all “consulting activity” that the respondent may engage in, but it will contribute to quality control. The time limit can be pre-tested in advance to ensure that it is indeed “reasonable” for a wide range of reading and typing speeds.72 The authors simply ask participants not to consult other sources, and require them to confirm that they will not, as part of the introduction to the survey. Wording can be used such as this: “Do you agree to answer each question truthfully and thoughtfully, and to not consult any other source of information, when completing this survey?”

71. See Michael R. Maniaci & Ronald D. Rogge, Caring about Carelessness: Participant Inattention and its Effects on Research, J. Research Personality 48, 61-83 (2014). 72. Pre-testing is a standard step for any survey, and is typically done on a small sample that is nonetheless large enough to make statistical projections about the magnitude of any problem detected with the pretest.

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It is important to note that inclusion of questions attempting to address faking, inattention, and cheating does not appear to interfere with legitimate survey results.73

VII. POST SURVEY VERIFICATION AND ANALYSIS The Post-Survey stage permits a final analysis of the integrity

of the data, and an opportunity to remove suspicious response records.

Inattentive responders can be eliminated at this stage, if they were not eliminated earlier, based, say, on their “Attentiveness Score” described in the previous section. If such a procedure is applied, the number of instances of inattention for purposes of disqualification should be decided in advance, and the “rule” strictly applied. The expert should then also verify that the sample profile has not been distorted in the process. For example, if all eliminated people are under 25 years of age, then one might suspect that the elimination procedure itself has some built-in bias that needs to be rectified. It has indeed been found that there is a relationship between inattention and certain demographics.74 To assure the integrity of the elimination process, one could present to the court a comparison of responses of the retained survey sample with those of the eliminated respondents.75 If there are no significant differences, then nothing has been lost in the elimination process. Evidence of differences between the response records eliminated and those retained would confirm to the court the wisdom of the expert’s quality control procedures. If an opposing expert is not similarly diligent, and presents opposite survey results, the court may prefer the survey governed by superior quality controls.

A final verification procedure is to conduct telephone confirmation of 10% to 15% of respondents, by calling them directly. Access to this verification procedure requires the step described earlier, of allowing participation only by people willing to give their phone numbers for a possible future verification call. The interviewer making the calls would confirm that it was indeed the panel member who personally answered the survey, and that the respondent indeed met the survey qualifications. Verifying between

73. Adam J. Berinsky, Michele F. Margolis & Michael W. Sances, Separating the Shirkers from the Workers? Making Sure Respondents Pay Attention on Self-Administered Surveys, 58 Am. J. Pol. Sci. 744, 739 (2013) (hereinafter, “Berinsky et al.”). 74. Older respondents (compared to younger) and women (compared to men) are significantly more likely to pass attention screeners. In some instances, passage rates for attention screeners vary based on the respondent’s race. See Berinsky et al., p. 748, supra note 73. 75. Id.

Vol. 107 TMR 1121 10% and 15% of respondent information in this manner is consistent with verification levels required of telephone surveys in the past.76

VIII. CONCLUSIONS Internet surveys are increasingly used by experts in trademark

disputes. While such surveys now enjoy cautious acceptance by the courts, they are vulnerable to criticism—as surveys have always been—by avid opposing experts. Features of Internet surveys particularly at risk for criticism include the inability to obtain a perfect random sample, and the power of participants to fake their responses, speed through surveys without attention, and “cheat” on their answers.

Internet survey reliability is still evolving. While Internet survey panels of volunteers are not a random sample of the population, investment in increasingly sophisticated, multiple recruiting methods77 holds out hope for continuous improvement in survey reliability. In any event, Internet surveys can readily capture a demographically representative sample by design, obtain better response rates than telephone surveys, and reach across a much broader geography than mall samples.

Interventions under the control of the expert to enhance both reliability and validity can be implemented in three stages:

1. Choosing a panel company that is likely to deliver quality information about panel participants, and that employs sound sampling procedures;

2. Including questions within the body of the survey to check for faking, inattention, and cheating; and

3. Engaging in post-survey validation and analysis to strengthen the integrity of the data and provide assurance of legitimate respondent identities.

If best practices are in place in these areas, then trust by courts in the integrity of Internet surveys is in order. Doveryai, no Proveryai. Trust but verify.

76. See, e.g., Ruth M. Corbin & Fiona Isaacson, Surveys on a Tightrope—the Convergent Validity Net, 24 Intell. Prop. J., 265-78 (2012). 77. One of the earliest steps to progress, described by panel company Probit at https://www.probit.ca/what-we-do/probability-based-panels/, is recruiting panel members by random-digit-dialing of phone numbers, which captures a random sample of listed, unlisted and cell-phone numbers. Multiple-recruiting methods for health-related studies are reviewed in T.S. Lane, J. Armin & J. S. Gordon, Online Recruitment Methods for Web-based and Mobile Health Studies: A Review of the Literature, J. Med. Internet Res. 2015 17(7).

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BOOK REVIEW

Constructing Intellectual Property. Alexandra George. 2012. Pp. 339. $118. Cambridge University Press, 32 Avenue of the Americas, New York, New York 10013-2473. Constructing Intellectual Property might just as well have been

titled “Deconstructing and Reassembling The Regime of Intellectual Property,” for that is the thesis of Dr. George’s admirable writing. To be fair, a body of law that simultaneously addresses rights in such varied endeavors as Bill Monroe’s musical composition “Wheel Hoss” (copyright), the formula of Coca-Cola (trade secret), Nike’s advertising slogan JUST DO IT (trademark) and an “[a]erodynamic grain handling system” (patent), not to mention boat hull design and plant varieties (among other fruits of human inspiration), is ripe for a reexamination.

Dr. George writes clearly and her prose is straightforward. Constructing Intellectual Property is a work of academic theory, not a practice guide or treatise. However, IP counsel, who exist in the real world of disputes over rights and permissions, can benefit from her understanding and clarity. She postulates “a theory of intellectual property that explains how objects of intellectual property are legal constructs being defined into existence by, and then regulated by” governmental institutions (p. 334) (emphasis supplied). Dr. George’s fresh look at the intellectual property regime contributes greatly to the understanding of how IP law functions today.

Building on the parable of “The Emperor’s New Clothes,” Dr. George posits,”[t]he conclusion that ‘intellectual property’ lacks a readily identifiable meaning, and the possibility that it is the sort of term known as an ‘essentially contested concept’ or an ‘empty/floating signifier’, necessitate a search for an alternative definition...” (page 81). Accepting that the law of intellectual property is a social construct, Dr. George argues that it is more: an “institutional fact”; the law (as opposed to the notion) of IP is a creation of societal institutions. But IP law itself, she argues, is merely a set of rules that only indirectly shape and manage expectations relative to the object of intellectual property, namely (and very generally speaking), the desire to give protection to the outputs of human creation or innovation whether or not they have a physical manifestation.

Those who toil in the mines of trademark or copyright law know this well. For example, brand equity is a witch’s brew of negative and positive associations, known, encouragingly, as “goodwill.” Brand equity is ephemeral, more so in the digital age. Copyright, with different goals and rules, also presents a moving definitional

Vol. 107 TMR 1123 target. An idea is not protectable, only its expression. And only then if it is accompanied by a dash of creativity (not much at all, really) and is “fixed.”

Any counsel who has tried to explain to a client the relationship between a common law trademark and a registration for that mark understands that there is something metaphysical afoot. Modern trademark law protects “goodwill,” using the notion as a signifier/stand-in for the calculus of “brand equity” and somehow translating this abstract concept into a property right, like owning a toaster. Moreso, as Dr. George helpfully points out, the societally protected rights in these non-physical ideations can be diced and sliced in virtually infinite ways through contractual relationships (e.g., licensing). Against this background, one understands why IP law cannot keep up with technology. Underscoring the endemic futility of the enterprise, Dr. George writes (at page 125) “The scope of an intellectual property object is not certain until ruled upon by a court or tribunal in a given situation, and even then, one can never be sure where all the other boundaries of that intellectual property object lie.” [footnote omitted]. While the uncertainties of ruling authorities applying unique facts and circumstances hold equally to the realm of physical objects, they are amplified where there is nothing but a societal aspiration at the core of what is sought to be protected.

Dr. George, having made this case, explores historical analogs to modern day IP law. She finds parallels in the pre-Industrial Age: “lore” in native communities, heraldry, the branding of animals, guilds of the Middle Ages, and the ancient use of artisanal hallmarks. In each instance, cultural aspirations and expectations were passed on through accepted practices which were never written down; they were accommodating to, but not changed by, the societal norms of the time.

Dr. George’s analysis reveals that the term “Intellectual Property” is a metonym for the cultural and societal rules and norms (including under-examined, even forgotten, assumptions) that foster and reward human innovation. Constructing Intellectual Property benefits from Dr. George’s skilled, thoughtful, and clear approach to the subject. Theoreticians and practitioners alike can benefit from Dr. George’s reexamination of the subject.

Alfred C. Frawley

1124 Vol. 107 TMR

BOOK REVIEW

European Trade Mark Law: A Commentary. Annette Kur and Martin Senftleben, with a contribution by Verena von Bomhard. 2017. Pp. 735. $379.50. Oxford University Press, Great Clarendon Street, Oxford, OX2 6DP, United Kingdom. This treatise is authored by two scholars, Professor Dr. Annette

Kur, Affiliated Research Fellow, Intellectual Property and Competition Law at the Max Planck Institute for Innovation and Competition and by Professor Dr. Martin Senftleben, Faculty of Law, Vrije Universiteit Amsterdam. The work—in its depth of analysis—measures up to the credentials of its authors.

The authors state in their Foreword that they had two major objectives. First, they wanted to show that European trademark law is “’one law’ in the sense that its core rationales and provisions are congruent and should operate in a synchronized fashion, at the national and the EU level.” Second, they wanted “to present a policy-informed trademark commentary” that, in addition to collecting and conveying the current law and practice, reflects the authors’ attitudes with respect to policy themes. In this regard, a significant amount of discussion is devoted to “an appropriate balance between trademark protection on one hand, and . . . undistorted competition and (commercial) freedom of expression, on the other.” The authors have largely accomplished both objectives. And they do a good job of distinguishing between their “views” and the “law.”

The treatise is divided into four main Parts. Part I is an Introduction, consisting of three chapters, in total covering 85 pages. These chapters set forth the basic parameters of trademark law, a discussion of the various international treaties and agreements governing that law, and an overview of the basic features of pre-harmonization and post-harmonization laws in Europe resulting from the Trade Mark Directive of 1989 and the Council Regulation (EC) No. 207/2009.

Part II, entitled “Substantive Trade Mark Law” is the heart of the treatise, spanning 469 pages. This part presents a detailed discussion of the Directive and Regulation, and of the case law based thereon. It consists of six chapters organized into the following topics: Acquisition of Rights; Rights Conferred; Limitations, Defenses and Genuine Use; Trade Marks as Objects of Property; Collective Marks and Certification Marks; and Cancellation and Loss of Trade Mark Rights. Despite this well-organized approach, there is overlap among the various topics, necessarily resulting in substantial duplication of subject matter from chapter to chapter.

There are no “easy” chapters in Part II, largely as a result of the depth of analysis by its authors and their discussion of policy themes

Vol. 107 TMR 1125 and the tension between intellectual property rights with competing interests of a social, cultural, or economic nature. For example, Chapter 5 is entitled Rights Conferred—a topic that one would expect to be straightforward. Yet, this chapter has no fewer than 67 sections and subsections, all numbered. Subsection numbers, such as 5.1.4.4.2, at times require the reader to “go back” for context. Still, the reader’s effort to follow the authors’ analysis will be rewarded.

Part III, entitled “Procedural Aspects: Registration, Maintenance and Cancellation of Trade Marks,” consists of three chapters and spans 75 pages. The first two chapters were contributed by Verena von Bomhard, a prominent European practitioner. These chapters deal with procedural issues—first per national (and Benelux) rules, then per EU IPO rules and then per international registration (Madrid system).

The final section, Part IV, is entitled “Enforcement” and consists of three chapters, spanning 96 pages. This section deals with trademark disputes in the civil courts as well as criminal sanctions against infringers. Here, the complexity of the European system governing civil suits is made apparent, as there are rigid rules governing, for example, which courts have subject matter jurisdiction in a given case (which differ depending on whether national rights or EU Trade Marks are asserted), the appropriate choice of law in multi-country disputes, and the available remedies (preliminary injunctions, permanent injunctions, damages, corrective measures). Of particular and timely interest is the discussion concerning the liability of Internet service providers (§ 13.4.7). In a brief twelve pages, the authors provide an excellent summary of the state of the law, policy themes, and key cases. This discussion, like the entire treatise, is fully supported by footnotes to leading authorities.

In sum, this is not a treatise for the faint of heart but represents a major work by authors who are experts in their fields. It is a useful reference for both experienced practitioners and academics, and would be an excellent text for a graduate course in EU trademark law.

Edward Vassallo

1126 Vol. 107 TMR

BOOK REVIEW

International Trademark Classification: A Guide to the Nice Agreement. Jessie N. Roberts. 5th ed. 2017. Pp. 495. $195. Oxford University Press, Great Clarendon Street, Oxford, OX2 6DP, United Kingdom. Jessie Roberts spent twenty-four years researching this

treatise. International Trademark Classification: A Guide to the Nice Agreement is the product of the culmination of the expertise gained through all Ms. Roberts’ work at the United States Patent and Trademark Office as the Administrator for Trademark Identification, Classification and Practice in the Office of the Assistant Commissioner for Trademarks. This is the fifth edition of the Guide, written to codify and explain the changes made in the eleventh edition of the Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks (the “Nice Agreement”).

The purpose of the Nice Agreement was to create a system for classification that would be widely used. The Agreement went into effect in 1961. The current embodiment of the Agreement dates to 1977 and has been adopted by sixty-six countries.

Roberts’ treatise is concise and compact, clearly structured for use as a reference in drafting identifications of goods and services. Its content is intended for all of the 66 countries that actively use the Nice Classification system and has been specifically written to avoid any particular nation’s perspective. The author cautions that while national offices in individual countries in the Agreement might interpret different specific items in the Class Heading differently, the official guidelines should be followed as strictly as possible. An introduction to both the Nice Agreement and its recent changes is followed by the specific regulations of each class, general remarks, insight into the mechanics of reviewing and updating the Alphabetical List and a reprinting of the Agreement itself. Organized by class, each chapter provides the class heading, explanatory note and most importantly, an interpretation of the official language specifying the goods and services covered by the class.

While the World Intellectual Property Organization has separately posted the changes to the Agreement since the tenth edition on its website, all of these changes have been compiled in one place here. The import and effect of these changes are then highlighted and explained in the appropriate context.

The part of this work that will be referenced over and over is the Appendix. The Appendix is a chart showing at a glance the old designation of a good or service, the new designation, the action that

Vol. 107 TMR 1127 was taken by amendment to the Agreement (Deleted, Changed, Added, etc.) the basic number, and an explanatory note.

International Trademark Classification: A Guide to the Nice Agreement delivers just what it promises: helpful insight and information on the Nice Agreement. It highlights the importance of the Alphabetical List in all languages for drafting applications to register Trademarks in all countries that use the Nice Classification System. It is a valuable resource and an excellent addition to any IP practitioner’s reference library.

Jane F. Collen

GUIDELINES FOR SUBMITTING MANUSCRIPT TO THE TRADEMARK REPORTER 1. Length of submissions is flexible, depending upon what is necessary to adequately

cover the subject. Submissions may be sent via email to Willard Knox, Staff Editor-in-Chief, at wknox@inta.org.

2. Submissions under consideration may initially be sent to one or more of our Senior

Editors for a pre-review to assess topic choice and quality of coverage, and to evaluate whether the submission is one that the TMR wishes to pursue. The submission may then be sent to one to three members of our Editorial Board for review and comment. To ensure an objective process, the author's name is removed from the submission. The reviewers’ comments may then be sent to a Senior Editor for synthesis; detailed feedback may then be provided to the author. This process generally requires a minimum of 90 days. During this review process, we ask that contributors make a commitment to the TMR and not publish their articles elsewhere. Our reviewers are practitioners and other trademark professionals who contribute their time on a voluntary basis. The TMR counts on their expertise to ensure the quality of articles published in the TMR, and we ask that contributors respect the time commitment they make.

3. In preparing text and footnotes, authors should follow The Bluebook: A Uniform System

of Citation, 20th edition (Bluebook). For those matters of punctuation, capitalization, compounding, and style not covered by the Bluebook, consult The Chicago Manual of Style, 16th edition.

See complete TMR Submission Guidelines at

http://www.inta.org/TMR/Pages/StyleGuide.aspx.

THE TRADEMARK REPORTER® ONLINE

International Trademark Association: Issues of The Trademark Reporter beginning with Volume 105, Number 1, 2015, are available to the public at www.inta.org. LexisNexis: Issues of The Trademark Reporter, beginning with Volume 31, Number 1, 1941, are available on the LexisNexis service database under Law Reviews & Journals at www.lexis.com. Westlaw: Issues of The Trademark Reporter, beginning with Volume 80, Number 1, 1990, are available on the Westlaw service database under Treatises & Other Materials at www.westlaw.com.

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