Cosmetic submitted an application to the Copyright Office for registration of a copyright for Carol. Confirmation of receipt of application was received. Cosmetic then filed a complaint for infringement of Carol before the Copyright Office issued Cosmetic a registration certificate for its copyrighted Carol.

The District Court dismissed the claim for lack of subject matter jurisdiction and for failure to state a claim (12b6 motion). The court reasoned that since Cosmetic didn’t possess a valid copyright registration when it commenced action, the court lack subject matter jurisdiction over the copyright infringement claim.

On appeal, the court focused on two issues. First, must a copyrighted work be registered to satisfy subject matter jurisdiction. The court noted in Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. 1237 (2010), that “although section §411(a)’s registration requirement is a precondition to filing a claim, it does not restrict a federal court’s subject-matter jurisdiction.” Thus, the district court’s dismissal for lack of subject matter jurisdiction was an error.

The second issue the court focused on was whether a copyright is considered registered at the time the copyright application is received (application approach), or at the time the Office issues a registration certificate (registration approach). The court noted other circuits have split both ways with regards to this issue.

The court noted that the plain meaning of U.S.C. § 410a and part of §411a appeared to support the registration approach. However, the plain meaning of 17 U.S.C. §408a and §410d appeared to support the application approach. Because of this ambiguity, the court then turned to looking at the purpose of the statute.

First, the statute created in 1976 is a reformation of the 1909 Act. The Act of 1976 eliminated many formalities of copyright law, relaxed notice requirement, and eliminated mandatory registration. See Pub. L. No. 94-553, §§301, 401-412 (codified at 17 U.S.C. §§301, 401-412), see also H.R. Rep. No. 94-1476, at 147, 150. The changes of 1976 greatly increased the scope of works subject to copyright protection to provide incentives to novel works. Chicago Bd. of Education. 354 F.3d at 631. Thus, the application approach better fits Congress’s goal of stronger copyright protections and eliminating red tape.

Another reason can be found in Section 411a. Section 411a allows a party, after applying for registration, to litigate the claim whether the Copyright Office accepts or rejects the registration. See 17 U.S.C. §411a.

The court reasoned that under the registration approach, a plaintiff must wait for the Copyright Office’s affirmative acceptance or rejection, despite knowing he could proceed in either event. The court considered this a needless delay and red tape. The application approach avoids this red tape and support’s Congress’s goal in the Act of 1976. Furthermore, the Act of 1976 has a three year statute of limitations for copyright infringement. Following the registration approach could cause a party to lose the ability to sue in some cases. This would be a serious breach of justice.

Suit was initially brought under the former Federal Trademark Dilution Act (“FTDA” or "the Act"), which allowed injunctive relief for the owner of a famous mark against another person's use of a mark if it causes dilution of the distinctive quality of the mark and did not clarified whether “actual dilution” was required or “likelihood of dilution” was enough for injunction. 15 USC § 1125 (c). But the definition clause of “dilution” under former FTDA discerned “actual dilution” and “likelihood of dilution.” 15 USC § 1127.

The district court found that the Victor's Little Secret mark both blurred and tarnished the Victoria's Secret mark under FTDA 15 USC § 1125 (c). V Secret Catalogue v. Moseley, 54 U.S.P.Q.2D (BNA) 1092 (W.D. Ky.2000).

On appeal, the Court of Appeals for the Sixth Circuit refused to interpret the act as requiring “actual dilution” as doing so would defeat the intention of statute. Thus, the Sixth Circuit held that the injunction should be allowed even absence of “actual dilution.”

However, the Supreme Court of United States held that since the act provides that the infringing use must cause “dilution of the distinctive quality" of the famous mark, 15 U.S.C. § 1125(c)(1) unambiguously required a showing of actual dilution, rather than a likelihood of dilution. Moseley v. V Secret Catalogue, 537 U.S. 418, 433 (2003). The Court further held that where the marks at issue are not identical, the mere fact that consumers mentally associate the junior user's mark with a famous mark is not sufficient to establish actionable dilution because such mental association will not necessarily reduce the capacity of the famous mark to identify the goods of its owner.

In 2006, a new Act was passed expressly intended to overrule the Supreme Court interpretation of the old Act. The new statute provides that “likelihood of dilution” is enough to establish injunctive relief of the senior user of a mark. 15 U.S.C. § 1125(c)(1) (2006). The legislative record clearly stated that the Moseley standard creates an undue burden for trademark holders who contest diluting uses and should be revised, whereby the standard for proving a dilution claim is "likelihood of dilution" and that both dilution by blurring and dilution by tarnishment are actionable. U.S. Code Cong. & Adm. News, 109th Cong. 2d Sess. 2006, Vol. 4, pp. 1091, 1092, 1097.

Thus, while on remand from the Supreme Court, the District Court retroactively applied this new law and found dilution. V Secret Catalogue Inc. v. Moseley, 87 USPQ2d 1240 (W.D. Ky. 2008). The Court of Appeals for the Sixth Circuit, under the revised statutory requirement, held that “likelihood of dilution” is satisfied when junior mark was similar to the famous senior mark and due to there being evidence of possible semantic associations between the famous senior mark and junior mark by the general public without specific proof of tarnishment effects. V Secret Catalogue, Inc. v. Moseley, 2010 FED App. 0144P, 9 (6th Cir. 2010 ) aff'g V Secret Catalogue, Inc. v. Moseley, 558 F. Supp. 2d 734 ( W. D. Ky., 2008)) (finding the Moseley’s store cause dilution) under the established federal courts’ standard. See Victoria's Cyber Secret Ltd. P'ship v. V Secret Catalogue, Inc., 161 F. Supp. 2d 1339, 1355 (S.D. Fla. 2001) (defendants' internet trade names likely to tarnish famous mark when websites "will be used for entertainment of a lascivious nature suitable only for adults"); Mattel, Inc. v. Internet Dimensions, Inc.., 55 U.S.P.Q.2d 1620, 1627 (S.D.N.Y. 2000) (linking BARBIE with pornography will adversely color the public's impressions of BARBIE); Polo Ralph Lauren L.P. v. Schuman, 46 U.S.P.Q.2d 1046, 1048 (S.D Tex. 1998) (defendants' use of "The Polo Club" or "Polo Executive Retreat" as an adult entertainment club tarnished POLO trademark); Pillsbury Co. v. Milky Way Prods., Inc., 215 U.S.P.Q. 124, 135 (N.D. Ga. 1981) (defendant's sexually-oriented variation of the PILLSBURY DOUGHBOY tarnished plaintiff's mark). As such, the Sixth Circuit upheld the District Court’s finding of dilution.

The district court granted summary judgment for Cincom, and the Sixth Circuit affirmed. The district court, and the Sixth Circuit in affirming the decision, relied upon a prior Sixth Circuit case, PPG Industries Corp. v. Guardian Industries Corp., 597 F.2d 1090 (6th Cir. 1979). That case involved two glass fabrication companies. PPG, the plaintiff, granted a non-exclusive, non-transferable license of a new technology to Permaglass Corporation. Permaglass subsequently merged with Guardian Industries, the defendant. The Court ruled in that case that the license did not survive the merger.

As the Court explained, certain intellectual property licenses are an exception to the general rule that state law will determine whether a merger effects a transfer of an intellectual property (or other) license. The purpose of intellectual property is to encourage innovation and expression by granting inventors and authors exclusive rights to their creations. However, permitting state law to allow free assignability of intellectual property licenses would run counter to this goal, as any entity desiring a license could obtain a license from either the inventor/author or a licensor. Thus, every licensee would also be a potential competitor of the inventor, because the licensee would be free to license the invention to a competitor (even if the licensee is not itself a competitor). To avoid this problem, the Sixth Circuit ruled that federal law pre-empts any state law which would effect a transfer of an intellectual property license without express authorization. The Sixth Circuit therefore found that the license to Permaglass did not survive the merger with Guardian Industries, since PPG had not authorized the transfer of the license from Permaglass to Guardian Industries.

The Sixth Circuit applied the same reasoning to Novelis. The original license granted a non-exclusive and non-transferable right to Alcan Ohio. When Alcan Ohio underwent the series of mergers that resulted in the creation of Novelis, Cincom was not given the opportunity to approve of the transfer from Alcan Ohio to Novelis. Therefore, because Cincom did not authorize the transfer, the subsequent use of the software by Novelis was copyright infringement.

The Sixth Circuit rejected Novelis’ arguments to the contrary. Novelis argued that the Ohio merger law had changed since the PPG decision. The Sixth Circuit noted, however, that the change (which deleted the word ‘transferred’) was largely cosmetic, and still resulted in a transfer of the license from Alcan Ohio to Novelis without prior authorization from Cincom. The Sixth Circuit also distinguished the cases cited by Novelis. Those cases did not involve intellectual property licenses. The decision by the Sixth Circuit only addresses intellectual property transfers; federal intellectual property law does not pre-empt state law in other circumstances.

Several years after Hertz was fired from Luzenac, IMI Fabi contracted Hertz’s consulting company to develop and market a vinyl silane-treated talc to be called “Genera.” Hertz, in turn, contracted Lighthart to develop a list of prospective customers of Genera and to help market the product. Luzenac, upon hearing of IMI Fabi’s contracting of Hertz, it sent a cease-and-desist letter to Hertz. IMI Fabi, upon hearing of Luzenac’s actions, reduced efforts to market Genera. Soon after, Hertz sought declaratory and injunctive relief against Luzenac, and Luzenac alleged counterclaims including interference with contract and with prospective business advantage, misappropriation of trade secrets, conversion, civil theft and breach of contract. Hertz amended his complaint to include claims of unlawful retaliation under Title VII, defamation, tortious interference with contract and prospective business advantage. Subsequently, Luzenac removed the case to federal district court and joined Lighthart in the suit and added claims of unjust enrichment and conspiracy.

In reviewing the District Court’s dismissal of Luzenac’s claims for misappropriation of trade secrets, breach of contract, and conspiracy, the 10th Circuit reviewed summary judgment decision as per whether there was any issue as to material fact and whether the movant (Hertz) was entitled to judgment as a matter of law.

First, the 10th Circuit looked to whether the production process of 604AV was a trade secret. Luzenac alleged that Hertz violated the Colorado Uniform Trade Secrets Act (UTSA) by disclosing Luzenac’s entire formula and process of manufacturing 604AV to IMI Fabi. The 10th Circuit and the District Court both focused on whether the production process qualifies as a trade secret. According to the UTSA, a trade secret is “any scientific or technical information, design, process, procedure, formula, [or] improvement…which is secret and of value.” Colo. Rev. Stat. Ann. §7-74-103(4). The 10th Circuit stated that the test for determining whether something is capable of protection as a trade secret is recited in Colorado Supply Co. v. Stewart, 797 P.2d 1303, 1306 (Colo. Ct. App. 1990), the factors being:

1. the extent to which the information is known outside the business;
2. the extent to which it is know to those inside the business, i.e. by the employees;
3. the precautions taken by the holder of the trade secret to guard the secrecy of the information;
4. the savings effected and the value to the holder in having the information as against competitors;
5. the amount of effort or money expended in obtaining and developing the information; and
6. the amount of time and expense it would take for others to acquire and duplicate the information.

The 10th Circuit agreed with the District Court in that the matter being a secret is indispensible to there being a trade secret. However, the 10th Circuit stated that the District Court committed three mistakes in evaluating the secrecy of the Luzenac production process: (1) failing to consider the process in the aggregate; (2) failing to view the evidence in the light most favorable to Luzenac; and (3) focusing on steps Luzenac failed to take to protect the secrecy of 604AV rather than the steps Luzenac did take and whether such steps were reasonable.

In considering the process in the aggregate, the 10th Circuit noted that Luzenac asserted that the trade secret comprises nine elements and conceded that some of those elements may be in the public domain. However, Luzenac also asserted that the District Court should have considered the aggregate production process, and not looked at each component of production separately. The 10th Circuit agreed with Luzenac as per considering the production process in total. The District Court reviewed evidence with respect to each one of the nine elements of production, however, in conclusion, found that “Nor does the process as a whole constitute a trade secret. Each and all of the elements of the process for manufacturing 604AV are known outside of Luzenac.” Aplt. App. Vol. IX, at 3003. Furthermore, in responding to Luzenac’s argument that the aggregate production process cannot be found in a single location, the District Court stated that Luzenac’s assertion was “both true and irrelevant.” Aplt. App. Vol. X, at 3270. As per the District Court’s analysis, the 10th Circuit stated that “the district court did not engage in any substantive analysis of the production process as a whole.” The 10th Circuit went on to state the District Court applied the incorrect standard and that the holding in Rivendell should have been followed, which states that “a trade secret can include a system where the elements are in the public domain, but there has been accomplished an effective, successful and valuable integration of the public domain elements and the trade secret gave the claimant a competitive advantage which is protected from misappropriation.” Rivendell Forest Prods., Ltd. V. Ga.-Pac. Corp., 28 F.3d 1042, 1045 (10th Cir. 1994).

The 10th Circuit went on to review the District Court’s finding that each of the nine elements of the 604AV aggregate production process was publicly disclosed, and stated that “[w]hile the finder of fact is required to consider the claimed trade secret a whole, it may, in addition, consider whether the individual components are publicly known.” In reviewing whether the amount of vinyl silane in 604AV was publicly known, the 10th Circuit stated that “[v]iewing all of the evidence as a whole, there is significant support for Luzenac’s position that it has kept the amount of vinyl silane a secret. The ultimate weighing of that evidence will have to be done by a jury.” As per the type of vinyl silane, the 10th Circuit stated that there was a genuine question of material fact coming from assessment of relevant documentation and witness testimony. Additionally, as per a quality control test used in the production process, the 10th Circuit, in finding the two parties’ witnesses’ testimonies incongruent, stated that they can not resolve the conflict without assessing the credibility of the parties’ witnesses. In summary, the 10th Circuit stated that “the production process of 604AV is not contained as a whole within the four documents to which Mr. Hertz refers; nor can it be indisputably discovered though the consideration of additional documents available to us…Mr. Hertz cannot win on summary judgment simply by saying that a good mechanic could assemble various pieces of public information…”

Next, the 10th Circuit went on to review the precautions taken by Luzenac to protect the alleged trade secret. The 10th Circuit notes that the District Court focused on precautions not taken by Luzenac rather than the focusing on whether the precautions taken by Luzenac were reasonable. As an owner of a trade secret must take measures to prevent the secret from those not authorized to have access to such, such measures must be “reasonable under the circumstances to maintain its secrecy.” Colo. Supply, 797 P.2d at 1306. The 10th Circuit noted that Luzenac took a series of steps to protect the secrecy of the production of 604AV, such as posting signs to maintain confidentiality and having key employees and contractors such as VHM sign confidentiality agreements. However, the District Court found such measures “ceremonial,” and noted that Luzenac did not have all its customers sign confidentiality agreements and that Luzenac failed to control VHM’s disclosures of the production process of 604AV. Aplt. App. Vol. X, at 3271. In response, the 10th Circuit stated that “there are always more security precautions that can be taken. Just because there is something else that Luzenac could have done does not mean that their efforts were unreasonable under the circumstances,” and as such, whether the precautions were reasonable was a matter for a jury to decide.

After reversing the District Court’s decision regarding summary judgment on the trade secret and remanding the issue of whether the production process in aggregate was a trade secret, the 10th Circuit next looked at whether Luzenac’s customer information was a protectable secret. The 10th Circuit notes that Hertz conceded that he received a document from Lighthart, who prepared the document while employed with Luzenac. However, a second document that was prepared by Lighthart, allegedly just for IMI Fabi, contained information on 33 potential Genera customers. However, the 10th Circuit stated that it was unclear whether the information was misappropriated from Luzenac’s customer information. In analyzing whether the customer information was a trade secret, the 10th Circuit applied the Colorado Supply factors in conjunction with the Colorado Statutory definition of a trade secret, which includes “listing of names, addresses, or telephone numbers, or other information relating to any business or profession which is secret and of value.” Colo. Rev. Stat. Ann. §7-74-102(4). The District Court, in finding that the customer list was not a trade secret, relied upon the fact that the customer information came from public sources.

However, the 10th Circuit stated that the District Court did not consider conflicting testimony indicating that the customer information lists were of limited circulation in the company, and that the District Court dismissed Luzenac’s instruction to employees to keep all information confidential as impracticable and because such a blanket prohibition does not qualify as a reasonable attempt to maintain secrecy. The 10th Circuit believed that the District Court made determinations, like those noted above, that should have been made by a jury and that their review of the record shows that answers to questions at hand are disputed issues of fact that can’t be easily determined from the record at hand. For example, although the 10th Circuit found that some information on Luzenac’s customer list may not be publicly available, much information on potential customers of vinyl silane-treated talc is available from a variety of sources. With there being dispute regarding a number of facts concerning the customer lists, such should be resolved by a jury, according to the 10th Circuit.

On remand, the 10th Circuit instructed the District Court to consider factors enumerated in Colo. Supply, 797 P.2d at 1306-07, which are: (1) whether proper and reasonable steps were taken by the owner to protect the secrecy of the information; (2) whether access to the information was restricted; (3) whether employees knew customers’ names from general experience; (4) whether customers commonly dealt with more than one supplier; (5) whether customer information could be readily obtained from public directories; (6) whether customer information is readily ascertainable from sources outside the owner’s business; (7) whether the owner of the customer list expended great cost and effort over a considerable period of time to develop the files; and (8) whether it would be difficult for a competitor to duplicate the information. Additionally, the 10th Circuit cited Sonoco Prods. Co. v. Johnson 23 P.3d 1287, 1290 in noting “there is no requirement in Colorado’s [UTSA] that there be actual use or commercial implementation of the misappropriated trade secret for damages to accrue. Misappropriation consists only of the improper disclosure or acquisition of the trade secret.” Thus, the 10th Circuit dismissed Hertz’s argument that that there was no evidence that IMI Fabi benefitted from Luzenac’s customer information as it was irrelevant according to the above. The only relevant matters presently are whether Hertz misappropriated of Luzenac’s customer list and whether such information is a trade secret, and that such should be decided by a jury.

In addressing whether Hertz committed a breach of contract with respect to a confidentiality agreement he signed, the 10th Circuit noted that even if Luzenac fails as per claims under the UTSA, it may nonetheless succeed in claiming breach of contract. The 10th Circuit found the confidentiality agreement unspecific as to what information was confidential. In remanding the claim for further proceedings, the 10th Circuit stated that the relevant factual questions include: “(1) whether Luzenac made it clear that the manufacturing process for 604AV and Luzenac’s customer information were confidential, and (2) whether the information used by Mr. Hertz was exclusively in the public domain or known to him prior to his employment with Luzenac.” Similarly to the breach of contract claim, the 10th Circuit stated that the conspiracy claim depends on the factual findings of the claim for misappropriation of trade secrets. As such, if a jury found that the production process for 604AV and Luzenac’s customer list were trade secrets, then Hertz and Lighthart could be charged with conspiracy as well.

The 10th Circuit next addressed Hertz’s attempt to amend his complaint with claim of abuse of process, which the District Court denied because the District Court found that Hertz failed to allege improper use of process by failing to meet the requirements to allege such a claim, and thus Hertz’s attempt to amend his complaint was useless. The 10th Circuit stated that an abuse of process claim requires a showing of: “(1) an ulterior purpose for the use of a judicial proceeding; (2) willful action in the use of that process which is not proper in the regular course of the proceedings, i.e. use of a legal proceeding in an improper manner; and (3) resulting damage.” Lauren Corp. v. Century Geophysical Corp., 953 P.2d 200, 202 (Colo. Ct. App. 1998). With ulterior purposes being a coercive goal or some collateral advantage, whereas the 10th Circuit states that “Mr. Hertz’s claim of abuse stems from Luzenac filing counterclaims against him for misappropriation of trade secrets. Any ulterior motives Luzenac might have had are insufficient to support an inference of improper use. “ The 10th Circuit went on to state that “Luzenac is entitled to protect its trade secrets. Its counterclaims are an appropriate means of accomplishing that goal…” and that “Mr. Hertz has not identified any “collateral advantage” to be gained by Luzenac.” Thus, the 10th Circuit affirmed the District Court’s denial of Hertz’s motion to amend his complaint.

Lastly, the 10th Circuit addressed Hertz’s tortious interference with contract and with prospective business advantage. Hertz was contracted with IMI Fabi to receive a percentage of the profits from the sale of Genera. The 10th Circuit states that for a claim of intentional interference with contract, the plaintiff must show that the defendant “(1) was aware of the existence of the contract; (2) intended that one of the parties breach the contract; (3) induced the party to breach the contract or make it impossible for him or her to perform; and (4) acted “improperly in causing the breach.” Krystkowiak v. W.O. Brisben Cos., 90 P.3d 859, 871 (Colo. 2004). In Hertz’s claim, he alleges that Luzenac’s claims and litigation caused IMI Fabi to halt sales of Genara, and thus, Hertz’s contract resulted in less performance that it would have had Luzanac not acted. However, the 10th Circuit noted that “Mr. Hertz concedes that IMI Fabi did not breach its contract,” because IMI Fabi wasn’t required to make any sales of Genera. Essentially, Hertz argues that IMI Fabi would have more fully performed on it’s contract with Hertz had Luzenac not acted as it did. In rejecting such a premise for tortious interference, the 10th Circuit notes cites Radiology Prof’l Corp. v. Trinidad Area Health Ass’n, 577, P.2d 748, 749-751, and notes that a contract must be breached, and that realizing less profit is not sufficient grounds for Hertz to support a claims of tortious interference with contract.

With regards to intentional interference with prospective business relations, the 10th Circuit states that “the plaintiff must show that there is “a reasonable likelihood or probability that a contract would have resulted; there must be something beyond a mere hope.” Klein, 44 F.3d at 1506,” however, “Mr. Hertz cannot prove that he had more than “a mere hope” of entering into any future business deals with IMI Fabi.” Thus, the 10th Circuit found that no reasonable jury could conclude from Hertz’s evidence that Hertz had a reasonable probability of having a future contract with IMI Fabi. Thus, the 10th Circuit upheld the District Court’s dismissal of Hertz’s claim of tortious interference with prospective business advantage.

In summary, the 10th Circuit reversed and the District Court’s summary judgment in dismissing Luzenac’s claims for misappropriation of trade secrets because it found that there were issues of material fact to be decided by a jury. However, the 10th Circuit affirmed both the District Court’s denial of Hertz’s motion to amend his complaint with an abuse of process claim and the District Court’s dismissal of Hertz’s tortious interference claims.

In 1999, American Gabbanelli sued Italian Gabbanelli in Italian court over Italian Gabbanelli’s use of www.gabbanelli.com and use of the GABBANELLI mark for advertising over the internet. Italian Gabbanelli won, but two more trademark suits were filed in Italian court, one by each of American Gabbanelli and Italian Gabbanelli. American Gabbanelli and Italian Gabbanelli settled by a settlement agreement resulting in American Gabbanelli having exclusive rights to use the mark in the United States and Italian Gabbanelli having exclusive rights to use the mark in Italy. The settlement agreement also provided an arbitration provision requiring that “any further controversy” would be resolved through arbitration in which each party would choose an arbitrator, and the two arbitrators would choose a third arbitrator.

After another controversy arose, the two parties entered arbitration and each selected an arbitrator. However, the third arbitrator has never been appointed and no arbitration has been conducted under the arbitration provision of the settlement agreement.

In May of 2002, Italian Gabbanelli sued American Gabbanelli in Italian court seeking transfer of American Gabbanelli’s U.S. Trademarks to Italian Gabbanelli. The Italian court ruled in Italian Gabbanelli’s favor.

The current appeal to the 7th Circuit arises from a suit filed by American Gabbanelli in January 2002 alleging that Italian Gabbanelli was liable for trademark infringement of the GABBANELLI mark. In July 2002, an unrepresented Italian Gabbanelli sent a letter to the district court alleging that the court did not have jurisdiction because of the arbitration provision of the settlement agreement. The district court rejected such argument because Italian Gabbanelli had waived its right to insist on arbitration by filing suit in Italy against American Gabbanelli in violation of the arbitration provision. Further, the 7th Circuit noted that a contractual arbitration agreement does not affect a court’s jurisdiction but operates as a defense to suit.

The district court stayed further proceedings pending the outcome of the Italian suit. However, in May 2005, the district court became impatient and lifted the stay. American Gabbanelli promptly served Italian Gabbanelli with requests for admissions in which American Gabbanelli asked Italian Gabbanelli to admit liability on all claims. In October 2005, well past the deadline to respond to the requests for admissions, Italian Gabbanelli made an appearance through counsel. American Gabbanelli filed for summary judgment, which was granted because Italian Gabbanelli was deemed to have admitted all of the admissions in American Gabbanelli’s requests for admissions because Italian Gabbanelli failed to respond to such requests. The 7th Circuit stated that “Italian Gabbanelli had no excuse for ignoring its opponent’s request for admissions long, long past the deadline” because Italian Gabbanelli had Italian lawyers at the time that could have contacted an American firm and the request to rescind the admissions was not made until 2 years after Italian Gabbanelli’s attorneys’ appearance in court. With Italian Gabbanelli’s admissions of record, summary judgment was inevitable and proper because the district court was not required to rescind the admissions.

The 7th Circuit then asked: what of the Italian court’s ruling in favor of Italian Gabbanelli? All in all, it is of no consequence because the district court’s ruling came first such that the Italian court’s ruling cannot be pleaded as res judicata. Although the United States is not a signatory to any treaty governing recognition of foreign judgments, United States’ courts can recognize the res judicata effects of foreign judgments. But, due to the timing of the court decisions, it appears more likely that the United States district court would have a res judicata effect on the Italian court’s ruling. Thus, it is determined that Italian Gabbanelli’s challenge to liability fails.

However, Italian Gabbanelli has a legitimate grievance concerning the damages awarded by the district court, specifically, $151,200 in lost profits plus statutory damages of $500 per infringing accordion. Of concern are the statutory damages of $500 per infringing accordion. Statutory damages are only available under the Lanham Act when the violation of the Act involves use of a “counterfeit” mark. 15 U.S.C. §1117(c). A “counterfeit” mark is a “spurious mark which is identical with, or substantially indistinguishable from, a registered mark. §1116(d)(1)(B)(ii). Cases in which the mark is placed on the defendant’s product with the trademark owner’s consent but then the product is distributed through an unauthorized channel, i.e., grey market products, are not eligible for statutory damages. Because Italian Gabbanelli placed the GABBANELLI mark on accordions produced by a company not authorized to sell such accordions in the United States, Italian Gabbanelli counterfeited the accordions.

Thus, statutory damages were available to American Gabbanelli; but “statutory damages may be awarded only in cases in which compensatory damages are not awarded for the same violation.” See 35 U.S.C. §1117(c). Although it is possible to apply statutory damages to some violations and compensatory damages to other violations in the same action, here, the compensatory damages and the statutory damages pertain to the same accordions that Italian Gabbanelli sold in violation of American Gabbanelli’s trademark rights. Thus, the statutory damages are not proper.

Further, the statutory damages awardable in counterfeit trademark cases is “not less than $500 or more than $100,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed as the court considers just.” 15 U.S.C. §1117(c). The award is per counterfeit mark per type of goods, not per individual item bearing the counterfeit mark. Thus, the statutory damages are further improper.

Therefore, the holding that Italian Gabbanelli infringed American Gabbanelli’s trademark rights in the mark GABBANELLI was affirmed; but, the awards of damages and attorneys’ fees, which will have to be re-determined, are reversed.

In 1989, Roederer successfully objected to Jaume Serra’s attempt to register the “CRISTALINO” mark in Spain. Roederer filed a similar objection to the registration of the “CRISTALINO JAUME SERRA” mark in Colombia in 1991, but inexplicably abandoned those proceedings in 2000. Similarly, Roederer abandoned its opposition to Jaume Serra’s application to register “CRISTALINO JAUME SERRA” in the U.S. in 1997. Roederer first learned that Cristalino was being sold in the U.S. in 1995. In unrelated proceedings before the U.S. Patent and Trademark Office, Roederer’s attorneys came across an affidavit indicating that “a sparkling wine from Spain called Cristalino” was found on sale at a Cost Plus store in California on June 8, 1995.

After the merger of Carrion and Jaume Serra, Carrion spent 14 million Euros between 1997 and 2002 to modernize and expand its winery facilities, improving Jaume Serra’s cava production. In February 2002, Carrion’s U.S. intent-to-use trademark application to register the “CRISTALINO” mark was published for opposition. In June and July 2002, Roederer responded with cease-and-desist letters requesting that Carrion withdraw its application for the CRISTALINO mark. Carrion refused. Roederer filed its notice of opposition with the Trademark Trial and Appeal Board (“Trademark Board”). Roederer filed this suit in January 2006, and its opposition was stayed pending this suit.

The district court granted Carrion’s motion for summary judgment, asserting that Roederer’s claims for trademark infringement were barred by the doctrine of laches. The court determined that Roederer was put on constructive notice that Cristalino was being sold in the United States in 1995 when its attorneys read about the sale in an affidavit. The court held that it would be inequitable to permit Roederer’s request for injunctive relief because Carrion made substantial investments in its facilities between 1995 and 2002, the time when Roederer first objected to Carrion’s use of the “CRISTALINO” mark in the United States.

The Eight Circuit reviewed the district court’s grant of summary judgment for abuse of discretion since the determination of laches as applied was within the sound discretion of the district court. Brown-Mitchell v. Kansas City Power & Light Co., 267 F.3d 825, 827 (8th Cir. 2001). Laches is an equitable defense to an action to enforce a trademark. Hubbard Feeds, Inc. v. Animal Feed Supplement, Inc., 182 F.3d 598, 601 (8th Cir. 1999). To successful assert laches as a defense, the defendant must show: (1) a delay in asserting a right or a claim; (2) that the delay was not excusable; and (3) that there was undue prejudice to the party against whom the claim is asserted. Kason Indus., Inc. v. Component Hardware Group, Inc., 120 F.3d 1199, 1203 (11th Cir. 1997). Further, in trademark suits, courts also consider: (1) the doctrine of progressive encroachment, and (2) notice to the defendant of the plaintiff’s objections to the potentially infringing mark.

Delay in asserting trademark rights
The Eight Circuit noted that the time of delay is to be measured from when the infringement became actionable and provable, not from the time when the plaintiff first learned of the potentially infringing mark. See Angel Flight of Ga., Inc. v. Angel Flight Am., Inc., 522 F.3d 1200, 1207 (11th Cir. 2008). The doctrine of progressive encroachment mitigates a potentially inequitable dilemma for trademark holders. Rather than making trademark holders sue immediately and lose because the alleged infringer is insufficiently competitive to create a likelihood of confusion, or wait and be dismissed for unreasonable delay, the doctrine of progressive encroachment enables a timely and potentially successful claim for trademark holders. See Sara Lee Corp., 81 F.3d at 462.

The district court found that Roederer inexcusably delayed in asserting its claim, because it was on notice in 1995 when attorneys learned of the use of mark “CRISTALINO” in the U.S. The Eight Circuit held that the district court failed to conduct a meaningful analysis of when infringement would become actionable to determine the period of delay. The district court did not reference trademark infringement law, but instead merely stated that “the evidence shows that sales of Cristalino have been greater than sales of Cristal since at least the mid-1990’s” and that “evidence of significant changes in the quality of the cava is lacking.” The Eight Circuit found that this meager analysis did not merit the finding that Roederer had an actionable claim in 1995.

The Eight Circuit noted that trademark infringement through the Lanham Act is only actionable when the use of a mark in connection with goods or services is likely to cause confusion as to the source or sponsorship of the goods or services. Davis v. Walt Disney Co., 430 F.3d 901, 903 (8th Cir. 2005). In evaluating the likelihood of confusion, the following factors are considered: 1) the strength of the plaintiff’s mark; 2) the similarity between plaintiff's and defendant’s marks; 3) the degree to which the allegedly infringing product competes with the plaintiff’s goods; 4) the alleged infringer’s intent to confuse the public; 5) the degree of care reasonably expected of potential customers, and 6) evidence of actual confusion.

Given these factors, the Eight Circuit ruled that the district court’s findings did not support the finding that Roederer had an actionable claim in 1995. Specifically, the Eight Circuit noted that while “Cristalino’s sales volume had edged past that of Cristal in 1995,” this fact in and of itself does not establish that an actionable claim existed as of that time. Moreover, the Court noted that the qualities of the two wines “were so disparate in 1995 as to preclude Roederer’s infringement claim.” Thus, the Eight Circuit held that the determination as to when a claim is actionable for purposes of determining when the laches delay period begins requires a likelihood of confusion analysis and more “than merely citing marginal or irrelevant factors without reference to any of the principles governing trademark infringement.”

Notice and Undue Prejudice
Next, the Eight Circuit noted that a defense of laches is less persuasive if the defendant had knowledge that the plaintiff objected to the use of the mark. The defendant’s knowledge can be understood either as an assumption of risk, or as a factor that prevents the defendant from suffering undue prejudice. See McCarthy, supra, § 31:12. In either case, knowledge that a plaintiff objects to the use of a mark generally prevents a defendant from making a laches defense. See Elvis Presley Enters., Inc. v. Capece, 141 F.3d 188, 205 (5th Cir. 1998); Conan Props., Inc. v. Conans Pizza, Inc., 752 F.2d 145, 151-52 (5th Cir. 1985); Citibank v. Citibanc Group, Inc., 724 F.2d 1540, 1546-47 (11th Cir. 1984).

Here, Carrion was on notice that Roederer objected to the use of the “CRISTALINO” mark. Roederer successfully opposed Jaume Serra’s registration of the “CRISTALINO” mark in Spain in 1990. Further, Roederer had also opposed the registration of the “CRISTALINO JAUME SERRA” mark in Columbia in 1991 and in the U.S. in 1997. Although the district court gave Carrion standing to assert the defense of laches, the Federal Circuit held that the district court disregarded the fact that Carrion had to be deemed constructively aware of Roederer’s opposition to the “CRISTALINO” mark before its merger with Jaume Serra in 1998. Carrion’s financial director testified that he knew of no attempt by Carrion to determine whether any of Jaume Serra’s marks were infringing at the time of acquisition. However, the Court found that the testimony did not change the fact that Roederer had made known its objections to the use of both the “CRISTALINO” and “CRISTALINO JAUME SERRA” marks. Even if Carrion was able to show that it expanded and improved the Jaume Serra facilities because of Roederer’s delay in bringing suit in the United States, the Eight Circuit stated that it cannot claim that it was ignorant of the fact that Roederer opposed the registration of the “CRISTALINO” and “CRISTALINO JAUME SERRA” marks. See Elvis Presley Enters., 141 F.3d at 205; Conan Props., 752 F.2d at 151-52; Citibank, 724 F.2d at 1546.

The Eight Circuit also found that the district court erred in finding that Carrion would be prejudiced by this delay if Roederer’s suit were permitted to proceed. The appellate court asserted that no evidence existed, outside of Carrion’s self-serving assertions, that Carrion would not have made investments in the Jaume Serra plant had Roederer objected earlier. Because the Cristalino brand accounted for only 9% of Jaume Serra’s output after the improvements to the facilities, the Eight Circuit did not place as much emphasis as the district court on the investment Carrion made to improve the Jaume Serra facilities. Rather, the Eight Circuit acknowledged that when a defendant has invested generally in an industry, and not a particular product, the likelihood of prejudicial reliance decreases in proportion to the particular product’s role in the business. See Univ. of Pittsburgh v. Champion Prods., Inc., 686 F.2d 1040, 1048-49 (3d. Cir. 1982). Consequently, the Eight Circuit held that Carrion failed to show that it suffered undue prejudice as a result of Roederer’s delay in bringing suit, thus barring Carrion’s laches defense. As a result, the Eight Circuit reversed and remanded the case.

Davidoff and Coty developed comprehensive quality assurance and anti-counterfeit measures that involves the placement of a unique production code (UPC) on the bottom of each COOL WATER product. Embedded within the code is information about that particular unit, including time and place of production, the production line, ingredients used, the distributor and intended customer.

The code is an effective tool in fighting counterfeits and ensuring product quality. By checking the code to determine if it is fake or duplicate, Davidoff is able to identify counterfeit products. Further, Davidoff regularly instructs its retailers and officers of the U.S. Customs and Border Protection (“Customs”) in the use of its UPC system and fake UPC numbers known to be in use by counterfeiters. The code assists Davidoff in protecting its brand against quality issues in genuine authorized products. When quality problems arise, the UPC can be utilized to determine which products are affected, enabling a recall of distributed products that are defective.

Davidoff limited the sales of its products to luxury retailers, and declined to sell its products to CVS. CVS secured stock of COOL WATER products from outside of Davidoff’s normal distribution channels and counted the products among their top-selling fragrances. Some of the COOL WATER products sold by CVS were found to be counterfeit, while others were gray-market goods (meaning they were manufactured under Davidoff’s authorization, legally purchased outside the U.S. for distribution, and then illegally imported for sale without Davidoff’s permission).

In 1998 and 2005, Davidoff discovered counterfeit COOL WATER products were being sold at CVS. Each time, Davidoff sent cease-and-desist letters to CVS and informed them how to identify counterfeit products based on the UPC. Davidoff again discovered in 2006 that CVS was selling counterfeit COOL WATER products. Davidoff then brought this suit against CVS for trademark infringement, unfair competition and trademark dilution in violation of Sections 32(1) and 43(a) and (c) of the Lanham Act, 15 U.S.C. §§ 1114(1), 1125(a) and 1125(c). Davidoff’s original complaint sought relief only as to CVS’s marketing of counterfeit Davidoff products.

On December 22, 2006, the district court granted a temporary restraining order and authorized Davidoff to inspect all undistributed products in CVS’s inventory that bore the Davidoff COOL WATER mark. Davidoff discovered that the UPCs on the packages and labels affixed to the bottle had been removed from 16,600 items in CVS’s inventory. The codes had been removed by cutting the portion of the box or label exhibiting the UPC, using chemicals to wipe away the UPC on the label, and grinding away the bottom of the bottles to remove the UPC. In many instances, the packaging had been opened.

On February 7, 2007, Davidoff amended its complaint to allege claims based upon CVS’s sale of Davidoff products with the UPC removed. On March 2, 2007, CVS voluntarily agreed to halt the sale of counterfeit Davidoff products, but not the products with the codes removed. In response, Davidoff moved for a preliminary injunction forbidding the sale of all its trademarked goods with code removed. The court granted Davidoff’s motion. Zino Davidoff SA v. CVS Corp., No. 06-cv-15332, 2007 WL 1933932 (S.D.N.Y. July 2, 2007). The district court reasoned that removal of the codes from Davidoff’s trademarked product impaired Davidoff’s marks by interfering with the trademark owner’s ability to identify counterfeit goods and to control the quality of its legitimate products by identifying and recalling defective products. The district court held that Davidoff was likely to succeed on the merits of its trademark infringement claims on the theory that CVS’s sale of Davidoff’s trademarked products with the codes removed constituted trademark infringement. CVS appealed the district court’s judgment.

The Second Circuit reviewed the issue of the preliminary injunction for abuse of discretion on the part of the district court. The Court held that in cases involving trademark infringement and dilution, a party seeking a preliminary injunction must demonstrate (1) the likelihood of irreparable injury in the absence of such an injunction, and (2) either (a) likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation plus a balance of hardships tipping decidedly toward the party requesting the preliminary relief. (citing Fed. Express Corp. v. Fed. Espresso, Inc., 201 F.3d 168, 173 (2d Cir. 2000)). Under this standard, the Second Circuit affirmed the district court’s grant of a preliminary injunction.

Davidoff likely to succeed on the merits of its trademark infringement claims
CVS appealed the district court’s judgment on the grounds that the goods with the codes removed were gray-market goods, or genuine Davidoff goods sold by Davidoff through authorized channels in other countries. CVS asserted that because the goods were sold in their original packaging with the Davidoff trademarks visible and unaltered, the removal of the UPC codes did not negate their genuineness or constitute infringement. The Second Circuit dismissed this argument, stating that the fact that the products in question are gray-market goods is not a defense to infringement. Rather, the issue is whether, or under what circumstances, the sale of gray market goods infringes a trademark. The Second Circuit noted with approval that the district court based its grant of a preliminary injunction on the basis that the removal of Davidoff’s codes unlawfully interfered with Davidoff’s trademark rights, regardless of whether the goods were authorized by Davidoff for sale. CVS also argued that the Lanham act did not support the conclusion that a retailer may be found liable for trademark infringement for selling a genuine product in its original packaging with the registered trademark intact because the production code has been altered or removed. For support, CVS pointed to failed attempts to amend the Lanham Act to include a prohibition on the alteration or removal of production codes. The Second Circuit rejected this argument as well, relying on a Supreme Court case cautioning that “failed legislative proposals are a particularly dangerous ground on which to rest an interpretation of a prior statute.” Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 187 (1994). The case held that congressional inaction lacks persuasive significance because the inaction does not point to a specific conclusion, with equally tenable inferences drawn from the inaction, including the inference that the legislation already incorporated the requested language. The Second Circuit further agreed with the District Court that Davidoff was likely to succeed on the merits that CVS’s sales of its products with the UPC removed constituted trademark infringement. The Second Circuit recognized that, generally, the Lanham Act does not impose liability for “the sale of genuine goods bearing a true mark even though the sale is not authorized by the mark owner” because such a sale does not inherently cause confusion or dilution. Polymer Tech. Corp. v. Mimran, 975 F.2d 58, 61 (2d Cir. 1992). However, the Court agreed that goods must conform to the trademark holder’s quality control standards to be genuine, Polymer Tech. Corp. v. Mimran, 37 F.3d 74, 78 (2d Cir. 1994), or should not materially differ from the product authorized by the trademark holder for sale, Original Appalachian Artworks, Inc. v. Granada Elecs., Inc., 816 F.2d 68, 73 (2d Cir. 1987). The Second Circuit held that where the alleged infringer has interfered with the trademark holder’s ability to control quality, the trademark holder need not necessarily show that the goods sold were defective because interference with legitimate steps to effect quality control would unreasonably subject the holder to risk of injury to the reputation of the mark. The Court noted that “[O]ne of the most valuable and important protections afforded by the Lanham Act is the right to control the quality of the goods manufactured and sold under the holder’s trademark.” El Greco Leather Prods. Co. v. Shoe World, Inc., 806 F.2d 392, 395 (2d Cir. 1986).

The Second Circuit asserted that consumers are assured that goods conform to the mark holder’s quality standards by association of the trademark with the holder’s goods, and are often willing to pay more to buy goods bearing a mark with a reputation for high quality. Davidoff asserts that its codes effect quality control by permitting the easy detection of counterfeits and improving Davidoff’s ability to identify, target and remedy production defects. The Second Circuit again pointed to its precedent in Warner-Lambert Co. v. Northside Dev. Corp., 86 F.3d 3 (2d Cir. 1996), holding that a trademark holder is entitled to an injunction based on the subversion of its quality control measures by showing that “(i) the asserted quality control procedures are established, legitimate, substantial, and nonpretextual, (ii) it abides by these procedures, and (iii) sales of products that fail to conform to these procedures will diminish the value of the mark.” The Second Circuit found that the requirements for the injunction were met.

Detection of Counterfeits
The Second Circuit found that counterfeiters often either omit the UPC or use sets of identical fake codes when dealing with products that have unique production codes. The Court found Davidoff’s evidence to show that its UPC system enables Davidoff to identify counterfeit products by scanning for goods that lack a UPC or exhibit a UPC known to be used by counterfeiters. The Second Circuit relied on the district court’s fact-finding that Davidoff regularly trained retailers, private investigators and U.S. Customs to utilize UPCs to identify and seize counterfeit products. Thus, the Second Circuit agreed with the district court’s holding that the first two prongs of the Warner-Lambert formulation were met because Davidoff’s quality control procedures were “legitimate, substantial, and nonpretextual” and Davidoff “abides by these procedures.” The Second Circuit also agreed with the district court’s conclusion that the third prong of the Warner-Lambert analysis was also met because the loss of the quality control protections would expose Davidoff to a higher incidence of sales of counterfeit goods and harm Davidoff’s reputation and diminish the value of its trademark.

The Second Circuit dismissed CVS’s argument that the presence or absence of a UPC on a particular unit of a Davidoff product cannot be considered a legitimate quality control procedure because it does not prove the unit’s authenticity. The Court found that the code system enhanced Davidoff’s ability to detect and prevent the sale of counterfeits. Removal of the codes makes it more difficult to detect counterfeits, increasing the risk that any given unit sold at retail will be counterfeit. The Court held that Davidoff adequately showed that the use of the code is a legitimate, substantial, non-pretextual procedure to detect counterfeits, that it abides by the procedure, and that removal of the codes exposes Davidoff to a realistic risk of increased incidence of counterfeits with resultant damage to the reputation of its mark. Thus, the Second Circuit held that this showing was sufficient to uphold a grant of preliminary injunction.

Identification of Defective Products and Effective Recall
The Second Circuit noted that the district court also based its finding on Davidoff’s use of its code system to protect against quality defects in genuine products. Referencing the code when a quality defect is discovered in a product helps identify the source of the problem and facilitates correction. Further, upon discovery of a quality issue, the code system permits easy, rapid identification of affected products that are already in the chain of distribution, to facilitate a targeted recall that will remove the defective goods from the channels of commerce while leaving unaffected goods in place.

In response, CVS argued that the code system is merely pretextual. CVS noted that the UPC is minimized in small print at the bottom of the box and bottle, and Davidoff’s retailers and customers are not made aware of it. CVS also pointed out that Davidoff has never enacted a targeted recall of the type that the UPC system is allegedly designed to facilitate. Thus, CVS contended that Davidoff’s quality control claims were merely pretextual, with the true purpose of the UPC system being to find gray-market goods. The Court rejected these arguments, asserting that retailers and consumers need not be aware of the UPC or its functions. Rather, the codes were designed to assist Davidoff in effecting quality control and counterfeit detection. The Second Circuit asserted that Davidoff has the ability to instruct retailers and consumers to assist in anti-counterfeit or quality control measures by looking for the appropriate UPC numbers.

Further, the Second Circuit stated that the district court properly relied on the testimony of Davidoff’s Vice President for Regulatory Affairs and Quality Assurance, among others, to show that Davidoff had relied on the UPC system to assist with quality issues. The Court held that the fact that none of these instances resulted in a large-scale recall did not help CVS, as an important benefit of the UPC system is that it permits Davidoff to keep its recalls small and targeted. Further, the Second Circuit held that the ability to use the UPC system to identify distributors operating outside the authorized distribution and retail network and importers of gray-market goods does not defeat Davidoff’s claim. Because Davidoff relies on the UPC for quality control, other effects unrelated to quality control would not negate the legitimate function of the UPC system.

CVS also argued that the injunction was improper because none of its sales of Davidoff products involved inferior products, citing Warner Lambert to assert that the purpose of the injunction was to protect the mark holder against sale of inferior products. Warner Lambert, 86 F.3d at 7-8 & n.1. The Second Circuit cited El Greco to hold that proof of sale of inferior products is unnecessary. The Court asserted that when analyzing trademark infringement cases involving interference with quality control procedures, the actual quality of the goods is irrelevant. Rather, the trademark holder was entitled to maintain the control of quality of its goods. El Greco, 806 F.2d at 395. The Court then held that the goods sold by CVS did involve inferior products because the UPCs were removed by cutting the packaging, applying acids to blur the markings, grinding bottles, and so forth. The consumer could easily infer that the tampered package was inferior and perhaps suspect it was stolen merchandise, defective, or untrustworthy in some other way. The Court held that trademarked goods whose luxury packaging is damaged are materially different from those that are intact. Accord Davidoff & CIE, S.A. v. PLD Int’l Corp., 263 F.3d 1297, 1303-04 (11th Cir. 2001). Thus, Davidoff was likely to succeed in its trademark infringement claim because CVS interfered with its quality control procedures and sold Davidoff’s marked goods that were materially different from its genuine trademarked product.

The Second Circuit held that the sale of gray-market goods which are materially different constituted trademark infringement, citing Original Appalachian Artworks, Inc., 816 F.2d at 73. Further the Court asserted that the threshold of materiality is lower when comparing the trademark holder’s product with gray-market goods, to include a slight difference which consumers would likely deem relevant when considering purchasing the product. Accord Bourdeau Bros. v. Int’l Trade Comm’n, 444 F.3d 1317, 1323 (Fed. Cir. 2006); Societe des Produits Nestle, S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 641 (1st Cir. 1992) The Court noted that the damage to the trademarked packaging provides an additional justification, over and above the damage to the trademark holder’s ability to detect counterfeits and to guard against defects, to warrant the grant of the preliminary injunction.

By establishing that trademark infringement creates a likelihood of consumer confusion, Davidoff is entitled to a presumption of irreparable injury

The Second Circuit held that a plaintiff who establishes that an infringer’s use of its trademark creates a likelihood of consumer confusion generally is entitled to a presumption of irreparable injury.” Weight Watchers Int’l, Inc. v. Luigino’s, Inc., 423 F.3d 137, 144 (2d Cir. 2005). The Second Circuit affirmed the district court’s finding that Davidoff had established a likelihood of confusion and was thus entitled to this presumption. The Court found that Davidoff’s evidence showed a likelihood that the absence of codes increased the risk that consumers would purchase counterfeit or defective product because of the disabling of Davidoff’s device to actively guard counterfeit or defective products. Thus, the Second Circuit held that there was neither error nor abuse of discretion in the district court’s grant of the preliminary injunction.

In Rescuecom Corp. v. Google, Inc., 562 F.3d 123; 90 USPQ2D 1287 (2nd Circ. 2009), Rescuecom is a national computer service franchising company that offers on-site computer services and sales. Rescuecom receives 17,000 to 30,000 visitors to its website each month and advertises over the Internet, using many web-based services, including those of Google. Since 1998, Rescuecom has been a registered federal trademark. The validity of Rescuecom’s trademark is not in dispute in this case.

Google operates a popular search engine, and earns 97% of its revenue through advertising on that search engine. In response to a user search, Google provides a list of links to websites, ordered by descending relevance to the user’s search terms, according to Google’s proprietary algorithms. If a user enters a trademark as a search term, the Google search engine is able to provide a link to the website maintained by the trademark owner (if such exists). Google also responds to a user search by providing context-based advertising in the form of links to the advertiser’s website. Google uses at least two programs to offer context-based advertising links: AdWords and Keyword Suggestion Tool (KST).

Through AdWords, advertisers purchase terms or keywords that will trigger the appearance of the advertiser’s content and website link. Thus, whenever a user enters a purchased term or keyword in their search query, advertisers who have purchased that term or keyword will have their ads and websites links displayed in response to the user search. Google recommends keywords to advertisers to be purchased through KST. KST improves the effectiveness of advertising by helping advertisers identify keywords related to their area of commerce. These keywords can include trademarks of other companies, such as Rescuecom’s mark. Those keywords purchased by advertisers through KST would operate in a similar fashion to the terms or keywords purchased through AdWords.

On Google’s search results page, advertising results (content and link to the advertiser’s website) appear on the right margin and/or in a horizontal band immediately above the column of relevance-based search results. Rescuecom asserts that these advertisements (which appear in response to a user-entered trademark) could cause trademark confusion as to affiliation, origin, sponsorship or approval of service because Google fails to clearly label the ad results as purchased advertisements instead of relevant search results.

Through KST, Google has recommended Rescuecom’s trademark to its competitors who purchase advertising through Google. Because the entry of Rescuecom’s trademark results in the display of advertisements of Rescuecom’s competitors, Rescuecom argues that the user who entered the trademark as a search term will mistakenly believe that a competitor’s advertisement and website link is sponsored by, endorsed by, approved by, or affiliated with Rescuecom’s mark.

The plaintiff brought suit for trademark infringement, alleging that Google’s recommendation and sale of plaintiff’s mark to Google’s advertisers, to trigger the appearance of advertisements and links in a manner likely to cause consumer confusion when a Google user launches a search of plaintiff’s trademark, properly alleges a claim under the Lanham Act. The District Court granted Google’s motion to dismiss under Federal Rules of Civil Procedure 12(b)(6) for failure to state a claim. Specifically, the District Court dismissed Rescuecom’s complaint because it held that Rescuecom failed to allege that Google’s use of its trademark was a “use in commerce” within the meaning of § 45 the Lanham Act. The 2nd Circuit reversed and remanded the case.

The District Court based its ruling on a 2nd Circuit decision, 1-800-Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400 (2nd Cir. 2005) (“1-800”), asserting that Google’s use of Rescuecom’s trademark was an internal use and thus not a “use in commerce.”

The 2nd Circuit ruled in 1-800 that a complaint fails to state a claim under the Lanham Act unless it alleges that the defendant had made “use in commerce” of the plaintiff’s trademark, with the term “use in commerce” defined in 15 U.S.C. § 1127. In contrasting this decision, the 2nd Circuit asserted that Rescuecom’s complaint adequately plead a “use in commerce,” rejecting the District Court’s belief that this case and 1-800 were factually similar, and instead asserting that that this case is materially different. Specifically, the 2nd Circuit noted that the Lanham act provides for liability, under Sections 32 and 43 (15 U.S.C. §§ 1114 and 1125), for unpermitted “use in commerce” of another’s mark which is “likely to cause confusion, or to cause mistake, or to deceive” “as to the affiliation… or as to the origin, sponsorship or approval of his or her goods [or] services… by another person.” 15 U.S.C. §§ 1114, 1125(a)(1)(A).

The term “use in commerce” was defined in Section 45 (15 U.S.C. § 1127) of the Lanham Act, providing in part that “a mark shall be deemed to be in use in commerce… (2) on services when is it used or displayed in the sale or advertising of services and the services are rendered in commerce.” 15 U.S.C. § 1127.

In 1-800, the defendant freely distributed software to users who would download and install the software on their computer. This software provided contextually relevant advertising to a user by generating pop-up ads to that user, depending on the website or search term the user entered in the browser. The advertisement appeared in a new browser, making it clear the pop-up was an advertisement and not a direct response to the user’s entry. First, the defendant did not use, reproduce or display the plaintiff’s mark. The search term that triggered the pop-up ad was the plaintiff’s website address. Thus, the infringing transactions did not involve use of the plaintiff’s trademark. Second, plaintiff’s mark was never “used or displayed in the sale or advertising of services,” because advertisers could not request or purchase triggering keywords. Defendant’s program did not offer the plaintiff’s trademark as a search term by which advertisements could be triggered.

According to the 2nd Circuit, the present case is in stark contrast to 1-800. Google not only explicitly sells trademarks to advertisers to trigger their ads, but also recommends trademarks to advertisers who would not have otherwise opted to utilize the trademark as a search term. Thus, Google displays, offers and sells trademarks, including Rescuecom’s trademark, to its advertising customers when selling its advertising services. Further, it encourages the purchase of trademarks, including Rescuecom’s trademark, through KST. Thus, Google’s utilization of Rescuecom’s trademark fits clearly within the definition of a “use in commerce” as specified by 15 U.S.C. § 1127.

Google argued that the inclusion of a trademark in an internal computer directory cannot constitute trademark use. However, the 2nd Circuit rejected this argument on several bases. First, it held that such a contention over-reads the 1-800 decision. 1-800 did not imply that the use of a trademark by software in an internal directory precluded a finding of trademark use. Rather, the fact that defendant did not use plaintiff’s trademark at all influenced the Court to decide that defendant’s use did not constitute a “use in commerce.” Second, it noted that Google’s recommendation and sale of Rescuecom’s mark to advertising customers would not qualify as an internal use by Google’s own definition.

Google argued that its use of the Rescuecom mark is no different from a retail vendor who uses product placement to allow a lesser known vendor to benefit from a competitor’s name recognition. The 2nd Circuit noted that labeling a practice “product placement” does not shield it against liability under the Lanham Act. Rescuecom has alleged in its complaint that Google’s practices are significantly different from benign product placement, because its practices cause confusion as to which result of a user search on a trademark is an advertisement and which result is actually associated with the trademark. Thus, Google’s use of Rescuecom’s mark would be a “use in commerce.”

In conclusion, the 2nd Circuit found that Google’s use of Rescuecom’s trademark was a “use in commerce” because its recommendation and sale of Rescuecom’s mark to advertising customers as keywords triggered the appearance of the ads and website links in a manner that was likely to cause consumer confusion as to Rescuecom’s trademark. Thus, the grant of Google’s motion to dismiss under 12(b)(6) was reversed, and the case was remanded.

In A.V. v. iParadigms, LLC, 562 F.3d 630 (4th Circ., 2009), the plaintiffs’ alleged that iParadigms’ use of the plaintiffs’ copyrighted materials infringed the plaintiffs’ rights in the copyrighted materials. iParadigms counterclaimed that plaintiff A.V.’s unauthorized access to iParadigms’ computer system violated the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. §1030, and the Virginia Computer Crimes Act (VCCA), Va. Code Ann. §18.2-152.3. On summary judgment, the district court found in favor of iParadigms on the copyright infringement claims and found in favor of the plaintiff A.V. on the CFAA and VCCA claims. The 4th Circuit affirmed the district court’s decision with respect to the copyright infringement claims and reversed and remanded for further consideration iParadigms’ CFAA and VCCA claims.

Plaintiffs A.V., K.W., E.N., and M.N., each of which are minors and represented by respective next friends, brought this action against iParadigms for copyright infringement of essays and papers submitted thereto. iParadigms owns and operates “Turnitin Plagiarism Detection Service,” which is an online technology system, operated via www.turnitin.com, through which students submit assigned writings to their teachers. In order for a student to submit a paper through the website, the student “must be enrolled in an active class,” “enter the class ID number and class enrollment password,” and create a user profile on the website. In creating a user profile, the student must click on “I Agree” under the “terms of agreement” or “Click-wrap Agreement,” which provides that the offered services are conditioned upon the student’s unmodified acceptance of the terms of the agreement and that iParadigms is not liable for any damages arising out of use of the website. Upon submission of a paper or assignment, the service provides a digital comparison of the student’s work with content on the internet, commercial databases of journal articles and periodicals, and “student papers previously submitted to Turnitin[.]” The Turnitin system then generates an “Originality Report,” which indicates possible plagiarism, and forwards the student’s work along the Originality Report to the student’s teacher. Participating schools are given the option of “archiving” student works in a database for future use to be compared with future submitted works. Such “archived” student works are stored as digital code and not read or reviewed by employees of iParadigms.

Upon filing of this suit, plaintiffs A.V., K.W., E.N., and M.N. were students at high schools that subscribed to the Turnitin program and elected to have students’ works archived for future use. Such schools required students to submit works via www.turnitin.com to receive credit such that failure to do so would result in a grade of “zero” for that assignment. K.W., E.N., and M.N. each submitted papers to their teachers via www.turnitin.com with a disclaimer objecting to the archiving of their works; however, their works were archived because of their schools’ enrollment in the archival program. A.V. submitted works using a password designated for students of the University of California, San Diego (UCSD), which was obtained via an internet search and provided to A.V. by plaintiffs’ counsel. Before each of the assignments at issue was submitted, plaintiffs’ counsel applied for and was granted a copyright registration.

The plaintiffs alleged that iParadigms archiving of their works in the Turnitin database without their permission infringed their copyright interests. As a result of A.V.’s submissions, iParadigms counterclaimed under the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. §1030, and the Virginia Computer Crimes Act (VCCA), Va. Code Ann. §18.2-152.3. The district court granted summary judgment and found that the students and iParadigms entered into a binding agreement upon the students’ clicking on “I Agree,” that the agreements shielded iParadigms from liability arising from the plaintiffs’ use of the Turnitin.com website, and that the plaintiffs’ written disclaimers did not modify Agreement or render it unenforceable. The district court further held that iParadigms’ use of the plaintiffs’ written submission qualified as “fair use” under 17 U.S.C. §107, and therefore, did not constitute infringement specifically because the use was transformative as its purpose was to prevent plagiarism by comparative use and that the use did not impair the market value for the students’ works. With regard to iParadigms’ counterclaims, the district court rejected such on summary judgment stating that iParadigms failed to provide evidence of actual or economic damages as a result of the alleged CFAA and VCCA violations.

The ownership rights created by the Copyright Act are not absolute such that, while exclusive, such rights are “limited in that a copyright does not secure an exclusive right to the use of fact, ideas, or other knowledge.” Slip at pages 7-8, quoting Bond v. Blum, 317 F.3d 385, 394 (4th Cir. 2003). Further, copyright protections are subject to enumerated exceptions explicit in the Copyright Act. One such exception at 17 U.S.C. §107 codifies the common-law doctrine of “fair use,” which “allows the public to use not only facts and ideas contained in a copyrighted work, but also the expression itself in certain circumstances.” quoting Eldred v. Ashcroft, 537 U.S. 186, 219 (2003). “Courts have traditionally regarded “fair use” of a copyrighted work as a privilege in others than the owner of the copyright to use the copyrighted material in a reasonable manner without his consent.” Slip at pages 8-9, quoting Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539, 549 (1985) (internal quotes omitted).

17 U.S.C. §107 states that “the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include-

1. the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
2. the nature of the copyrighted work;
3. the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
4. the effect of the use upon the potential market for or value of the copyrighted work.”

The Purpose and Character of the Use

Courts have stated that a use of a copyrighted work for commercial purposes tends to weigh against a finding of fair use, but that the profit/nonprofit distinction is not whether the sole motivation was monetary gain but whether the use exploits the copyrighted material without paying the customary price. Harper & Row, 471 U.S. at 562. Courts have further looked to whether the use at issue “merely supersedes the objects of original creation, or instead adds something new, with a further purpose or different character,” which indicates that courts should analyze “whether and to what extent the new work is transformative.” Campbell v. Acuff-Rose Music, 510 U.S. 569, 578-79 (1994). The more transformative a use is, the less important other factors, such as commercialism, become. Id. “A transformative use is one that employs the quoted matter in a different manner or for a different purpose from the original, thus transforming it.” Slip at 10, quoting Pierre N. Leval, Commentary, Toward a Fair Use Standard, 103 Harv. L. Rev. 1105, 1111 (1990) (internal quotes omitted).

The plaintiffs argued that the district court ignored the commercial nature of iParadigms’ use of their copyrighted material noting that iParadigms is a for-profit company receiving millions of dollars in revenue based on the database of student works, that iParadigms’ use of their copyrighted material could no be transformative because the archiving process did not add anything to their works, and that, even if iParadigms’ use has a transformative purpose, the use itself is not transformative if it fails to effect such purpose, i.e., fails to prevent plagiarism. The 4th Circuit rejected such arguments. First, the 4th Circuit noted that since most secondary users seek at least some commercial gain, an emphasis on commercial exploitation would overly restrict the fair use doctrine; instead, commercial use should be weighed along with the other factors in fair use analysis. Next, the 4th Circuit noted that a transformative use need not alter or augment the work to be transformative in nature, but that a transformative use may be transformative in function or purpose without altering or actually adding anything to the original work. Finally, the 4th Circuit noted that, although the Turnitin system may be capable of only detecting the most ignorant or lazy attempts at plagiarism, whether a better detection system could be designed is of no import to the analysis of whether the disputed use serves a different purpose or function. Therefore, the district court’s finding that the first factor weighed in favor of fair use was correct.

The Nature of the Copyrighted Work

The Supreme Court has stated that “fair use is more likely to be found in factual works than in fictional works” whereas “a use is less likely to be deemed fair when the copyrighted work is a creative product.” Slip at page 14, quoting Stewart v. Abend, 495 U.S. 207, 237 (1990). The district court noted that iParadigms’ use fostered the development of original and creative works by deterring efforts at plagiarism by the students enrolled in the program.

The plaintiffs argued that the district court ignored the fact that the students’ works were unpublished and that the district court ignored the fact that the students’ works were fiction and poetry, which are considered highly creative. However, the 4th Circuit noted that although the district court may have omitted mentioning that the works were unpublished, the district court clearly did not ignore the unpublished nature of the works because the district court quoted Bond v. Blum discussing fair use of unpublished works of fiction in concluding that iParadigms’ use was unconnected to any creative element in plaintiffs’ works. Further, the 4th Circuit states that it is clear that iParadigms’ use did not have the “intended purpose” or “incidental effect” of supplanting the plaintiffs’ rights to first publication because iParadigms did not publicly disseminate or display plaintiffs’ works, plaintiffs’ works were not seen by any third party other than the instructor to whom the work was submitted, and no employee of iParadigms read or reviewed the plaintiffs’ works. Next, the 4th Circuit noted that the district court did take into consideration that the plaintiffs’ works were highly creative in nature but stated that iParadigms use was not related to the creative core of the plaintiffs’ works. The 4th Circuit found no fault in the analysis of the district court with respect to the second factor and agreed that this second factor weighed in support of neither the plaintiffs nor iParadigms.

The Amount and Substantiality of the Work Used

Generally, the 4th Circuit noted, “as the amount of copyrighted material used increase, the likelihood that the use will constitute a fair use decreases.” Slip at page 17, quoting Bond, 317 F.3d at 396. But, such analysis additionally requires consideration of the “quality and importance” of the portion of the copyrighted material used, i.e., whether the portion used included “the heart of the copyrighted work.” Id., quoting Cambell, 510 U.S. at 587, and Sundeman v. The Seajay Soc’y, Inc., 142 F.3d 194, 205 (4th Cir. 1998), respectively.

The plaintiffs argued that the district court erred by referring to the transformative nature of iParadigms’ use in the amount and substantiality analysis of the third factor, i.e., that the district court improperly blended the third factor into the first factor. The district court did indeed find that because the iParadigms’ use of the works was transformative in nature, iParadigms’ use of the entirety of the plaintiffs’ works did not preclude a finding of fair use such that this third factor weighed in support of neither the plaintiffs nor iParadigms. The 4th Circuit noted that, in their view, the district court’s analysis did not merge the first and third factors and that the plaintiffs’ arguments failed to recognize the overlap that exists between the fair use factors. As such, the 4th Circuit found no error in the district court’s analysis.

The Effect of the Use

“The Supreme Court described this factor as the single most important element of fair use, Harper & Row, 471 U.S. at 566, considering that a primary goal of copyright is to ensure that authors [have] the opportunity to realize rewards in order to encourage them to create.” Slip at page 18, quoting Leval, Toward a Fair Use Standard, 103 Harv. L. Rev. at 1124, (internal quotes omitted). Such analysis under the fourth factor seeks to determine whether the iParadigms’ use of the plaintiffs’ works “would materially impair the marketability of the work[s] and whether it would act as a market substitute” for them. Id. quoting Bond, 317 F.3d at 396. The focus of such analysis is upon whether the secondary use “usurps the market of the original work.” Id., quoting NXIVM Corp. v. The Ross Institute, 364 F.3d 471, 482 (2nd Cir. 2004). An adverse effect on the market of the original work does not preclude the finding of a fair use. Id. The 4th Circuit specifically noted that this fourth factor overlaps to some extent with the question of whether the use was transformative in nature because the more transformative the use, the less likely the secondary use would supplant or supersede the original work. The district court concluded that iParadigms’ use did not serve as a market substitute or harm the market value of the works as such were admitted in depositions by the plaintiffs.

The plaintiffs argued that they could be harmed in the future by the Turnitin system upon submission to third parties of works previously submitted to the Turnitin system if such third parties, for example, college admissions and periodicals, use the Turnitin system to verify originality. Further, the plaintiffs argued that the district court erred by focusing on lack of evidence of actual damages instead of considering the effect of iParadigms’ use on the “potential market” for plaintiffs’ works. The 4th Circuit first noted that, based on how the Turnitin system works, the likelihood of harm to plaintiffs’ was speculative at best and dismissed the plaintiffs’ first argument. In response to the plaintiffs’ second argument, the 4th Circuit found that the district court did consider the potential market effects and concluded that the plaintiffs’ arguments were theoretical and speculative. iParadigms’ use would impair the sale of the students’ works to other high school students who wish to purchase such papers and submit them as their own, but the plaintiffs testified that they would not sell the works because such a transaction would be dishonest and make them a party to cheating. As such, iParadigms’ use does not create a market substitute as iParadigms’ use does not supplant the plaintiffs’ works in the “paper mill” market so much as merely suppress demand for them by keeping a record that such works were previously submitted.

The 4th Circuit concluded that, in viewing the evidence in the light most favorable to the plaintiffs’, iParadigms’ use was a fair use under the Copyright Act such that iParadigms was entitled to summary judgment on the copyright infringement claim.

iParadigms’ Cross Appeal of CFAA and VCCA Counterclaims

iParadigm counterclaimed against plaintiff A.V. because of A.V.’s accessing the Turnitin system via a password assigned to USCD students and alleged that A.V.’s unauthorized access to Turnitin violated 18 U.S.C. §1030(a)(5)(iii), which prohibits any person from “intentionally access[ing] a protected computer without authorization, and as a result of such conduct, caus[ing] damage,” and, by such conduct, cause, in violation of 18 U.S.C. §1030(a)(5)(B)(i), “loss to 1 or more persons during any 1-year period … aggregating at least $5,000 in value.” Slip at page 23. The CFAA further imposes that such damages are limited to economic damages. iParadigms offered evidence that, upon learning of the unauthorized access to the Turnitin system, iParadigms was fearful of a technical glitch and assigned several employees to determine what had happened. The district court concluded that iParadigms failed to produce evidence of any actual or economic damages and, instead, only presented evidence of consequential damages, i.e., economic damages does not encompass consequential damages.

iParadigms argued that “economic damages” should be given its ordinary meaning, which includes consequential damages to the exclusion of recovery for pain and suffering or emotional distress. The 4th Circuit agreed that the district court’s interpretation was too narrow and concluded that the wording of 18 U.S.C. §1030 plainly included consequential damages of the type sought by iParadigms. As such, the 4th Circuit reversed the district court’s decision and remanded this issue for further consideration of iParadigms’ CFAA claims.

iParadigms further alleged that A.V.’s unauthorized access to Turnitin violated the VCCA, which provides that “[a]ny person who uses a computer or computer network, without authority and … [o]btains property or services by false pretenses … is guilty of the crime of computer fraud.” Slip at page 25, quoting Va. Code Ann. §18.2-152.3. Further, the VCCA states that “any person whose property or person is injured by reason of a violation of [the VCCA] … may sue thereof and recover any damages sustained and the costs of the suit.” Va. Code Ann. §18.2-152.12. The district court granted A.V. summary judgment on the basis that iParadigms had failed to provide evidence of actual or economic damages.

iParadigms argued that the district court narrowly construed “any damages” to exclude consequential damages. The 4th Circuit found nothing in the statute to suggest that consequential damages were unavailable under the VCCA, and thus, reversed the district court’s decision and remanded this issue for further consideration of iParadigms’ VCCA claims.

The 4th Circuit found that iParadigms’ secondary use of archiving for future use of the students’ submitted, copyrighted materials did not constitute copyright infringement because iParadigms’ use was a “fair use,” mainly because iParadigms’ use was transformative in nature and did not usurp the plaintiffs’ potential market for the plaintiffs’ works. Further, the 4th Circuit remanded for further consideration iParadigms’ counterclaims against plaintiff A.V. under the CFAA and the VCCA.

Sunset’s label had a blue/purple background and featured the word “Hollywood,” the phrase “Lose Up To 10 lbs. in 48 Hours!,” and pictures of palm trees, gold stars, and Hollywood-style searchlights. Spectrum’s original label in 1998 featured similar phrasing on a black background with a gold star. Then, Spectrum changed Celebrity Diet’s label such that by 2001, the label was a purple/blue background with Hollywood-style searchlights, and the font and style of the word “Hollywood” looked more like the Hollywood Hills sign.

After demanding twice that Spectrum cease infringing on its Miracle Diet trademark, Sunset filed a trade dress infringement claim against Spectrum in October 2001. Sunset alleged that Spectrum deliberately packaged and labeled Celebrity Diet so similarly to Miracle Diet that it confused consumers and damaged Sunset’s reputation. Sunset applied for a temporary restraining order, and it asked the District Judge to compare Sunset’s 1998 label to Spectrum’s 1998 and 2001 labels to determine whether Spectrum’s 2001 label constituted an immediate harm to Sunset.

The District Judge granted the temporary restraining order. In the subsequent preliminary injunction hearing, however, Spectrum’s argument was that it had changed its 1998 label in 1999 and Sunset was aware of the change at the time. Moreover, its 1999 label was so similar to its 2001 label that Sunset was not in danger of experiencing immediate harm since Sunset had delayed three years in bringing the action in the first place. Accepting Spectrum’s position, the judge denied Sunset’s preliminary injunction action. Spectrum and Sunset eventually settled on the trade-dress infringement claim. Spectrum’s insurance provider contributed $420,000 to the settlement amount.

In 2001, United issued Spectrum a one million dollar excess third party liability policy that, in part, indemnified Spectrum for damages resulting from an advertising injury. The policy defined an advertising injury to be an injury arising out of “[i]nfringement of copyright, title or slogan.” The policy however did not apply to an “advertising injury...arising out of oral or written publication of material whose first publication took place before the beginning of the policy period.”

In 2005, United filed a complaint seeking reimbursement of its settlement contribution then moved for summary judgment arguing that its first publication exclusion eliminated its indemnification obligations. Upon a request for reconsideration of an initial denial, the district court granted United’s motion for summary judgment, holding that Spectrum’s 1999 label formed the substance of Sunset’s advertising injury and that, therefore, the first publication exclusion eliminated United’s liability. The district court entered a judgment against Spectrum Worldwide and its officers for the amount that United had contributed to the settlement. The district court denied Spectrum’s motion for reconsideration.

On appeal, Spectrum argued that the United Policy’s first publication exclusion did not apply to Sunset’s infringement claim because (1) first publication exclusions do not apply to infringement actions in California and (2) even if the clause applied to infringement actions, summary judgment was not proper to determine whether Spectrum first published infringing material before the United Policy took effect.

In interpreting insurance policy language under California law, one must first look to the language itself to ascertain its plain meaning, from which one should be able to infer the parties’ mutual intention at the time of contract formation. The Ninth Circuit did not agree with Spectrum’s argument that the language was ambiguous. It instead found that the United Policy’s first publication clause was clear and explicit because plainly reading the first publication exclusion and the relevant advertising injury definition together indicated that the parties intended to exclude from coverage any infringement injury that arose from an oral or written publication or material first published before the policy became effective.

After finding that United’s first publication exclusion clearly applied to trade dress infringement claims, the court then considered whether the exclusion applied to Sunset’s infringement claim. Judicial estoppel bars inconsistent positions taken in the same litigation and bars litigants from making incompatible statement in different cases. The purpose of the doctrine is to prevent litigants from taking one position, gaining advantage from that position, then seeking a second advantage by seeking an incompatible position.

The Ninth Circuit looked to New Hampshire v. Maine to determine whether judicial estoppel applied. 532 U.S. 742 (2001). Following the test, the Ninth Circuit held that Spectrum’s current position was clearly inconsistent with its earlier position. In the 2001 preliminary injunction hearing, Spectrum’s response to Sunset’s allegations about its recent label change was that Spectrum had been using the label elements of which Sunset complained since 1999. Moreover, any change thereafter was simply shifting the 1999 label elements, thereby establishing that there was no immediate harm for purposes of a preliminary injunction. Spectrum’s argument in this case, however, was that it was the 2001 label, not the 1999 version that resulted in the Sunset action. Also, Spectrum succeeded in persuading the district court to accept the earlier position, so accepting Spectrum’s current argument would create “the perception that either the first or the second court was misled.” Spectrum’s 2001 arguments helped convince the District Judge that Sunset did not experience new or immediate harm and that an injunction was inappropriate. Therefore, if the Ninth Circuit were to accept Spectrum’s new argument that the 2001 label was the basis for Sunset’s infringement claim, it could create the perception that Spectrum misled either the Ninth Circuit or the District Judge. Last, if not estopped, Spectrum would derive an unfair advantage. Spectrum benefited from its 2001 arguments by establishing that the harm had arisen prior to the 2001 label, so if it were allowed to now change its arguments, it would be possible for Spectrum to prevail on the same position it discredited when attempting to avoid preliminary injunction. The result would be unfair to both Sunset and United.

The Ninth Circuit affirmed the district court’s determination that United’s Policy applied to trade dress infringement actions. Also, the Ninth Circuit held that summary judgment was proper to determine the date of first publication in this case because Spectrum was judicially estopped from presenting and prevailing on inconsistent arguments before the district courts. Lastly, the Ninth Circuit held that the district court did not abuse its discretion when it held Spectrum’s officers jointly and severally liable for repayment of United’s contribution.

Background
From May 1999 to September 2003, AMS, a field marketing organization offering sales and marketing support to insurance marketing entities, hired Gagnon at-will as an independent contractor to assist with its information technology needs. Gagnon was asked to develop six custom software programs for AMS. Over the course of the companies’ four year relationship, AMS paid Gagnon over $2 million for this development. However, no agreement was agreed to governing rights in the intellectual property for the developed software programs.

When AMS terminated Gagnon’s services in June 2003, it offered Gagnon an employment position, but he declined. In back and forth written communications, Gagnon demanded payment from AMS for its right to continue to use the programs and for Gagnon’s agreement not to sell the programs to AMS’ competitors. Gagnon eventually ordered AMS to remove “all original and derivative source code” and related program files. In response, AMS refused to cooperate with any of Gagnon’s orders, demanded copies of the source code for all software developed by and on behalf of it, and asserted that Gagnon was not authorized to utilize the software that AMS believed it owned. A week prior to his termination, Gagnon registered the copyright for the six programs with the United States Copyright Office, and this action incited AMS to take legal action.

AMS filed a complaint in California Superior Court against Gagnon alleging misappropriation of trade secrets and conversion. In turn, Gagnon removed the case to federal court and then filed numerous counterclaims alleging, among other claims, copyright infringement for the six programs, trade secret misappropriation, and unfair competition. The District Court remanded AMS’ claims back to the state court, and AMS filed the remanded claims as counter-counterclaims in order to maintain all related claims in federal court.

The District Court granted AMS’ motion for summary judgment as to Gagnon’s counterclaims. Specifically, the District Court found that Gagnon had granted AMS an implied nonexclusive license to use, modify, and retain the source code of the programs. Gagnon’s trade secret misappropriation claim was, therefore, also defeated. Further, because no trade secret agreement existed as between Gagnon and AMS with respect to the source code, Gagnon’s unfair competition claims were deemed invalid under California law. Gagnon’s remaining state law claims also failed for these reasons. Next, Gagnon filed a motion for reconsideration, which was denied. The case was then reassigned to a new judge, and Gagnon appealed the grant of summary judgment. Upon successful limited remand, the District Court denied the motion for reconsideration and returned the case to the Ninth Circuit Court of Appeals.

Court of Appeals for the Ninth Circuit
On appeal, the Ninth Circuit first noted that although exclusive licenses must be in writing, 17 U.S.C. § 204 grants of nonexclusive license need not be in writing and may be granted orally or by implication. The Ninth Circuit has held that an implied license is granted when “(1) a person (the licensee) requests the creation of a work, (2) the creator (the licensor) makes that particular work and delivers it to the licensee who requested it, and (3) the licensor intends that the licensee-requestor copy and distribute his work.” I.A.E., Inc. v. Shaver, 74 F.3d 768, 776 (7th Cir. 1996). For example, in Effects Assocs., Inc. v. Cohen, 908 F.2d 555-56 (9th Cir. 1990), a movie producer hired Effects Associates to create certain special effects for a movie. Though the film footage containing the special effects was used without the producer’s obtaining a written license from Effects Associates, the Ninth Circuit found that an implied license had been granted because the footage was created at the producer’s request with the intent that it be used in the film with no warning that use of the footage would constitute infringement. Id. at 558-59 & n.6. The Ninth Circuit applied the same analysis used in Effects to implied licenses for computer programs.

As to the first factor, Gagnon argued that AMS never specifically requested that he create the programs, but “rather relayed its needs to Mr. Gagnon and he satisfied them by providing either computer hardware or computer software at his discretion.” The Ninth Circuit found this interpretation of “request” to be strained. Gagnon did not create the programs on his own initiative and market them to AMS; rather, he created them in response to AMS’ requests. Also, after prototype software was developed, he made changes to the programs in response to AMS’ requests.

As to the second factor, it was undisputed that Gagnon created the programs for AMS. However, the remaining question was whether Gagnon delivered the programs to AMS. The Ninth Circuit agreed with the District Court that Gagnon delivered them when he installed them onto the AMS computers and stored the source code on-site at AMS. Gagnon had argued that even if he had installed the programs onto the AMS computers, he never delivered the source code so that AMS could modify the code. Gagnon further argued that if, in fact, AMS did not have the right to modify the code, AMS may have infringed Gagnon’s copyright by exceeding the scope of its license. However, the Ninth Circuit noted that "Gagnon's conduct manifested an objective intent to give AMS an unlimited license at the time of creation; thus, when he stored the source code at AMS, the code was delivered." Therefore, the Ninth Circuit held that the scope of the license necessarily included the unlimited license to modify the source code as well as use the executable object code.

As to the third factor, the Ninth Circuit concluded that Gagnon’s conduct did manifest an intent to grant a license. Specifically, the Ninth Circuit noted that the relevant intent is the licensor’s objective intent at the time of the creation and delivery of the software as manifested by the parties’ conduct. See Effects, 908 F.2d at 559 n.6; see also John G. Danielson, Inc. v. Winchester-Conant Props., Inc., 322 F.3d 26, 42 (1st Cir. 2003), I.A.E., 74 F.3d at 777. Gagnon and AMS had an ongoing service relationship in which Gagnon provided technical support for all computer-related problems at AMS, and he created certain custom software applications at AMS’ request. The parties’ relationship indicated neither an intent to grant nor deny a license without Gagnon’s future involvement.

Moreover, the Ninth Circuit held that courts have looked to contracts, even if unexecuted, as evidence of the intent of the party submitting the contract. In the instant case, there were several documents that reflected the parties’ objective intent: a Technical Services Agreement (TSA), an Outside Vendor Agreement (OVA) submitted by Gagnon, and Gagnon’s letter objecting to AMS’ proposed changes to the OVA. The TSA that both parties signed in May 2000 stated only that Gagnon “[would] provide” AMS “specific add-on products.” Nothing in the TSA indicated Gagnon’s understanding or intent that continued use of the custom application programming undertaken by Gagnon would be prohibited after the TSA terminated, nor did the TSA mention anything about a license. Also, Gagnon was well paid for his services. It is highly unlikely that AMS would have paid Gagnon for his programming services if AMS could not have used the programs without further payment pursuant to a separate licensing arrangement that was never mentioned in the TSA and never otherwise requested at the time. Moreover, the TSA was not renewed beyond its April 30, 2001 expiration although the relationship continued. Moreover, the Ninth Circuit noted that custom software is far less valuable without the ability to modify it, and because the TSA was set to expire in one year, one would expect some indication of the need for future licensing if the custom programs were to become unusable after the TSA expired. Thus, the TSA, while silent as to the intellectual property rights, was evidence that the right to use and modify the software programs after termination of the TSA.

The parties additionally attempted to draft an Outside Vendor Agreement (OVA) but were unable to agree upon a version, and it was never executed. The Ninth Circuit found that the unexecuted OVA submitted to Gagnon did not evidence any intent by Gagnon to limit AMS’ use of the programs.

Lastly, the Ninth Circuit noted that Gagnon and AMS did not discuss a licensing agreement until their relationship was ending. Gagnon delivered the software without any caveats or limitations on AMS’ use of the programs. The first time that Gagnon expressed a contrary intent was in a letter to AMS, sent after AMS had decided to terminate Gagnon’s services. Gagnon had to express an intent to retain control over the programs and limit AMS’ license if he intended to do so. A belated statement that the programs could not be used after Gagnon’s departure, made after the termination decision and well after the creation and delivery of the programs, for which substantial sums were paid, was not sufficient to negate all other objective manifestations of intent to grant AMS an unlimited license. For these reasons, the Ninth Circuit held that Gagnon granted AMS an unlimited, nonexclusive license to retain, use, and modify the software, and because AMS paid consideration, this license was irrevocable. The Court of Appeals, therefore, affirmed the District Court’s grant of summary judgment in favor of AMS on the copyright infringement claim.

Rambus had participated in the JEDEC in developing the standard, but had withdrawn prior to finalization of the standard. The rules of the JEDEC required participating members to disclose intellectual property encompassing the standards being developed. During this participation, Rambus did not disclose the existence of various patent applications related to the standard under discussion as the claims at the time of participation did not cover the standard. However, after withdrawal, Rambus presented new claims in the pending application which did encompass the standard. After the standard was finalized, Rambus asserted that compliance with the SDRAM standard would infringe its patent rights relating to the undisclosed inventions.

The FTC filed a complaint under § 5(b) of the FTC Act, 15 U.S.C. § 45(b), charging that Rambus engaged in unfair methods of competition and unfair or deceptive acts or practices in violation of the Act. See 15 U.S.C. § 45 45(a). Specifically, the FTC alleged that Rambus' failure to disclose its intellectual property violated the JEDEC disclosure requirements, and resulted in Rambus' ability to monopolize the SDRAM market through unfair means. Rambus had contended that it had complied with the specific JEDEC rules in regards to what intellectual property was required to be disclosed and, therefore, did not engage in the type of deceptive behavior needed to show unfair competition under 15 U.S.C. § 45(b).

After conducting a trial before an administrative law judge (ALJ), the ALJ issued an Initial Decision agreeing with Rambus. Specifically, the ALJ found that any failure to disclose was due to the specific JEDEC policies not requiring such disclosure and therefore Rambus' non-disclosure was not in violation of the JEDEC policies. However, after appealing to the Commission, the Initial Decision was reversed and Rambus was found to have engaged in deceptive behavior. Specifically, the Commission found that the JEDEC policies and rules, while not a model of clarity, at least impliedly required the disclosure and such was presumed by the members. Moreover, the deceptive intent provided for the monopolization because, had JEDEC been aware of the patent applications, JEDEC either would have excluded the patented technologies from the standard or at least required Rambus provide assurances of “reasonable and nondiscriminatory” license fees. As a remedy, the Commission ordered that the patented technology be made available for license at a preset license rate, depending on the type of JEDEC compliant DRAM involved.

On appeal, Rambus challenged the finding that the JEDEC rules required disclosure of the patent applications in question. Also, Rambus challenged that there was an antitrust violation because there was insufficient evidence that the JEDEC either would have excluded the patented technologies from the standard or at least required Rambus provide assurances of “reasonable and nondiscriminatory” license fees. In regards to the license fees, Rambus argued that the required license would not have been an antitrust violation, and there was insufficient evidence that JEDEC would have simply excluded the patented technology.

The D.C. Circuit noted that not all monopolies are illegal as only those acquired by unlawful means are considered anticompetitive. In defining what constitutes unlawful acquisition of a monopoly, the DC Circuit relied upon its prior decision in United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (en banc) (per curiam) in defining the test. Under this test, there needs to be a finding on the following:

First, “to be condemned as exclusionary, a monopolist’s act must have ‘anticompetitive effect.’ That is, it must harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice.” Microsoft, 253 F.3d at 58; see also Trinko, 540 U.S. at 407; Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993); Covad Commc’ns. Co. v. Bell Atlantic Corp., 398 F.3d 666, 672 (D.C. Cir. 2005). Second, it is the antitrust plaintiff—including the Government as plaintiff—that bears the burden of proving the anticompetitive effect of the monopolist’s conduct.

The D.C. Circuit then found that, whereas in the Microsoft case there was evidence of an effect caused by Microsoft's deceptive intent (i.e., tricking developers in working on proprietary Java applications when the developers were intending to work on platform independent Java applications), the only competitive harm resulting from Rambus' deceptive actions was a raise in prices. However, relying on NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998), the D.C. Circuit found that the mere raising of prices was not an anticompetitive effect. Specifically, even assuming Rambus had disclosed the patents, this disclosure would also have resulted in a price increase such that there was no discernable injury. As such, the D.C. Circuit vacated the Commission's ruling due to the failure to find evidence of an anticompetitive effect due to Rambus' failure to disclose the patent applications in question.

11th Circuit Finds Use of Trademarks in Metatags is an Infringing Use in Commerce, but the Grant of a Preliminary Injunction Requires Evidence of Harm Which Cannot be Presumed

Background
NAM designs and manufactures physiotherapeutic spinal devices used to treat lower back pain, which are commonly known as traction devices. NAM owns and uses registered trademarks for “Accu-Spina” and “IDD Therapy.” Axiom competes with NAM and manufactures a physiotherapeutic device known as the DRX 9000.

NAM alleged that Axiom infringed NAM’s trademarks by using the “Accu-Spina” and “IDD Therapy” marks on Axiom’s website within meta tags. Meta tags are words or phrases included in a website’s code intended to describe the contents of the website with which the meta tags are associated. Such included meta tags are often used by internet search engines to associate a user’s search terms with relevant websites but are not displayed thereon. NAM further alleged that Axiom made false statements about the DRX 9000 in stating (1) that Axiom and NASA or the DRX 9000 and NASA were affiliated and (2) that the DRX 9000 was FDA approved.

District Court for the Northern District of Georgia
The District Court granted NAM’s request for a preliminary injunction thereby enjoining Axiom from using NAM’s trademarks within meta tags on Axiom’s websites and from making the challenged statements about the DRX 9000. Further, the District Court found that Axiom’s use of NAM’s trademarks created a likelihood of confusion among consumers and that Axiom’s statements about the DRX 9000 were literally false and material to consumers’ purchasing decisions.

Eleventh Circuit
Under Eleventh Circuit precedent, a preliminary injunction may be granted only if NAM established “(1) a substantial likelihood of success on the merits of the underlying case, (2) [NAM] will suffer irreparable harm in the absence of an injunction, (3) the harm suffered by [NAM] in the absence of an injunction would exceed the harm suffered by [Axiom] if the injunction issued, and (4) an injunction would not disserve the public interest.” Johnson & Johnson Vision Care, Inc. v. 1-800 Contacts, Inc., F.3d 1242, 1246 (11th Cir. 2002). On appeal, Axiom argued that NAM failed to establish a likelihood of success on the merits of either the trademark infringement or the false advertising claims and, assuming arguendo that NAM had established such likelihood of success, that the District Court erred in presuming that any plaintiff with a viable unfair competition claim will always suffer irreparable harm if a preliminary injunction is not issued.

Likelihood of Success: Trademark Infringement
In order to prevail on a claim of trademark infringement under the Lanham Act, the Eleventh Circuit required that NAM establishe: “(1) that [NAM] possess[es] a valid mark, (2) that the [Axiom] used the mark, (3) that the [Axiom’s] use of the mark occurred “in commerce,” (4) that the [Axiom] used the mark “in connection with the sale… or advertising of any goods,” and (5) that [Axiom] used the mark in a manner likely to confuse consumers.” Slip op. at 7, citing 1-800 Contacts, Inc., v. WhenU.com, Inc., 414 F.3d 400, 406-07 (2d Cir. 2005).

Specifically, Axiom argued that the use of NAM’s trademarks within meta tags of Axiom’s websites does not constitute a “use in commerce” under the Lanham Act and, even if such use as meta tags is a “use in commerce,” that such use is not likely to confuse consumers. The Eleventh Circuit “readily conclude[d]” that Axiom’s use of NAM’s trademarks as meta tags was an infringing use as Axiom used the trademarks in an “effort to promote and advertise its products on the Internet.” Slip op. at 9. Further, Internet search results displayed NAM’s trademarks along with a description of Axiom’s website. The Eleventh Circuit distinguished 1-800 Contacts because there (1) the defendant used the plaintiff’s web address and not plaintiff’s protectable trademark, and (2) the defendant did not cause the plaintiff’s trademark to be displayed to the consumer. Here, Axiom used NAM’s registered trademarks in meta tags and the registered trademarks were displayed along with descriptions of Axiom’s website when searched using an Internet search engine. The Eleventh Circuit went on to substantially criticize the Second Circuit’s analysis in 1-800 Contacts as incorrectly analyzing the elements of trademark infringement, rendering the conclusions therein reached suspect. Specifically, the Second Circuit reasoned that because the defendant did not display the plaintiff’s trademark, there could be no possibility of confusion. The Eleventh Circuit disagrees in that the lack of display is worthy of consideration, but not dispositive of the likelihood of confusion analysis as the elements governing the confusion analysis are specifically separated and each deserves individual attention.With regard to likelihood of confusion, the Eleventh Circuit analyzes the following seven factors:

1.  the strength of [NAM’s] mark;
2.  the similarity between [NAM’s] mark and the allegedly infringing mark;
3.  the similarity of the products and services offered by [NAM] and [Axiom];
4.  the similarity of the sales methods;
5.  the similarity of advertising methods;
6.  [Axiom’s] intent; and
7.  actual confusion.

In Brookfield, the Ninth Circuit enjoined a defendant from including a competitor’s trademark for confusingly similar terms in the meta tags of the defendant’s website. There, the Ninth Circuit characterized the infringing use of a trademark in a meta tag as generating initial interest confusion, assuming that the allegedly infringing use was not actually displayed by the defendant. The Seventh Circuit faced similar facts in Promatek, which led to a similar conclusion of initial interest confusion sufficient to support a finding of likelihood of confusion.

However here, the Eleventh Circuit distinguishes Brookfield and Promatek as NAM has demonstrated a likelihood of actual source confusion, i.e., a consumer is likely to be confused as to whether Axiom and NAM are affiliated or whether Axiom’s and NAM’s products come from a same source. Because Internet search results displayed a description of Axiom’s website in which NAM’s trademarks were highlighted, the Eleventh Circuit found that Axiom’s use of NAM’s trademarks in meta tags caused a likelihood of actual consumer confusion as to source.

Further, Axiom argued that its use was no different than a store placing the store’s generic competing product next to a brand name product on the store’s shelf. However, because Axiom’s use of NAM’s trademarks as meta tags caused Internet search engines to suggest that the competing products had a same source, were affiliated, or were both sold by Axiom, the Eleventh Circuit concluded that Axiom’s use caused a likelihood of actual source confusion. Therefore, the Axiom’s analogy was misplaced.

Likelihood of Success: False Advertising
In order to prevail on a false advertising claim under the Lanham Act in the Eleventh Circuit, NAM must demonstrate: “(1) the ads of [Axiom] were false or misleading, (2) the ads deceived, or had the capacity to deceive, consumers, (3) the deception had a material effect on purchasing decisions, (4) the misrepresented product or service affects interstate commerce, and (5) [NAM] has been – or is likely to be – injured as a result of the false advertising.” Slip op. at 23, citing Johnson & Johnson, 299 F.3d at 1247.

The Eleventh Circuit held that the District Court did not clearly err when finding that Axiom’s claims of affiliation with NASA and the DRX 9000 being FDA approved were literally false and that the ads were material to consumers’ purchasing decisions. As such, the District Court did not clearly err in finding that NAM demonstrated a likelihood of success on the merits of the false advertising claims.

Presumptions of Irreparable Harm
The Eleventh Circuit vacated the District Court’s grant of preliminary injunction with respect to both the trademark infringement and false advertising claims, despite NAM’s demonstration of a likelihood of success on the merits, because the District Court improperly relied upon a presumption of irreparable harm for both the trademark infringement and false advertising claims.

In vacating the preliminary injunction with respect to NAM’s false advertising claims, the Eleventh Circuit notes that the District Court relied upon an incomplete recitation of the law. Specifically, proof of falsity of advertising is sufficient to sustain irreparable injury for purposes of a preliminary injunction when the challenged advertising makes a misleading comparison to a competitor’s product, but if the false advertising is non-comparative and makes no direct reference to a competitor’s product, irreparable harm is not presumed. Slip op. at 28, citing J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, Sec. 23.37 (4th e. 2003); Energy Four, Inc., v. Dornier Medical Systems, Inc., 765 F. Supp. 724, 734 (N.D. Ga. 1991) (internal quotations omitted). Below, the District Court incorrectly presumed irreparable harm despite Axiom’s false advertising being non-comparative and making no direct reference to NAM’s products. As such, the Eleventh Circuit vacated the preliminary injunction with respect to the false advertising claims and remanded for determination as to whether NAM will suffer irreparable harm in the absence of a preliminary injunction.

With regard to presuming irreparable harm on the trademark infringement claims, the Eleventh Circuit noted that it had previously acknowledged and extended a presumption of irreparable harm once a plaintiff has established a likelihood of success on the merits of a trademark infringement claim. However, the Eleventh Circuit relies on the recent Supreme Court decision in eBay to deny such extension in this case. See eBay Inc., v. MercExchange, L.L.C., 547 U.S. 388, 126 S.Ct. 1837 (2006).

In eBay, a district court refused to grant the plaintiff’s motion for permanent injunction after a jury had found that the defendant had infringed plaintiff’s patents. The Federal Circuit reversed the district court and articulated a categorical rule that permanent injunctions shall issue once infringement is established. The Supreme Court reversed the Federal Circuit and upheld the district court’s denial of permanent injunction. “The [Supreme] Court stressed that the Patent Act indicates that injunctive relief may issue only in accordance with the principles of equity.” Slip op. at 30, quoting eBay at 393 (internal quotes omitted).

The Eleventh Circuit extended the eBay patent ruling (with respect to a permanent injunction) to the current trademark claims (with respect to a preliminary injunction) by relying on the similarity between the language of the Lanham Act and the Patent Act. Because the language of the two acts is so similar and no obvious distinction between preliminary and permanent injunctive relief can be made, the principles of equity should prevail.

However, the Eleventh Circuit did not state that the District Court erred in extending the presumption of harm to NAM’s trademark infringement claims. The Eleventh Circuit only held that the Supreme Court’s ruling in eBay should apply to NAM’s trademark infringement claims. As such, the Eleventh Circuit vacated the preliminary injunction with respect to the trademark infringement claims, remanded for further development of the case with respect to the Supreme Court’s decision in eBay and stated that the District Court may very well reach the conclusion that a preliminary injunction is appropriate.

Defendant Heartland Sweeteners, LLC (“Heartland”) manufactures and packages a number of store-brand artificial sweetener products for retailers including Giant, Stop & Shop, Tops, Food Lion, Safeway, Albertson’s, and Wal-Mart. Giant, Stop & Shop, and Tops are all owned by Ahold, and the packages of the store-brand sucralose products sold by these stores (the “Ahold products”) are identical except that each packaging contains that respective store’s name and/or logo. The Ahold products come in 100 and 200 count sizes, with a yellow background and either blue or white lettering. The product name “Sweetener” appears at the top-center of the front of the boxes, in italicized blue font. The product name is outlined in white, but not by a cloud. On the lower-right corner is a photograph of a white cup of coffee and saucer, a glass of lemonade, and several fruits further off to the right side. There is a white rectangular border surrounding the front of the boxes. The store logo (regardless of the store name) appears just above the product name. The Ahold products are sold as granular sucralose in vertically-oriented bags. The front of the vertically oriented bags are exactly the same as the front of the boxes of the Ahold products, except that they display different physical props: a slice of cheesecake on a plate, a bowl of cereal with raspberries, and a white cup of coffee and saucer.

The Food Lion store-brand 100 count-box of individual sucralose packets is oriented horizontally, with a yellow background and either blue or black lettering. The product name “Sweet Choice” appears on the bottom of the front of the box, in italicized blue font. The product name is not surrounded by a cloud, the front of the box contains a vertical design element that divides it into two portions, and the left portion includes the Food Lion logo (black) and store name (black) at the top.

The Safeway store-brand boxes of individual sucralose packets are oriented horizontally, come in 100 and 200-count sizes, have yellow backgrounds, and mostly blue lettering. The product name “Sucralose” appears on the bottom-left of the front of the boxes, in italicized blue font. The name is not surrounded by a cloud. The front of the box contains a white S-shaped Safeway logo that visually divides the front of the box into two portions.

On December 5, 2006, McNeil filed a seven-count complaint against Heartland under federal and state law, seeking relief for trade dress infringement and for trademark infringement of the slogan “Made from Sugar, Tastes Like Sugar.” On December 14, 2006, McNeil filed a motion for preliminary injunction. On May 21, 2007, the District Court denied the motion with respect to all of the allegedly infringing packages in a written memorandum and order. McNeil only appealed the trade dress infringement issue.

On appeal, the Third Circuit found that the District Court correctly found that Heartland’s Food Lion and Safeway store-brand boxes did not infringe the plaintiff’s trade dress packaging. However, the District Court erred in finding that Heartland’s Ahold products did not infringe the plaintiff’s trade dress packaging.

The Lanham Act, 15 U.S.C. §1125(a), establishes a cause of action for trade dress infringement. TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 28-29 (2001). Trade dress refers to the “design or packaging or a product which serves to identify the product’s source.” Shire U.S. Inc. v. Barr Labs. Inc., 329 F.3d 348, 353 (3d. Cir. 2003). It is “the total image or overall appearance of a product, and includes, but is not limited to, such features as size, shape, color or color combinations, texture, graphics, or even a particular sales technique.” Rose Art Indus., Inc. v. Swanson, 235 F.3d 165, 171 (3d Cir. 2000). To establish trade dress infringement under the Lanham Act, a plaintiff must prove that (1) the allegedly infringing design is non-functional; (2) the design is inherently distinctive or has acquired secondary meaning; and (3) consumers are likely to confuse the source of the plaintiff’s product with that of the defendant’s product. Shire US, 329 F.3d at 353.

The likelihood of confusion between two trade dresses is a question of fact. A & H Sportswear, Inc. v. Victoria’s Secret Stores, Inc., 166 F.3d 191, 194 (3d Cir. 1999). The Third Circuit applies and weighs the following 10 “Lapp” factors to determine whether there is a likelihood of confusion: (1) the degree of similarity between the plaintiff’s trade dress and the allegedly infringing trade dress; (2) the strength of the plaintiff’s trade dress; (3) the price of the goods and other factors indicative of the care and attention expected of consumers when making a purchase; (4) the length of time the defendant has used its trade dress without evidence of actual confusion arising; (5) the intent of the defendant in adopting its trade dress; (6) the evidence of actual confusion; (7) whether the goods, though not competing, are marketed through the same channels of trade and advertised through the same media; (8) the extent to which the targets of the parties’ sales efforts are the same; (9) the relationship of the goods in the minds of consumers because of the similarity of function; and (10) other facts suggesting that the consuming public might expect the plaintiff to manufacture a product in the defendant’s market, or that the plaintiff is likely to expand into that market. Interpace Corp. v. Lapp, Inc., 721 F.2d 460 (3d Cir. 1983); Freedom Card, Inc. v. JP Morgan Chase & Co., 432 F.3d 463, 471 (3d Cir. 2005).

On appeal were the District Court's findings in relation to the first, third, and sixth Lapp factors.

First Lapp Factor: Degree of Similarity Between McNeil’s Trade Dress and Heartland’s Various Trade Dresses

As noted again by the Third Circuit, “the single most important factor in determining likelihood of confusion is trade dress similarity.” A & H Sportswear, 237 F.3d at 216. Here, the Third Circuit did not find clear error in the District Court’s finding that the defendant Heartland’s Food Lion and Safeway products are not substantially similar enough to weigh the first Lapp factor in favor of McNeil. The court reasoned that “forceful and distinctive design features should be weighed more heavily because they are more likely to impact the overall impression.” The Third Circuit stated that the most important difference is that the trade name “Splenda” is not present on the Food Lion and Safeway packages, while the Food Lion and Safeway logos are present on the Food Lion and Safeway packages and are well-known to consumers.

Furthermore, the store designs are represented prominently on their respective packages. For example, in the Food Lion package, a vertical design element runs through the front of the package, visually dividing it between a dark yellow bar and a light yellow canvas, in a way found on other Food Lion store-based products. These features distinguish the Food Lion package from any feature present on the Splenda® package. Moreover, the Food Lion package contains the product name “Sweet Choice” instead of “Splenda” and the product name is not surrounded by a white cloud. The Safeway packages contain an “S”-shaped element that divides the entire front of the box, and its presence on other Safeway store-brand products renders it well-known as a store-specific signature. Also, the Safeway packages contain the name “Sucralose” instead of “Splenda,” the product name is not surrounded by a white cloud, and the circular element with the slogan “Made From Sugar, Tastes Like Sugar” is missing.

However, the Ahold products are substantially similar enough to McNeil’s trade dress to weigh the first factor in favor of McNeil with respect to the Ahold products. The store name and logo are not displayed prominently on the Ahold packaging. In this sense, the Food Lion and Safeway packages are much closer to the black and white diagonally-striped packages which prominently displayed the logo “Venture” in Conopco, Inc. v. May Department Stores Co., 46 F.3d 1556 (Fed. Cir. 1994) (in which the Federal Circuit held that the packages did not infringe a competitor’s trade dress) because a store-specific signature is prominently displayed on them. Second, the Ahold product name “Sweetener” is placed at the top of the front of the packaging, just like “Splenda,” rather than at the bottom.

McNeil further argued that the yellow packaging used by all of the allegedly infringing products weighed the first Lapp factor in favor of infringement for all of the allegedly infringing products. However, the District Court considered the yellow packaging in its analysis of the first Lapp factor, and correctly concluded that the yellow packaging alone did not outweigh the overall different impressions of the packages. The Third circuit further reasoned that just because a consumer sees yellow packaging in the sugar aisle does not mean that she believes McNeil or Splenda® to be the source, especially because consumers are generally aware of the use of pink and blue by manufacturers other than those of Sweet N’ Low and Equal, respectively.

Third Lapp Factor: Degree of Consumer Care

McNeil argued that the District Court erred in attributing a heightened level of care to consumers of no-calorie sweeteners. “Where the buyer class consistes of both professional buyers and consumers, the standard of care to be exercised by the reasonably prudent purchaser will be equal to that of the least sophisticated consumer.” Versa Products Co. v. Bifold Co., 50 F.3d 189, 204-05 (3d Cir. 1995). According to McNeil, since (1) the products at issue cost on average between $4.00 and $5.00, and (2) the least sophisticated consumer in the buying class is not buying sucralose for health reasons and thus is not likely to exercise heightened care and attention, the District Court should have weighed this factor in favor of McNeil. However, the Third Circuit held that the District Court did not err in defining the consumer class as consisting mostly of people who buy sucralose to improve their health. The District Court relied on evidence that the ordinary consumer class in this case consisted more of health-conscious people than non-health-conscious people. The reasonably prudent consumer in this case exercises some heightened care and attention when buying sucralose because her health considerations typically override the product's low cost.

Sixth Lapp Factor: Evidence of Actual Confusion

McNeil argued that the District Court erred in holding that McNeil failed to produce any evidence of actual consumer confusion because McNeil produced testimony of Ms. Grossman about her actual confusion in purchasing Splenda®. However, the District Court considered Ms. Grossman’s own admissions, including that she is a speed “surgical strike” shopper, that she is not a comparison shopper, that her yearly household income exceeds $300,000, that she did not look at the prices on the day she made her inadvertent purchase, and that she was not wearing her reading glasses that day, and correctly concluded that Grossman was not representative of the kind of shopper ordinarily purchasing sucralose. Further, McNeil failed to produce any other evidence of actual confusion.

The District Court Clearly Erred in Not Finding a Likelihood of Confusion as to the Packages for Which It Weighed the First Lapp Factor in McNeil’s Favor

While affirming the District Court's decision in relation to Food Lion and Safeway, the Third Circuit found that the District Court committed clear error by not finding a likelihood of confusion regarding the Ahold products because the District Court found the first, second, seventh, eighth, and ninth Lapp factors in favor of McNeil with respect to the Ahold products (and found the third, fourth, and tenth factors in favor of neither party). The District Court did not adequately heed the Third Circuit’s oft-repeated statement that “[t]he single most important factor in determining likelihood of confusion is [degree of] similarity.” The District Court incorrectly reasoned that producers of store-brand products would effectively acquire per se immunity as long as the store brand’s name or logo appears somewhere on the allegedly infringing package, even when the name or logo is tiny. Here, the Ahold products did not prominently display the names of stores on the packaging. As such, the Third Circuit affirmed the District Court’s denial of preliminary injunctive relief as to the Food Lion and Safeway products, but reversed the denial as to the Ahold products. McNeil demonstrated a likelihood of success on the merits for purposes of preliminary injunctive relief with respect to the third element of trade dress infringement, i.e., a likelihood of confusion. The Third circuit remanded the case to the District Court to consider whether McNeil can establish a likelihood of success on the remaining elements of trade dress infringement under the Lanham Act, as well as the remaining factors for preliminary injunctive relief.

On the issue of direct infringement, the Ninth Circuit affirmed that framing infringing content did not constitute direct copyright infringement under 17 U.S.C. § 106 using the "server test." On the issue of contributory infringement, the Ninth Circuit remanded on the issue of contributory infringement to determine if Google knew it was making infringing material available. On the issue of contributory infringement, the Ninth Circuit affirmed that Google was unlikely to be found liable under vicarious infringement, because there was no evidence that Google directly profited from the infringement or that Google had a right to stop it.

Facts

Perfect 10 operates a website that provides subscribers with access to photographic images of nude models. Subscribers to the website are provided with a username and password to gain access to the images on the website. Perfect 10 has also entered into a licensing agreement to provide thumbnail images obtainable by consumer cell phones for a fee.

Google provides an internet search service to locate images. To facilitate its service, Google indexes website images and stores a smaller-size, lower-resolution image of the full-size image (“a thumbnail”) on Google’s server. When a user submits a search query to the Google image database, the thumbnail images of the results are retrieved from the Google server and presented to the user. When a user selects a thumbnail, Google provides HTML code (textual coding instructions) to a user’s computer.

The HTML code instructs the computer to display a new window to the user comprised of two parts: a top part and a bottom part. The HTML instructions for the top part of the screen contain data and links to the Google website and frames the bottom part of the screen. The HTML instructions for the bottom part of the screen refer the user’s browser to the location where the full image is located. The appearance of the two-part window could be construed by the user that Google is responsible for the entire content.

While Google does not index or make searchable images located in the area of Perfect 10’s website designated for subscribers, Google does index and make searchable images published by other websites that are or may be infringing.

Perfect 10 claims that Google infringes on their copyright images in several ways: Directly, by displaying infringing thumbnails and displaying full images framed to users that appear to come from or be endorsed by Google, and indirectly, through secondary infringement via contributory infringement and vicarious infringement by directing users to infringing content.

Preliminary Injunction Standard and Burden
Preliminary Injunctive relief is available when a party shows either “(1) a combination of probable success on the merits and the possibility of irreparable harm; or (2) serious questions are raised and the balance of hardships tips in its favor” The Ninth Circuit held that, to resolve the inquiry regarding “probable success on the merits,” the moving party must not only show its prima facie case, but also “demonstrate it will overcome defenses raised by the non-moving party.” As such, Perfect 10 need to show that, not only was the material infringing, but also that the fair use defense will be overcome.

The “Server Test” for direct copyright infringement
The Ninth Circuit acknowledged that the display of the thumbnails stored on Google servers likely constituted direct infringement. However, to determine whether Perfect 10 would likely succeed in regards to whether the inline linking to the full sized images stored on other servers, the Ninth Circuit affirmed the District court’s use of the “Server Test” to determine whether an online provider violated a copyright holder’s exclusive right to display or distribute. Under the server test, “a computer owner that stores an image as electronic information and serves that electronic information directly to the user is displaying the electronic information in violation of a copyright holder’s exclusive display right,” and “the owner of a computer that does not store and serve the electronic information to a user is not displaying that information, even if such owner in-line links to or frames the electronic information.” As such, a display right is violated when an image (or other copyright material) is directly supplied by a server (i.e. the image file resides on the server), but not when the server provides the location of the image, even if the image will be displayed as though it resided on that server (e.g. HTML code that directs a browser to the location of an image file).

The Ninth Circuit found that the Server Test is derived from the Section 106(5) of the Copyright Act. Section 106(5) provides a display right to display a copy of the material. A copy of the material exists when a tangible form of the material is fixed in a medium of expression. A copy is fixed when it is recorded in a manner that is “sufficiently permanent or stable to permit it be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.” An image file on a computer is a fixed, tangible form, and thus a display of the stored image is a violation of the display right.

While storing a copy of the full sized image on the computer providing the direct display is a violation of the display right, a reference or pointer to such an image file does not violate the display right because it is (1) text, not directly an image, and (2) the text itself does not cause the image to appear (e.g. not only must the user’s computer follow the reference, but the requested image must be provided by the third party server). Thus, the mere in line linking through HTML code to the full size image copy was not an act of direct infringement of the display right.

While acknowledging the possibility of facilitation of infringement such references may allow in the context of “contributory liability issues,” the Ninth Circuit acknowledged that, by adopting the server test and holding that framing full-size infringing images was not direct infringement, it did not preclude a theory of liability based on contributory infringement.

The Ninth Circuit similarly applied this analysis to the display right to apply to the distribution right, reasoning that distribution requires actual dissemination of a copyrighted work. There can be no actual dissemination if the server does not itself distribute the copies. Unlike Napster (where there was dissemination), Google does not satisfy “deemed distribution” because Google merely stores thumbnails of the images, and does not have a collection of the full-size images. Nor are the full size images made available directly through the Google service. While Google provides HTML that directs a user’s computer, Google does not provide the actual mechanism for retrieving the files and does not . As such, there was similarly no infringement for the distribution of the full sized work.

Fair Use Defense
The Ninth Circuit also found that Google was likely to prevail on its fair use defense. The District Court had found no fair use, and distinguished a similar situation occurring in Kelly v. Arriba Soft Corp., 336 F3d 811, 67 USPQ2d 1297 (9th Cir. 2003). In Kelly, a photographer brought a suit against a search engine operator who provided thumbnail versions of the images. The use of thumbnail images was fair use because of its transformative nature and benefit to the public. The primary difference between Kelly and Perfect 10 is that Perfect 10 has a market for the images in its licensing agreement to sell thumbnail images to cell phones. The Ninth Circuit resolved this issue by applying the statutory four factors as follows:

1. The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes. The Ninth Circuit found that the purpose and character of the use was “highly transformative” because it served a different purpose and puts them “in a different context” which “transform[s] them into a new creation” (to help users identify the images they are seeking) and does not supersede the use of the original (users will still be interested in seeing the full image). While Google does derive some commercial benefit (from its advertising software which may include sponsors selling infringing copyright material or other competing interests) and it may impede the market for cell phone users, there was no finding by the district court that the commercial element was significant and thereby unable to properly make a finding that it overcame the substantial transformative nature of the thumbnails. As such, this factor was in favor of Google.
2. The nature of the copyrighted work. The Ninth Circuit found this factor is slightly in favor of Perfect 10, because the right to first publication has already been exercised and the images were not due any lesser or greater extent of protection due to the subject matter.
3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole. Like occurred in Kelly, the Ninth Circuit found that the entire image was being used. However, even though the entire image is used, the Ninth Circuit found the use is reasonable because users need an entire image to identify and determine an image’s usefulness. As such, this factor was also resolved in favor of neither party.
4. The effect of the use upon the potential market for or value of the copyrighted work. The Ninth Circuit found that this factor favors neither party. There was no showing of actual economic impact upon Perfect 10’s ability to sell thumbnail images to cell phone users and thumbnails were not considered a substitute for the full-size images. The court mentioned that the more transformative the nature of the work, the less readily market harm will be inferred. Weighing the significant transformative use and the unproven impact on the original target market, the Ninth Circuit found the fair use defense was likely to apply and reversed the District Court on this issue.

On the issue of vicarious liability, the Ninth Circuit applied the test for vicarious liability set forth by the Supreme Court in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 929-30, 75 USPQ2d 1001 (2005). Under Grokster, vicarious infringement occurs when a person profits from direct infringement while "declining to exercise a right to stop or limit it.” Grokster, 545 U.S. at 930. Thus, there needs to be evidence of control over the direct infringement in as much as the person has “right and ability to supervise the direct infringer.” As applied by the Ninth Circuit, the court found no evidence that Google had a direct financial benefit from the images, nor was Google able to limit or control the websites because Google cannot terminate or block a third party’s ability to host a website. Moreover, Google also lacks the practical ability to even identify (and hence police) third party infringing material. Therefore, the Ninth Circuit agreed with the Ninth Circuit that the preliminary injunction was properly denied on the grounds of vicarious infringement.

On a trip to a golf trade show, Mr. Gillig, the owner of Triple Tee, noticed that Nike's new CPR Woods bore a resemblance to his confidential design which he has submitted to Tom Stites. Later, Mr. Gillig also found similar uses of his confidential design in Nike's Slingshot Irons, and OZ T-100 putter. Thus, Triple Tee brought suit against Tom Stites and Nike for misappropriation of trade secrets due to the new clubs.

During trial, Triple Tee requested that Nike provide information about any patent applications which reflect the design, and Nike indicated that no patent applications included the design. As such, Triple Tee was only able to point to the CPR Woods, Slingshot Irons, and OZ T-100 putter as possibly incorporating confidential aspects of the design shown to Mr. Stites. The District Court determined that Nike's clubs did not include the confidential aspects of the design actually shown by Triple Tee such that the CPR Woods, Slingshot Irons, and OZ T-100 putter were not the product of a theft of trade secrets since they were not adjustable in the same way that the confidential designs showed adjustable clubs. Since there remained no other allegation of trade secret theft, the case was dismissed on summary judgment.

Subsequently, Triple Tee discovered that Nike had filed two patent applications, naming Tom Stites as the inventor, which related to adjustable golf clubs and seemed to reflect the design shown to Mr. Stites. Nike had not produced either patent application during discovery and Triple Tee had not been previously aware of the two patent applications. As such, Triple Tee filed a Motion for Relief of Summary Judgment in order to proceed to trial due to a theft of trade secrets, which were used in the patent applications and which also showed that Nike was possibly planning to use the confidential design in new clubs. The district court denied the Motion since, while the patent applications should have been produced in discovery, the patent applications were not included in the specific trade secret theft allegations brought by Triple Tee, which only related to the CPR Woods, Slingshot Irons, and OZ T-100 putter.

On appeal, the Fifth Circuit reversed. On the issue of the summary judgment, the Fifth Circuit held that Triple Tee had produced enough evidence to sustain a theft of trade secret claim for the CPR Woods, Slingshot Irons, and OZ T-100 putter, but limited the number of clubs to only two. As such, the Fifth Circuit reversed the grant of summary judgment as there remained material facts in dispute.

On the issue of whether the Motion should have been granted, the Fifth Circuit noted that the district court's denial of the Motion was based upon the narrowing of the issues to only the known clubs during discovery: CPR Woods, Slingshot Irons, and OZ T-100 putter after the end of discovery. However, the original complaint related to any theft of trade secrets used by Mr. Stites or Nike, and included the use of the confidential designs in any patent applications or plans for new clubs. As such, had the patent applications been known during discovery, the scope of the trade secret complaint would not have been narrowed to exclude a trade secret theft occurring through the filing of these patent applications. As such, the Fifth Circuit allowed Triple Tee to proceed with its allegation of misappropriation of trade secrets through the filing of the patent applications since such filing represented an unauthorized use of the confidential designs.

In 1997, Lanard Toys sold “The Corps! ATK” toy vehicle, which resembled AM General’s “Humvee”, and General Motors’ “Hummer.” While originally designed by AM General for use by the military under the Humvee name. AM General later created the Hummer as a civilian version of the Humvee. The brands were ultimately transferred to GM. As part of the brand, GM owned a trademark for the distinctive grille design of the Humvee/Hummer.

In a related 1992 dispute regarding a different toy depicting the Humvee, Lanard had agreed to stop using the “Humvee” name on its packaging. After a series of communications between GM and Lanard and AM General and Lanard regarding cessation of production of the newer toys using the trademarked grille design, GM filed suit for trademark infringement, trade dress infringement, dilution and common law trademark infringement regarding the toy vehicle and its use of the trademarked grille design. Lanard sought a declaratory judgment on the right to use the term “Humvee” and the grille design for toys. Both parties moved for summary judgment at the district court level. The district court granted summary judgment for GM.

Likelihood of Confusion
On appeal, the Sixth Circuit held that, to show trademark infringement, plaintiffs must apply the “likelihood of confusion” test, as laid out in 15 U.S.C. §1114, which can be determined by looking at the eight “Frisch factors.” Lanard contested the District Court's summary judgment since these factors were not explicitly analyzed in holding that Lanard's toy infringed the Hummer Nose Design, Trademark No. 1,959,544. The Sixth Circuit court engaged in de novo review, holding that the weight of the factors favored General Motors regarding the likelihood of confusion and affirmed the district court’s ruling of summary judgment for GM, despite the failure to discuss the factors.

The Sixth Circuit reviewed the record in light of the Frisch factors. The eight Frisch factors are “(1) strength of the plaintiff's mark, (2) relatedness of the goods or services, (3) similarity of the marks, (4) evidence of actual confusion, (5) marketing channels used, (6) likely degree of purchaser care, (7) the defendant's intent in selecting its mark, and (8) likelihood of expansion of the product lines.” Gibson Guitar Corp. v. Paul Reed Smith Guitars, LP, 423 F.3d 539, 548, 76 U.S.P.Q. 2d 1372 (6th Cir. 2005) (citing Frisch's Rests., Inc. v. Elby's Big Boy of Steubenville, Inc., 670 F.2d 642, 648, 214 USPQ 15 (6th Cir. 1982), cert. denied, 459 U.S. 916 (1982)).

In reviewing the factors, the Sixth Circuit found that the first factor (“strength of mark”) was in favor of GM since the mark was registered and heavily promoted. The second factor (“relatedness of goods and services,) favored GM since the toy car directly related to actual vehicle. For the third factor (“similarity of the marks”) and the seventh factor (“defendant’s intent in selecting the mark”), the Sixth Circuit found these factors favored GM since Lanard copied the design directly. The sixth factor (“likely degree of purchaser care”) also favored GM since a purchaser of the toy would not necessarily know whether the toy was made by GM or by another, but would make the purchase based on recognition of the trademarked grille.

The remaining factors, (“marketing channels used”, “likelihood of expansion of product lines” and “evidence of actual confusion”) did not favor either party from the evidence of record. As such, the Sixth Circuit found that the balance of the Frisch factors favored GM and upheld the District Court's finding of infringement.

Trade Dress
Trade dress refers to the secondary meaning associated with the design/packaging of a product, enabling one to identify the product’s manufacturer or source. The Sixth Circuit held that GMs' identification of the vehicle’s exterior appearance and styling, as well as specific reference to the grille, hood, windshield, doors and edges sufficiently fulfilled the “discrete elements” requirement for trade dress claims and overcame any issues of vagueness with respect to mention of mere appearance.

Lanard also challenged the non-functionality determination of the district court. Lack of trade dress functionality is a requisite element a plaintiff must show by preponderance of the evidence, to prevail on an infringement claim. Lanard had claimed that the trade dress at issue was functional and thus ineligible for protection. Despite the district court’s error in stating that Lanard had the burden of proving functionality, the Sixth Circuit relied on testimony of a product development executive for AM General, that the Humvee’s appearance was not essential to the use/purpose of the vehicle, and allowed General Motors to prevail on the functionality issue.

Secondary Meaning
Citing application of the seven-factor test to ascertain secondary meaning, from Marketing Displays, Inc. v. TrafFix Devices, Inc., 200F.3d 929, 937 (6th Cir. 2000), the Court affirmed the district court’s summary judgment ruling. Test elements include: 1) direct consumer testimony, 2) consumer surveys, 3) exclusivity, length and manner of use, 4) amount and manner of advertising, 5) amount of sales/number of customers, 6) established place in the market and 7) proof of intentional copying. The Sixth Circuit focused on GMs' use of consumer surveys and proof of Lanard’s intentional copying of the grille design to aid its analysis. Although such surveys should ideally be conducted pre-infringement (not post-infringement as in this case) to show acquired secondary meaning, the Sixth Circuit considered the strength of brand recognition given the elapsed time between the surveys and the alleged infringement. '

These surveys indicated about 96% brand recognition of Hummer and 77% secondary meaning for trade dress. In addition, Lanard failed to present any contrary evidence on any of the seven factors. Thus, Sixth Circuit found that there was evidence that the trade dress of the Humvee had acquired secondary meaning and that the District Court's granting of summary judgment on this issue was proper.

Tillamook County Creamery Association (TCCA) is a long standing dairy cooperative which began using the “Tillamook” mark as early as 1918, and registered the mark in 1921 and 1950. In 1975, a member of TCCA approached TCCA’s General Manager concerning his intention to start a processed meat company to operate under the mark “Tillamook Country Smoker.” The General Manager did not object, and Tillamook Country Smoker (TCS) was born.

From 1976 on, TCS used the “Tillamook Country Smoker” mark with no objection from TCCA. In fact, TCCA offered TCS products for sale in its store and catalogs. TCS attempted to register the “Tillamook Country Smoker” mark but was rejected by the USPTO as “confusingly similar” to TCCA’s mark. However, TCCA itself did not comment on the application though it was notified. In 1995, TCS was successful in registering a combined word and design mark consisting of the words “Tillamook Country Smoker” on a ribbon design. Again, TCCA did not comment.

TCS grew throughout the late 90s, helped by a rebranding and a huge expansion in direct sales to grocery stores and warehouses. Subsequently, TCS again tried to register the “Tillamook Country Smoker” mark; this time the PTO approved, and TCCA lodged its opposition. TCCA also tried to cancel the ribbon mark. The PTO later rejected a “Tillamook Jerky” mark as highly similar to TCCA’s “Tillamook” mark.

In 2005 TCCA submitted a cease-and-desist letter to TCS. TCS then brought suit seeking declaratory judgments 1) declaring TCS the owner of the “Tillamook Country Smoker” and finding it non-infringing; 2) declaring the ribbon mark to be valid; and 3) entitling TCS to the registration of the “Tillamook Country Smoker” mark. TCCA asserted counterclaims 1) seeking an injunction preventing TCS’s use of the name “Tillamook” or any other likely confusing mark and 2) seeking an order declaring that use of “Tillamook Country Smoker,” “Tillamook Jerky,” and “TillamookJerky.com” infringed on TCCA’s registered mark.

Trademark Infringement Claim Fails
The Ninth Circuit affirmed the grant of partial summary judgment to TCS on the use of the “Tillamook Country Smoker” mark. The court found that the limitations period for laches started in 1975, when TCCA first had notice of the possibility of confusion, not 1998 when TCS began to expand into supermarket sales. TCCA had a protectable interest in 1975, and while at that point they may not have operated in identical commercial channels, their similar marks, complementary products, and similar geographic region should have put TCCA on notice of the possibility of confusion.

Presumption in favor of laches defense
Neither party disputed the district court finding that the most analogous causes of action would have had their statutes of limitation run after either 2 or 10 years. Since 25 years had passed since the date on which the court held that TCCA had notice, there was a strong presumption favoring TCS’s laches defense.

Progressive encroachment not found
TCCA claimed that the doctrine of “progressive encroachment” excuses their absence of enforcement for most of TCS’s history. Under this doctrine, a trademark owner need not sue for de minimus infringement but may wait until the junior user moves into direct competition and causing actual market confusions.

The court found that the district court did not abuse its discretion in rejecting TCCA’s progressive encroachment claim. The district court reasonably found that TCS’s use of the “Tillamook Country Smoker” mark had been constant over the entire period, and the rebranding (font, design, and color) did not make the mark more similar to TCCA’s products. Neither did the district court abuse its discretion in finding that TCS’s expansion of supermarket sales represented normal business growth, not progressive encroachment, since the product being sold was still the same, and it was being sold in the same region.

“Good faith” found
Bad faith actions negate a laches defense, but the district court found good faith on the part of TCS. The court emphasized the permission-seeking meeting between TCS and TCCA at the formation of TCS, as well as the fact that TCCA had sold TCS items in its own magazine for years. Both facts were clear evidence of good faith on TCS’s part.

No Injunction Based On “Inevitable Confusion”
A otherwise successful laches defense may be defeated if doing so is in the public interest. However, this is a narrow exception and will only be used when the confusing product is “harmful or otherwise a threat to public safety and well-being.” Since TCCA did not claim that TCS’s products are harmful in any way, the district court was correct in denying TCCA’s claim for injunctive relief based on inevitable confusion. In fact, TCCA is at least partly responsible for any confusion by selling the TCS products in its catalog.

No Invalidation of TCS’s Registered Marks
The court upheld the district court’s finding that TCCA admitted during discovery that TCS’s use of the “Tillamook Country Smoker” and the ribbon mark did not create a likelihood of confusion. In response to a discovery request, TCCA admitted that TCS began to violate its trademark in the “latter part” of the time period between 1995 and 2000. The district court construed this as admitting that there was no infringement prior to 1997, and thus no likelihood of confusion. Since there was no likelihood of confusion, the marks were correctly granted to TCS. Thus, the court upheld the district court’s grant of summary judgment to TCS with respect to the registration claim.

Distributor Mid-State advertised “MQVP parts available” to its customers. Mid-State refused to license the use, continuing to use the service mark, MQVP®, while informing customers that it was not a participant in the program. Defendant brought Lanham Act claims of infringement (15 U.S.C. § 1125(a)(1)(A)) and false advertising (15 U.S.C. § 1125(a)(1)(B)) by Mid-State.

Although MQVP® is a service mark, rather than a trademark, the court, citing Frehling Enters, Inc. v. Int’l Select Group, Inc., 192 F.3d 1330, 1334 n.1 (11th Cir. 1999), stated that a service mark can also be used to describe products as long as it also described some associated services. Further, the court noted there was dispute as to whether MQVP used the mark to refer solely to products as opposed to services. The court also noted that despite defendant’s description and use of the mark which seemingly appeared as a certification mark, the actual registration was for a service mark and thus eligible for such protection. Indeed, defendant’s description of the mark included participants’ compliance with standards and use of the on-line software tracing system. Thus, the court concluded that the use of the mark and the nature of defendant’s services its use protected were disputed issues.

Lastly, Mid-State had argued that a Lanham analysis did not apply since Mid-State’s customers were repair shops, not the likely manufacturer/distributor customers of the defendant. The court did not allow this narrow interpretation, instead noting that the confusion element of Lanham applied to those in positions to influence purchasing or whose confusion presents a risk to sales of the trademark owner. The circuit court held that Mid-State’s unauthorized use of defendant’s mark was for the obvious purpose of confusing and deceiving end users into believing they were buying qualified/complying parts under the MQVP program. The case was remanded to the district court.

LawMode created a package of 576 individual Michigan legal form templates, which were marketed and sold under contract by Lexis Nexis for five years. After terminating the contract, Lexis Nexis offered its own package of 406 individual Michigan legal form templates. LawMode filed a seven-count complaint, all but two of which it voluntarily dismissed. Remaining for the consideration of the court was a copyright claim and a breach of contract claim.

The lower court dismissed the copyright claim, holding that, while LawMode’s selection of forms was copyrightable, the selection was not infringed, and that organization of the forms, look of the screen, and interrelationships of the form variables were not copyrightable.

The Sixth Circuit affirmed, holding that neither of the two copyrightable elements of LawMode’s product – the selection and categorization – were copied by Lexis Nexis. LawMode’s selection of 576 from a universe of over 700 forms is copyrightable even if the underlying forms are not themselves copyrightable. However, the court held that because Lexis Nexis only included 61% (350 of 576) of the same forms as LawMode’s product, this was not substantial verbatim copying and thus not copying under the strict standard set by the Supreme Court in Fiest Publications v. Rural Telephone Service Company. 499 U.S. 340 (indicating that facts can be used in a competing work so long as the competing work does not have the same selection).

Similarly, the court held that the form categories used in the two products were not similar enough to constitute infringement on Lexis Nexis’s part. Where they are similar, the court noted, was in headings and classifications that had previously existed on the state of Michigan website organizing its versions of the forms. Lexis Nexis did not copy any of the non-obvious and non-public use categories that LawMode had created.

Next, the court held that the appearance of dialog boxes used to input information on the forms were not sufficiently original to be copyrightable. The court noted that the reason both product’s dialog boxes look similar was because both relied on the same default setting in the commercial form-creating software use by both companies. Choosing the default setting was too trivial to be original, according to the court.

Likewise, the court held that the interrelation between the variables in the forms was not protectable by copyright. The court held that these relationships were non-creative because the relationships were compelled by the express terms of the underlying state-created forms. For example, permitting the form user to choose either the district or circuit court conveys no information beyond the pre-existing requirement that the form be filed in only one court. Since the interrelationships conveyed no information beyond that on the face of the form, the interrelationships themselves are not eligible for copyright.

While the Fourth Circuit affirmed the dismissal of LawMode’s copyright claims, it reversed the lower court’s dismissal of the contract claims under rule 12(c). The Fourth Circuit found that, assuming LawModes’s factual allegations were true (as rule 12(c) requires), LawMode had stated a claim for breach of contract. Therefore, the court remanded the case for further consideration of the breach of contract claim.

BondPro demonstrated to Siemens a particular method of bonding insulation to U-shaped slots that form part of Siemens’ generators, hoping to license the technique. Siemens, although told by BondPro that this technique was proprietary, later applied for a patent on a similar process. The Patent Office rejected the application and neither Siemens nor BondPro ever put the method into use. Yet BondPro sued for theft of a trade secret. The district court jury found for plaintiff BondPro, but the judge found for the defendant Siemens as a matter of law. BondPro appealed.

After resolving several jurisdictional issues that resulted largely from the sloppiness of the lawyers in this case, the court turned to the issue of if there is a case or controversy. Here, the court explained that to have a case or controversy, BondPro needs to showing that it has something tangible to gain from reinstating the jury’s verdict. Thus the court examined the claimed trade secret to see if it has value.

The court pointed out that in many cases applying for a patent on what was previously a trade secret will destroy that trade secret by making it public knowledge, even if no patent is granted, since the PTO publishes applications after 18 months. However, in this case, Siemens allegedly stole the secret method, and in these circumstances would be liable.

Liable for what? Judge Posner precluded money damages, noting that there was no evidence that the technique had any commercial value whatsoever. Yet he inquired further into injunctive relief. BondPro appeared to have taken the proper steps to protect its trade secret, avoiding invalidation by its own inaction.

It all comes down to, in the court's opinion, what the claimed trade secret is. The general process as described in the first claim of the Siemens application was arguably something known in the trade already, as it had been demonstrated at a year 2000 trade convention. But no further details of its secret process were provided by BondPro at trial. The court noted that usually one expects trade secrets to be highly detailed because general processes will most often be known to experts in the field. Since BondPro has not provided details that would distinguish its “trade secret” from publicly-known methods, the court concluded that there was no trade secret. Since there was no trade secret, BondPro has nothing to gain from reinstating the jury verdict; and thus there was no case or controversy as required by the Constitution. As such, the district court’s JNOV is affirmed.

Specifically, the Sixth Court found that the DMCA did not prevent SCC's creation and distribution of the chip since the chip did not prevent the unauthorized access of the Printer Engine Program resident on the printer. The Sixth Circuit also held that SCC's chip did not prevent the unauthorized of access of the Toner Loading Program since the Toner Loading Program was held to not be copyrightable. Therefore, even though the Toner Loading Program was copied onto SCC's chip and the algorithm designed to protect access to the Toner Loading Program was admittedly broken, the DMCA did not prevent this access. Lexmark Intern'l, Inc. v. Static Control Components, Inc., 387 F.3d 522; 72 U.S.P.Q.2D 1839 (6th Cir. 2004) reh'g denied, 2004 U.S. App. LEXIS 27422 (Dec. 29, 2004), reh'g en banc, denied, 2005 U.S. App. LEXIS 3330 (Feb. 15, 2005).

While the Sixth Circuit's decision merely remanded the case for further proceedings and has not yet been finalized, the Sixth Circuit succinctly pointed out the possible deficiencies in the DMCA as applied to printer products:

1. the work being protected by the technology measure needs to be copyrightable;
2. some technological protection must prevent access to the copyrighted work; and
3. the user alleged to be accessing the work must not be authorized (i.e., license must restrict right to access copyrighted work).