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U.S. Intellectual Property and New Media Law Update INTANGIBLY YOURS Kremen v. Cohen, (9th Cir. January 3, 2003) FOREIGN PARENT NOT PUNISHED FOR SINS OF ITS CORPORATE CHILDREN Quick Technologies, Inc. v. The Sage Group PLC, 313 F.3d 338; (5th Cir. 2002). DESTRUCTION BY RUMOR Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 942 F. Supp. 209 (2nd Cir. 2002) CRABBY CRAB GRASS The Scotts Company v. Pursell Industries, 2002 U.S. App. LEXIS 26475 (4th Cir. December, 2002) MADRID COMES TO THE UNITED STATES Filing Under the Madrid Protocol INTANGIBLY YOURS Kremen v. Cohen, (9th Cir. January 3, 2003) Here, the Ninth Circuit certified a domain name question to the California Supreme Court. Plaintiff Kremen sued Network Solutions Inc. (NSI) for the fraudulent transfer of property to a third party, the property being the Internet domain name "sex.com". In October 1995, NSI received a letter on Plaintiff's letterhead and putatively signed by Plaintiff's President, which authorized NSI to delete the "sex.com" domain name from its database thereby terminating Plaintiff's registration. The letter was addressed to Stephen Cohen authorizing him to so notify NSI on Plaintiff's behalf. Upon receipt of this letter NSI deleted Plaintiff's registration of "sex.com" and registered it to Sporting House Management Inc., one of Cohen's alter ego corporations. The authorization letter was a forgery concocted by Cohen. NSI refused to terminate Cohen's registration absent a court order and accordingly Plaintiff brought suit against Cohen and NSI seeking injunctive relief and damages. Plaintiff alleged, among other things, that by honoring Cohen's fraudulent instruction of the transfer of "sex.com" registration NSI was liable in tort for conversion and as a bailee. The District Court granted summary judgment in favor of NSI stating that there was no conversion since a domain name is intangible property not merged or identified with a document or other tangible object. The court did find that the transfer letter was a forgery and that the transfer of the domain name was void. The court restored registration of "sex.com" to Plaintiff and rendered a judgment against Cohen in favor of Kremen for $65,000,000. Plaintiff had only limited success in enforcing due to Cohen's fugitive status. On appeal of the judgment in favor of NSI, Plaintiff argued that the District Court erred in concluding there was no cause of action for conversion of the domain name. The parties do not dispute that domain names are a kind of property. The parties disagree about whether domain names are a kind of intangible property that can support a claim of conversion and whether such property must be merged into a document or other writing. This issue arises because traditionally the tort of conversion exclusively protected rights in tangible property. California courts, however, have long extended the tort to certain forms of intangible properties such as: stock, bonds, notes, recorded performance and warehouse receipts. Essentially, the Ninth Circuit asked the California Supreme Court whether, for the purpose of conversion the intangible property must be merged with or be reflected in a document or some tangible form and whether a domain name has merged with a document, namely the DNS database or a portion thereof. A scathing dissent by Judge Kozinski noted that the certification to the California Supreme Court is "justified only when the state Supreme Court has provided no authority of guidance, other courts are in serious disarray and the question cries out for a definitive ruling." He found the law was well settled and the answer obvious. The very quaintness of the question, "couched in language more reminiscent of postilions and POP Service, gives a pretty good clue that the majority is disinteresting legal arcana long since laid to rest." He found that the distinction between tangible and intangible archaic, noting that a number of California cases applied conversion to intangible property without inquiring whether it was merged in a document. In any case he notes that a domain name is in fact merged in a document, namely the NSI.com registry. Judge Kozinski noted that the California Supreme Court has been placed by the certification in the "awkward choice between agreeing to answer a question which really does not deserve its attention and telling us we are out to lunch." As an amusing side note, Judge Kozinski had to sign the certification as presiding judge, as well as being in dissent from his own opinion. This judgment is suggested reading for all those who believe certain courts do not understand the 21st Century. The decision can be viewed at: http://caselaw.lp.findlaw.com/data2/circs/9th/0115899p.pdf FOREIGN PARENT NOT PUNISHED FOR SINS OF ITS CORPORATE CHILDREN Quick Technologies, Inc. v. The Sage Group PLC, 313 F.3d 338; (5th Cir. 2002). In the present case, Plaintiff sued the Defendant's foreign corporation, The Sage Group PLC, and its American subsidiaries for trademark infringement. The case was dismissed against the parent on the grounds of lack of personal jurisdiction but Plaintiff prevailed against the subsidiary. Plaintiff appealed the dismissal of the parent relying on Rule 4(k)(2), Federal Rule of Civil Procedure. This rule provides personal jurisdiction over foreign defendants for claims arising under Federal Law when a defendant has sufficient contact with the United States as a whole to justify the imposition of the United States law (due process under the Fifth Amendment) but without sufficient contact to satisfy the due process concerns of the long-arm statute of any particular state. The Fifth Circuit found for the Defendant noting that all of the following activities were not sufficient under the Fifth Amendment: (1) Filing an opposition which asserted the parent's use of the mark in commerce in the United States, including its U.S. marketing efforts; (2) the parent retaining a U.S. attorney to file the opposition and to negotiate with the defendants; (3) filing of an intent to use application with the USPTO; (4) contacting U.S. companies concerning its international re-branding efforts including one trip to the U.S. by its business development director; (5) maintaining a passive website which provided links to its U.S. subsidiaries but did not have provision for direct sales over the Internet; (6) using of the mark on product advertisements, boxes and brochures used by it U.S. subsidiaries. An issue also arose as to whether the judge's instruction to the jury requiring for an accounting of the subsidiary profit that the infringement was willful, was erroneous. The Fifth Circuit refused to make a bright line test requiring willfulness, indicating that activity which should be considered in an award of profits include (1) defendant's intentions; (2) diversion of sales: (3) adequacy of other remedies;(4) any unreasonable aid by the plaintiff in asserting its rights; (5) public interest in making the misconduct unprofitable; and (6) where the case is a case of palming off. While the Fifth Circuit found that the jury instruction constituted error, an error in jury instruction does not end the analysis because the statute is heavy with equitable considerations. The Court further found that when the evidence as a whole is measured against the only two factors for an award of profits that are arguably applicable, the principles of equity do not weigh in favor of the award of profits. The decision can be viewed at: http://caselaw.lp.findlaw.com/data2/circs/5th/0111197p.pdf DESTRUCTION BY RUMOR Fashion Boutique of Short Hills, Inc. v. Fendi USA, Inc., 942 F. Supp. 209 (2nd Cir. 2002) Fashion Boutique sold Fendi products in an upscale mall in Short Hills, NJ. It was the only freestanding Fendi boutique in the greater New York metropolitan area, until Fendi opened a store on Fifth Avenue in New York City in October 1989. A few months after Fendi opened its Fifth Avenue store, Fashion Boutique experienced a sharp decline in sales and by July 1991 Fashion Boutique closed its retail operation. It maintained in the complaint that the precipitous fall on sales was caused by a corporate policy carried out by Fendi to misrepresent the quality and authenticity of products sold at Fashion Boutique. It argued that Fendi's employees made misrepresentations to some customers at the Fifth Avenue store, those customers relayed the comments to others and the false rumors were thus spread throughout Fashion Boutique's customer base. Fashion Boutique, made its claim under Section 43(a)(1)(B) of the Lanham Act, which prohibits misrepresentation of another person's goods or services in "commercial advertising, or promotion," and violated New York law on product disparagement and slander. After dismissing the evidence as to a number of the activities as hearsay or not disparaging, the District Court judge found that the remaining evidence was insufficient to withstand a motion for summary judgment because it did not fall within the meaning of "commercial advertising or promotion" as set forth in the Lanham Act. The District Court held that the Lanham Act was only violated when a defendant proactively pursues customer contacts and disparages a plaintiff's goods or services. Because each disparaging comment was made only after the customer initiated discussion about Fashion Boutique, the District Court concluded that the communications were reactive. Also, the District Court found that to be commercial advertisement, or promotion the statements must be sufficiently disseminated to the relevant purchasing public and the plaintiff had failed to prove sufficient dissemination. In upholding the District Court the Second Circuit noted that in order to violate the Lanham Act, commercial, advertising or promotion must be part of an organized campaign to penetrate the relevant market. Thus, isolated disparaging statements do not have redress under the Lanham Act. The Second Circuit did not feel a proactive reactive distinction by the lower court was dispositive. Rather it was a question of failure to show broad dissemination. The decision can be viewed at: http://laws.findlaw.com/2nd/009094.html CRABBY CRAB GRASS The Scotts Company v. Pursell Industries, 2002 U.S. App. LEXIS 26475 (4th Cir. December, 2002) Scotts Company sued Defendant, United Industries Corporation, claiming that the packaging of Defendant's Vigoro brand crab grass product conveyed certain false messages to the consumer. In particular, the Defendant's graphic image of a mature crab grass plant on the packaging mislead customers to believe that competitors' product killed mature crab grass, when in fact, the product controlled only pre-emergent or early post emergent crab grass. The District Court granted a preliminary injunction in favor of the Plaintiff. There had been a prior suit in which at settlement Defendant agreed not to use the picture of crab grass as a logo in close proximity to any claim that Vigoro controlled post emergent crab grass. The new packaging shows the crab grass logo but also clearly indicates in large letters that the product is for pre-emergent crab grass control. The District Court granted an injunction to Plaintiff based on at least some evidence of consumer confusion indicating that it was a very close call. The District Court applied a presumption of irreparable injury based on a threshold showing as to the merits of the Lanham Act claim. What the District Court giveth the Fourth Circuit taketh away. The Fourth Circuit refused to take a stand at this time as to whether the irreparable harm is implied in all false advertising laws or only in those of false comparative advertising since it found that Plaintiff had failed to make even a prima face showing of consumer confusion. Since the use of the crab grass picture is not literally false, a plaintiff asserting an implied falsity generally must present evidence of consumer confusion, essentially disparaging Plaintiff's surveys, which used focus group discussions. While the Court made some disparaging remarks with regard to the use of focus groups in such litigation surveys, it did not decide the broader question of whether focus group evidence could not be considered probative on the question of whether the packaging was likely to mislead consumers. The lack of reliability in the particular survey stems from the fact that the moderators of the group channeled the discussion and led the participants into giving the responses favorable to Plaintiff's position. The moderators asked highly leading questions, often ignored responses which were inconsistent with the view that they desired, and typically explored only responses that were consistent with Plaintiff's hypothesis. Accordingly, the Fourth Circuit vacated the injunction and remanded proceedings on Plaintiff's request for a permanent injunction and other relief. The decision can be viewed at: http://laws.findlaw.com/4th/021738p.html MADRID COMES TO THE UNITED STATES Filing Under the Madrid Protocol The United States has signed up to the Madrid Protocol. The Madrid Protocol will give American trademark owners a central location in which they can file their trademark applications throughout most of the world saving them thousands of dollars per application. Trademark owners outside the United States will be able to designate the United States in their Madrid applications or with regard to existing registrations under the Madrid Protocol. Filing under the Madrid Protocol does not give you a right in any country, it simply allows you to file in a number of countries from a single application in your national language. American companies could file in the United States in English for every county which has accepted the Protocol. There is no need for legal representation in any of the designated countries other than the filing country, until and if, there is an official action in a designated country. Thereafter your life is simplified since there is only one registration with a resulting single renewal date. The U.S. Patent Office is currently in the process of formulating both rules and forms, including electronic forms to be used under the Madrid Protocol. The word from the U.S. Patent Office is that rules will be proposed by the end of March for formalization by November, 2003. We are preparing a revision of our book, The Guide to Registering Trademarks, to incorporate these rule changes and forms for issuance prior to November, 2003. Information about the current volume can be seen at ouhttp://www.ipcounselors.com. Should any of our readers have any queries or wish to discuss the implications arising with this, please call us at 212-292-5390 or e-mail bdpc@ipcounselors.com. |
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