Unfair Competition
Subscribe to Unfair Competition's Posts

Reverse Confusion Suit Not Ironclad, but SmartSync Lives On

In a split decision, the US Court of Appeals for the Ninth Circuit vacated a district court’s summary judgment and remanded the case for trial in an action brought under the Lanham Act in order to resolve material issues of fact on likelihood of confusion/reverse confusion factors that remain in dispute. Ironhawk Technologies, Inc. v. Dropbox, Inc., Case No. 19-56347 (9th Cir. Apr. 20, 2021) (Smith, J.) (Tashima, J., dissenting)

Ironhawk developed computer software designed to transfer data efficiently in “bandwidth-challenged environments” and has marketed the software since 2004 using the name “SmartSync.” Ironhawk registered the SmartSync mark in 2007. In 2017, Dropbox launched a feature entitled “Smart Sync,” which allowed users to see and access files in their Dropbox cloud storage accounts without taking up space on their hard drive. Ironhawk sued Dropbox for trademark infringement and unfair competition in 2018, alleging that that Smart Sync intentionally infringed upon Ironhawk’s SmartSync trademark and was likely to cause confusion among consumers. The district court granted summary judgment in favor of Dropbox, concluding that “a reasonable trier of fact could not conclude that Dropbox’s use of Smart Sync is likely to cause consumer confusion.”

Ironhawk appealed, focusing primarily on its reverse confusion theory of infringement. Reverse confusion occurs where consumers dealing with the holder of the senior mark (Ironhawk) believe they are dealing with the junior (Dropbox). This occurs when someone who is only aware of the well-known junior (Dropbox) comes into contact with the lesser-known senior (Ironhawk) and incorrectly believes the senior is the same as, or affiliated with, the junior user because of the similarity of the two marks.

The Ninth Circuit first defined the relevant consumer market. This issue revolved around whether the relevant market should be limited to Ironhawk’s only active customer, the US Navy, or whether it should include commercial customers. Dropbox argued that the market should be limited to the Navy and that consequently the relevant consumer would be less likely to be confused as to the source or affiliation of SmartSync. In terms of procurement, it was undisputed that the Navy exercised significant care and effort. However, Ironhawk argued that it previously had a commercial customer, and that it actively markets and pursues business with other commercial businesses. The Court held that because Ironhawk had a previous commercial customer and had made recent attempts to acquire more commercial accounts, a reasonable jury could include the potential commercial customers in the relevant market.

The Ninth Circuit next turned to the “highly factual inquiry” of the eight Sleekcraft factors:

  • Strength of the mark
  • Proximity of the goods
  • Similarity of the marks
  • Evidence of actual confusion
  • Marketing channels used
  • Type of goods and likely level of care exercised by purchaser
  • Defendant’s intent in selecting the mark
  • Likelihood of expansion of the product lines.

For the first three factors, the Ninth Circuit found that a reasonable jury could find that:

  • Dropbox’s mark was commercially strong and would be able to swamp Ironhawk’s reputation.
  • The Smart [...]

    Continue Reading



Colorful Non-Functionality Argument Misses the (Design) Mark

Addressing the functionality of colors in design marks, the US Court of Appeals for the Second Circuit reversed the district court’s entry of judgment for a trademark owner on its unfair competition and trademark claims, ruling that where color is used as an indicator of size or parts matching, it is functional and does not qualify as trade dress. Sulzer Mixpac AG v. A&N Trading Co., Case No. 19-2951 (2d Cir. Feb. 18, 2021) (Pooler, J.)

Sulzer Mixpac and A&N Trading are competitors that manufacture and supply mixing tips, which dentists use to create impressions of teeth for dental procedures. Mixpac obtained trademarks for the colors yellow, teal, blue, pink, purple and brown (collectively, the Candy Colors) as applied to mixing tips. Mixpac filed suit against A&N, claiming unfair competition; common law trademark infringement; and trademark infringement, trademark counterfeiting and false designation of origin under the Lanham Act. A&N countersued, claiming that Mixpac’s use of the Candy Colors on mixing tips was functional and therefore not entitled to trademark protection. The district court concluded that Mixpac’s use of the Candy Colors was non-functional (based in part on the increased cost of adding color to the mixing tips, and noting that other competitors used clear tips), and entered judgment and a permanent injunction in favor of Mixpac. A&N appealed.

The Second Circuit reversed, explaining that the district court erred by failing to apply the Louboutin three-part aesthetic functionality test to Mixpac’s marks. Under the Louboutin test, to determine whether a design feature is non-functional and thus entitled to trademark protection, courts look to whether the design feature (1) is “essential to the use or purpose” of the product, (2) “affects the cost or quality” of the product, and (3) has a significant effect on competition. A&N argued that the mixing tips’ color coding helps users identify useful product characteristics, such as diameter, and that it aids users in selecting the correct tip. Applying the Louboutin test in the first instance and citing trial testimony, the Second Circuit concluded that the colors signify diameter, which assists users when selecting the proper cartridge, as the colors “enable users to quickly match the proper mixing tip with the proper cartridge, and (citing Louboutin) thereby ‘improve[] the operation of the goods.'”

Practice Note: In trade dress cases, be sure to apply the Louboutin three-part aesthetic functionality test. Failure to do so may lead to reversal on appeal. In this case, the Second Circuit noted that “[t]he district court erred because it did not apply this test when it considered only that Mixpac’s use of the Candy Colors adds to manufacturing costs and that other companies use different or no colors.”




Attorney’s Fees Properly Awarded in Unsuccessful Trade Secret Misappropriation and Civil Theft Suit

The US Court of Appeals for the Fifth Circuit affirmed a take-nothing judgment and an attorney’s fees award against plaintiffs in a trade secret misappropriation and civil theft suit under Texas law, finding that the fee award did not need to be segregated to various claims. ATOM Instrument Corp. v. Petroleum Analyzer Co., L.P., Case Nos. 19-29151, -20371 (5th Cir. Aug. 7, 2020) (Southwick, J.). The Court also remanded for an additional award of appellate attorney’s fees.

Olstowski was a consultant for Petroleum Analyzer Co., L.P. (PAC), during which time he developed a krypton-chloride-based excimer lamp to detect sulfur with ultraviolet fluorescence. Although he developed the lamp independently, he used PAC resources to test the technology.  Olstowski and PAC negotiated but failed to agree on licensing. Olstowski founded ATOM Instrument to assist him in the licensing discussions. Subsequently, PAC filed a declaratory judgment action in Texas court alleging that it owned the lamp technology. The state court ordered the claim to arbitration. The arbitration panel declared Olstowski the owner of the technology and enjoined PAC from using it. The state court confirmed the arbitral award, and a Texas appellate court upheld the confirmation order.

PAC thereafter developed a new sulfur-detecting excimer lamp called MultiTek that also used krypton-chloride with UV fluorescence. Olstowski and ATOM filed in state court for contempt of the injunction, but the state court denied the contempt motion as moot because PAC had ceased selling MultiTek.

ATOM filed for bankruptcy the following year. Olstowski and ATOM initiated a district court proceeding against PAC alleging misappropriation of trade secrets, unfair competition and civil theft. After holding a bench trial, the court found that MultiTek did not practice Olstowski’s technology and therefore entered a take-nothing judgment in favor of PAC. The district court also awarded attorney’s fees to PAC under a provision of the Texas Theft Liability Act (TTLA) that awards fees to prevailing parties. Olstowski and ATOM appealed both issues, and PAC sought an award of its appellate attorney’s fees.

As to liability, ATOM argued that the district court erred in finding that the MultiTek lamp did not practice Olstowski’s technology. ATOM characterized the error as a legal one regarding interpretation of the arbitral award, but the Fifth Circuit held that “whether one company used another’s protected technology” is a factual question for which Olstowski and ATOM had failed to carry the burden of proof at trial. ATOM further argued that the district court had ignored the alleged law of the case in deviating from the scope of technology defined in the arbitral award, but the Court again rejected ATOM’s argument because the district court had explicitly stated that the description of Olstowski’s technology in the arbitral award remained in effect.

As to the award of attorney’s fees, ATOM argued that the district court had not appropriately segregated fees related to the TTLA claim from those related to other claims. Applying Texas law, the Fifth Circuit affirmed that the TTLA claim was sufficiently related to the other claims [...]

Continue Reading




Munchkin Is Luv-n This Win

Reversing an award of attorney’s fees, the US Court of Appeals for the Federal Circuit found that a district court abused its discretion in making an exceptional-case determination where patent and trademark infringement claims were reasonable. Munchkin, Inc. v. Luv N-Care, LTD., Admar International, Inc., Case No. 19-1454 (Fed. Cir. June 8, 2020) (Chen, J.).

Munchkin sued LNC for trademark infringement, unfair competition, trade dress infringement and patent infringement based on LNC’s no-spill drinking cups. LNC filed a petition for inter partes review (IPR) with the Patent Trial and Appeal Board (PTAB). While the IPR was pending, Munchkin voluntarily dismissed all of its non-patent claims with prejudice. The PTAB subsequently found Munchkin’s patent was unpatentable. After the PTAB’s finding, Munchkin dismissed its patent infringement claim.

LNC filed a motion for attorney’s fees under 35 U.S.C. § 285 and 15 U.S.C. § 1117(a), arguing that the trademark and trade dress infringement claims were substantively weak and that Munchkin should have been aware of the weakness of the patent’s validity. The district court agreed that the case was exceptional and granted LNC’s motion. Munchkin appealed.

The Patent Act and Lanham Act allow courts to award reasonable attorney’s fees to the prevailing party, but only in exceptional cases. The Federal Circuit reviewed the district court’s award for abuse of discretion under the Ninth Circuit standard for attorney’s fees as set forth in Octane Fitness LLC v. ICON Health & Fitness, Inc. (IP Update, Vol. 17, No. 5). The Supreme Court in Octane Fitness held that an exceptional case is “one that stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.”

The Federal Circuit noted that the district court’s exceptional-case determination rested on issues that were not fully litigated before the court. Addressing the patent infringement claim, the Court first found that the district court’s claim construction ruling favored Munchkin, creating a serious hurdle for LNC’s invalidity challenge. However, to find the case exceptional, the district court dismissed its own Markman construction as merely a non-final interim order. The Court found that was not the right question, and instead, the relevant question was whether Munchkin’s validity position was reasonable—not whether there is a possibility of reconsideration of the claim construction.

LNC argued that Munchkin was unreasonable in maintaining its patent infringement lawsuit once the PTAB instituted the IPR because, based on the statistics, it was more likely than not that the patent would be found invalid. The Federal Circuit disagreed, stating clearly that IPR statistics combined with the merits outcome is not enough. What is required is a “fact-dependent, case-by-case” analysis. The Federal Circuit found nothing unreasonable about Munchkin’s patent infringement claim.

Addressing the trademark claims, the Federal Circuit determined that Munchkin cannot be faulted for litigating a claim it was granted permission to pursue. Since the district court allowed Munchkin to amend its complaint, finding no grounds for prejudice, bad faith [...]

Continue Reading




Chalk One Up to the Knock-Off

Addressing issues of design patent infringement, copyright infringement, trade dress infringement and unfair competition, the US Court of Appeals for the Federal Circuit affirmed a district court’s grant of summary judgment on all claims. Lanard Toys Limited v. Dolgencorp LLC, Ja-Ru, Inc., Toys “R” Us-Delaware, Inc., Case No. 2019-1781 (Fed. Cir. May 14, 2020) (Lourie, J.).

(more…)




Seventh Circuit Slaps Online Marketer with Default Judgment, Permanent Injunction

A unanimous panel of the US Court of Appeals for the Seventh Circuit upheld a default judgment and permanent injunction against an online marketer for trademark infringement, false advertising, dilution, unfair competition under the Lanham Act, and claims under Illinois statutory and common law. Quincy Bioscience, LLC v. Ellishbooks, et al., Case No. 19-1799 (7th Cir. Apr. 24, 2020) (Wood, J.).

(more…)




BLOG EDITORS

STAY CONNECTED

TOPICS

ARCHIVES