Intellectual Property - Trademark - The World in US Courts: Spring 2018

May.01.2018

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Global Injunction Against Trademark Infringement Upheld Because Both Parties Were US Companies, Confusion in EU Would Be Felt in the US, and Defendant’s EU Trademark Had Not Yet Issued

Commodores Entertainment Corp. v. McClary, US Court of Appeals for the Eighth Circuit, January 9, 2018

The holder of the trademark for “The Commodores” musical group sued McClary, a former member who had been using the name, bringing trademark infringement and related claims under the Lanham Act and common law. After a two-week trial, the district court enjoined McClary from most use of The Commodores trademarks worldwide, explaining that use of the marks outside the US would have a substantial and negative impact on Commodore Enterprises, a US corporation.

As relevant here, the Court of Appeals affirmed the extraterritorial scope of the injunction. It noted that application of the Lanham Act to conduct outside the US can be justified where some combination of the following factors is true: (i) the defendant is a US corporation, (ii) the ”foreign” conduct would have “substantial effects” in the US, and (iii) extraterritorial application would not “interfere with the sovereignty of another nation.” The first factor was undisputed. The second was satisfied because the district court had found that McClary’s conduct, even outside the US, would “likely create confusion both outside and within the US” Additionally, McClary’s manager was based in the US and injuries worldwide would be felt by Commodore Enterprises in the US The Court of Appeals found the third factor also to be satisfied, but the decision was “closer.” McClary had filed for trademark recognition in the EU, and Commodore Enterprises had opposed the application; the opposition had been preliminarily denied, but that decision was not final and no trademark had yet issued. Accordingly, enjoining activity worldwide under the Lanham Act would not infringe on any other nation’s sovereignty.

Specific Personal Jurisdiction over Canadian Vodka Seller Found Where It Had Engaged Marketers, Distributors, and Legal Counsel in Forum to Obtain Required Approvals and Sell Its Vodka Within the State

The Limu Company, LLC v. Quality Craft Spirits Ltd., United States District Court for the Eastern District of Pennsylvania, March 13, 2018

Plaintiff Limu, a Florida company that markets and sells nutritional supplements and energy drinks, filed suit in Pennsylvania against defendant Quality Craft Spirits Ltd., a Canadian corporation with its principal place of business in Canada. Limu alleged infringement of its “BLU FROG” US trademark by Quality Craft, which used the mark on its vodka, as well as unfair competition and unjust enrichment. Quality Craft moved to dismiss the action for lack of specific personal jurisdiction in Pennsylvania.

The District Court recited facts showing the nature of Quality Craft’s contacts with Pennsylvania. The Canadian vodka seller had engaged Liberty Premium Brands (a Delaware company with no offices in Pennsylvania) to market its BLU FROG vodka in the US, and appointed American Spirits Exchange Ltd. (a Pennsylvania company with an office in the State) as its distributor. Quality Craft worked with American Spirits to obtain approval to sell its vodka under the BLU FROG designation in Pennsylvania, but argued that it had no physical presence in the State itself and had not taken any action in Pennsylvania.

The Court held that specific personal jurisdiction may still be asserted even where a party does not physically enter the forum State, noting the “inescapable fact . . . that a substantial amount of business is transacted solely by mail and wire communications across state lines.” The Court noted that, in addition to engaging American Spirits, Quality Craft communicated with American Spirits in Pennsylvania by mail, American Spirits submitted requests on behalf of Quality Craft to the Pennsylvania Liquor Control Board, and Quality Craft hired and communicated with a lawyer in Philadelphia. The Court also found that Quality Craft had begun shipping its vodka into the State and selling it through almost 200 stores in Pennsylvania. Based on these facts, the Court found that Quality Craft had “purposefully directed” its activities at Pennsylvania and had made sufficient contacts with the state to support the Court’s exercise of specific personal jurisdiction. Finally, the Court rejected Quality Craft’s unsupported assertion that it would be significantly burdened by having to defend the action in Pennsylvania, concluding that it failed to present the “compelling case” that the exercise of jurisdiction over a party having the requisite “minimum contacts” with the forum nonetheless would not comport with fair play and substantial justice.

[Editor’s note: Limu Company is also discussed in the Personal Jurisdiction/Forum non Conveniens section of this report.]

Although Weight of Allegedly Infringing Conduct and Effects Was Centered in Germany, Lanham Act Applied Extraterritorially Where Defendants Allegedly Engaged in Intentional Preliminary Misconduct in the US

Updateme Inc. v. Axel Springer SE, US District Court for the Northern District of California, March 7, 2018

The plaintiff Updateme is a news aggregation app that owns two US trademarks using the name “Updateme.” The defendants, four non-US corporations owned by the German company Axel Springer SE, visited Updateme in Northern California to discuss a possible partnership for the distribution of Axel Springer’s news content worldwide. That deal did not materialize, and soon thereafter Axel Springer launched its own app under the name “Upday.” Updateme alleged that this app was based upon proprietary information stolen from its confidential presentations to Axel Springer. After efforts to resolve the dispute failed, Axel Springer sought and received a favorable determination from a German court that its trademark was not infringing. While the case was pending, Updateme filed suit against Axel Springer in California alleging among other things trademark infringement, breach of contract, fraud and unfair competition.

As to the trademark infringement claims, the Court noted that Updateme alleged infringing activities in both the US and Germany and that it was thus required to analyze separately the US domestic and extraterritorial applicability of the Lanham Act. It found sufficient allegations of US marketing to deny Axel Springer’s motion to dismiss US domestic trademark infringement claims. Claims of infringement based on extraterritorial conduct, by contrast, could only proceed if:

(1) the alleged violations . . . create some effect on American foreign commerce; (2) the effect is sufficiently great to present a cognizable injury to the plaintiffs under the Lanham Act; and (3) the interests of and links to American foreign commerce are sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.

In earlier proceedings, the Court found the first two parts of the test to be satisfied. It observed that the third part of the test, balancing the interests of the US and other countries, itself broke into an additional set of subparts, and evaluated them as follows:

  • The degree of conflict with foreign law or policy: The pendency of German trademark infringement litigation was a factor against the extraterritorial application of the Lanham Act.
  • The degree of conflict with foreign law or policy: The pendency of the German trademark infringement litigation counseled against extraterritorial application of the Lanham Act.
  • The nationality or allegiance of the parties and the locations or principal places of business of corporations: Updateme and two of the defendants are US corporations and US domestic infringement is alleged, thus supporting extraterritorial application.
  • The extent to which enforcement by either state can be expected to achieve compliance: The ability of the Court to enforce a judgment had not been disputed, and thus this factor also supported extraterritorial application.
  • The relative significance of effects on the US as compared with those elsewhere: Updateme could not document significant US downloads of its app whereas Axel Springer documented its substantial sales outside the US, suggesting this factor did not favor extraterritorial application.
  • The extent to which there is explicit purpose to harm or affect American commerce: This factor favors extraterritorial application because Updateme alleged purposeful conduct targeting the US plaintiff.
  • The foreseeability of such effect: Again, supported by the intentional nature of Axel Springer’s alleged conduct.
  • The relative importance to the violations charged of conduct within the US as compared with conduct abroad: Describing this factor as analyzing comparatively “the locality of the infringing activity,” the Court again noted that the balance of infringement favored non-US conduct and effects.

The Court noted that no formula specifies how the factors are to be weighed, and ultimately decided “at this time” to allow the Lanham Act claims regarding conduct outside the US to proceed. It based its decision not so much on a weighing of specific factors as on its conclusion that the claim was based on “the allegedly intentional capture of plaintiff’s concept, in violation of promises made in this country during defendants’ trips to Silicon Valley and aimed at expanding defendants’ business in this country and internationally.”

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