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Legal in Phoenix, liable in Central Islip

Originally posted 2014-12-31 08:20:34. Republished by Blog Post Promoter

Sandra Day O'Connor courthouse in her glory

Sandra Day O’Connor Federal Courthouse, Phoenix, Arizona

UPDATE: All the below is still very relevant, very important and very significant — except as to the final judgment, which has been vacated by consent and replaced with this Agreed Injunction and Order.

My client S&L Vitamins and I just suffered a devastating loss in its Eastern District of New York litigation against Australian Gold (now owned by a holding company called New Sunshine, LLC) after a five-day jury trial on claims by AG for tortious interference with contract and trademark infringement.  I posted both sides’ trial briefs here.  The jury instructions in the Australian Gold case are here.  I will post more documents later.

Before sharing the verdict and recounting some extraordinary highlights of the trial, here’s some background.  I am focusing on the contrast between this outcome and the mirror-image rulings on virtually identical operative facts in the Designer Skin case, discussed below, also involving my client — not because it must be the case that the court in Designer Skin was right and the court in Australian Gold was wrong, but to point out the utter inconsistency of these rulings and the impossibility of doing business in such a legal environment: Read More…

Ninth Circuit. Keywords. Trademarks. Hike!

Originally posted 2011-03-11 17:23:32. Republished by Blog Post Promoter

Here’s a roundup of what other people are saying about the decision in Network Automation, Inc. v. Advanced System Concepts, Inc. involving keyword advertising using other folks’ trademarks (a form of the dreaded “diversion“!) and perhaps implicating secondary liability for trademark infringement:

Well, that’s almost all the roundup you need!  In fact, here’s the “takeaway” of Eric’s post:

9th Circuit court building with sign

We’ve had surprisingly few appellate decisions involving keyword advertising generally, and almost none involving trademark owners’ lawsuits against keyword advertisers (as opposed to suing keyword sellers like search engines). On that basis alone, this ruling is important. The case is also remarkable because the opinion, written by highly regarded Judge Wardlaw, gets so many things right.
Perhaps that sounds like damning with faint praise, but the reality is that the Ninth Circuit’s Internet trademark law has become horribly tortured due to deeply flawed opinions like the 1999 Brookfield case. This opinion deftly cuts through the accumulated doctrinal cruft and lays a nice foundation for future Internet trademark jurisprudence.
The only sour note is that the opinion makes some unnecessary and empirically shaky “presumptions”–exactly the kind of unfortunate appellate court fact-finding that got the Ninth Circuit into trouble into the first place. Still, given how this opinion could have turned out, I still give this opinion very high marks.
Yeah, Eric is great on that “presumption” stuff — and how badly judges wing them when it comes to trademark.  And Rebecca?

Read More…

Aw, shucks

We already covered the Designer Skin v. S&L Vitamins summary judgment decision, and linked to commentators Greg Beck, Bill Patry, Rebecca Tushnet, Eric Goldman and Jason Lee Miller.

But it’s positively nerve-wracking reading the commentary of someone like Evan Brown! 😉

Diversion, yes, but no

Some people have all the luck in the Eastern District of New York.  Whereas me — I think I’ve got it coming to me right down the middle, and then it seems to get, I don’t know — diverted from me!

So some lawyers get assigned judges in the Eastern District of New York whose ideas about trademark law and, well, the Federal Rules of Evidence — and, actually, the Federal Rules of Civil Procedure have, well, um . . . okay, I won’t say.  But in their courtrooms this is the kind of thing happens to “unauthorized resellers,” regardless of the actual “law” stuff.

RDC BIG BEARDI know, regular readers are sick of hearing about the S&L case, but I’m just framing the story here, okay?  Stick with me.

And then there are other judges in that same court who actually not only get it, but really, really, really get it:  There’s no such thing as “diversion” of authentic, untainted merchandise by “unauthorized” resale on the Internet.  Whether or not the manufacuter of a product thinks you need a whole two years of community college or that certificate from beauty school to slather on hair goop or tanning sludge, that preference does not “run with” the over-hyped blech they sell.

No, go THIS store!

No, go THIS store!

So — still setting the stage here, stay with me! — Judge Leonard Wexler, in 2007, went this far to make that point, as reported here exactly two year agos from tomorrow:

L’Oréal maintains that to keep the value, integrity and status of the products, they are supposed to be sold only by company-trained professionals in fashionable salons. Matrix alone “has been the number one professional hair brand on the market, with an estimated 16 percent market share,” L’Oréal said in court papers.

Quality King and Pro’s Choice, however, were obtaining the products in violation of the injunction by buying them, or, as it is called, diverting them, from middlemen and reselling them to nonqualified dealers, L’Oréal contended.

In his opinion, Wexler declined to enforce the old injunction, in effect, throwing out L’Oréal’s case against the two companies.

The judge said that if L’Oréal wanted seriously “to stop diversion of Matrix products,” it could terminate those of its distributors who are the sources of the diverted products.

He actually declined to enforce the old injunction, did Judge Wexler, because it would have actually been, well, wrong to!  Because of the law stuff.

Isn’t that enough mazal for Quality King?  Can’t some other lawyers in other courtrooms in that District have some of that good fortune?

No!  Evidently, on appeal of the earlier decision, the Second Circuit affirmed his vacatur (cancellation) of the injunction going forward, but remanded for further determination of whether the injunction should be not only — not “only”! — vacated, but also “terminated,” i.e., retroactively time-traveled into non-ever-existence.

So once more comes Matrix, the plaintiff, and with them this time big guns from the collossal Weil Gotshal, a real New York law firm this time.  So, was it a good idea to spend a good 50% more on fees (not to mention their markup on donuts!) to make the same arguments? Read More…

The Ninth Circuit Comes Through

It rejects the stupid and unconstitutional argument that “commercial use” under the Lanham Act’s dilution provisions can be found where there is simply “diversion.”

“Diversion”: Threat or menace?

No, go THIS store!

No, go THIS store!

We have written before (as have some judges) about the dubious concept of “diversion,” usually used to rationalize the equally dubious concept of “initial interest confusion,” as well as in cases where claims for tortious interference with contract have been used as a way to protect distribution networks from Internet-based competition. Regarding the former, we’ve argued as follows:

Professor McCarthy, whose views on the topic were relied on in early initial interest infringement cases, is (not surprisingly) aware of this issue. He acknowledges that his original metaphor—a misleading sign on the highway that beckons a driver to an Exxon station, only to deliver the driver, after turning off the main road, to a “Brand X” pump— has been criticized as inapplicable to the Internet context. Consider the metatag case Bihari v. Gross as follows:

Use of the highway billboard metaphor is not the best analogy to a metatag on the Internet. The harm caused by a misleading sign on the highway is difficult to correct. In contrast, on the information superhighway, resuming one’s search for the correct website is relatively simple. With one click of the mouse and a few seconds delay, a viewer can return to the search engine’s results and resume searching for the original website.

McCarthy’s response is that “this is a difference of degree, not of kind,” because of the “unearned advantage” being gained by the one misusing the trademark to get unearned attention in the first place. McCarthy’s point may be a nice one standing alone in a trademark infringement context. But in a broadband trademark dilution world, it proves too much and has given trademark owners too powerful of a weapon to silence dissent or unwished attention. By and large, the main engine of trademark enforcement on the Internet is via what Siegrun Kane calls “the Dilution Solution.” It enables owners of “famous” marks to score damages and attorneys’ fees regardless of whether any harm is done to the trademark owner or even the mark itself.

As to the distribution cases, as we wrote in a brief point that was completely ignored a while back by the Central District of California (it just happens to be what’s handy):

As the court said in John Paul Mitchell Systems, in which it rejected a tortious interference claim based on so-called “diversion,” courts across the country “have been suspicious of the claim that disruption of these exclusive distribution arrangements causes any pecuniary injury . . .”, citing H.L. Hayden Co. v. Siemens Medical Sys., Inc., 879 F.2d 1005, 1024 (2d Cir.1989), Graham Webb Int’l Ltd. Partnership v. Emporium Drug Mart, Inc., 916 F.Supp. 909, 918 (E.D.Ark.1995) (“no basis for concluding that [any] lost sales would be greater than the increased revenue resulting from the availability of the product in ordinary retail outlets”), Matrix Essentials, Inc. v. Cosmetic Gallery, Inc., 870 F.Supp. 1237, 1250 (D.N.J.1994) (rejecting “diversion” claims against purchasers from retailers).

So our view over here is that “diversion” is baloney. And the above completely spontaneous BlackBerry Pearl street photograph lays it all out perfectly — the menacing threat, or threatening menace, of DIVERSION: A woman in a sandwich board standing in front of Sacks Fifth Avenue during summer sale week (we did rather well, thank you) trying to entice buyers to a second-floor deep-discount suit emporium a few blocks downtown. Full disclosure requires that we admit that the moment that resulted in the picture actually motivated us to revisit the topic here.

Look at her diverting people! Wrongfully! Confusingly! They think they’re going to Sacks but she’s saying no, come to Fernando’s Suit-A-Rama for a better buy! They hardly know what to do!

Diversion, right? Riiiiiight.

UPDATE:  Further diversions.

Best of 2008: “‘Diversion’: Threat or Menace?” (June)

This was posted on June 25th:
We have written before (as have some judges) about the dubious concept of “diversion,” usually used to rationalize the equally dubious concept of “initial interest confusion,” as well as in cases where claims for tortious interference with contract have been used as a way to protect distribution networks from Internet-based competition. Regarding the former, we’ve argued as follows:

Professor McCarthy, whose views on the topic were relied on in early initial interest infringement cases, is (not surprisingly) aware of this issue. He acknowledges that his original metaphor—a misleading sign on the highway that beckons a driver to an Exxon station, only to deliver the driver, after turning off the main road, to a “Brand X” pump— has been criticized as inapplicable to the Internet context. Consider the metatag case Bihari v. Gross as follows:

Use of the highway billboard metaphor is not the best analogy to a metatag on the Internet. The harm caused by a misleading sign on the highway is difficult to correct. In contrast, on the information superhighway, resuming one’s search for the correct website is relatively simple. With one click of the mouse and a few seconds delay, a viewer can return to the search engine’s results and resume searching for the original website.

McCarthy’s response is that “this is a difference of degree, not of kind,” because of the “unearned advantage” being gained by the one misusing the trademark to get unearned attention in the first place. McCarthy’s point may be a nice one standing alone in a trademark infringement context. But in a broadband trademark dilution world, it proves too much and has given trademark owners too powerful of a weapon to silence dissent or unwished attention. By and large, the main engine of trademark enforcement on the Internet is via what Siegrun Kane calls “the Dilution Solution.” It enables owners of “famous” marks to score damages and attorneys’ fees regardless of whether any harm is done to the trademark owner or even the mark itself.

As to the distribution cases, as we wrote in a brief point that was completely ignored a while back by the Central District of California (it just happens to be what’s handy):

As the court said in John Paul Mitchell Systems, in which it rejected a tortious interference claim based on so-called “diversion,” courts across the country “have been suspicious of the claim that disruption of these exclusive distribution arrangements causes any pecuniary injury . . .”, citing H.L. Hayden Co. v. Siemens Medical Sys., Inc., 879 F.2d 1005, 1024 (2d Cir.1989), Graham Webb Int’l Ltd. Partnership v. Emporium Drug Mart, Inc., 916 F.Supp. 909, 918 (E.D.Ark.1995) (“no basis for concluding that [any] lost sales would be greater than the increased revenue resulting from the availability of the product in ordinary retail outlets”), Matrix Essentials, Inc. v. Cosmetic Gallery, Inc., 870 F.Supp. 1237, 1250 (D.N.J.1994) (rejecting “diversion” claims against purchasers from retailers).

So our view over here is that “diversion” is baloney. And the above completely spontaneous BlackBerry Pearl street photograph lays it all out perfectly — the menacing threat, or threatening menace, of DIVERSION: A woman in a sandwich board standing in front of Sacks Fifth Avenue during summer sale week (we did rather well, thank you) trying to entice buyers to a second-floor deep-discount suit emporium a few blocks downtown. Full disclosure requires that we admit that the moment that resulted in the picture actually motivated us to revisit the topic here.

Look at her diverting people! Wrongfully! Confusingly! They think they’re going to Sacks but she’s saying no, come to Fernando’s Suit-A-Rama for a better buy! They hardly know what to do!

Diversion, right? Riiiiiight.

Comments are closed here but open at the original post.

The second time as farce

On the occasion of the S&L Vitamins v. Australian Gold trial, I reposted what I wrote here six months earlier about the first of these these jointly evil twin litigation matters, conducted in appropriately welcoming environs, in which our client is entwined:

O'Connor federal courthouseYesterday I was here, in the stupidestly-designed courthouse on God’s brutally-baked brown desert earth — the Sandra Day O’Connor Courthouse in sunny Phoenix, Arizona. It is truly a marvel of architectural arrogance: Imagine being so utterly uninterested in anything besides how you’d like your box of Erector Set pieces to look like at the award ceremony that you design a massive building, notionally meant for human habitation, that is actually a gigantic greenhouse that grabs scorching-hot sunbeams from one of the hottest atmospheres on the continent and just plays them across a massive, uncoolable interior atrium.

This monster has an evil twin in my own neighborhood, named after the entirely more prosaic former U.S. Senator and ur-fixer Alfonse D’Amato, in his home turf in Long Island. The “other” U.S. Courthouse for the Eastern District of New York (its better-known and far-better-loved older sibling overlooks the Brooklyn Bridge) is every bit as soulless and unconnected to how people use built space. Like the Arizona torture chamber, this one features cold, ornament-free, angular hard white spaces, a soaring atrium and a complete denial of the human spirit. Both feature vast plazas requiring five minutes of walking from the curb to the front door that, when shown on the architect’s drawings, must have depicted lunchtime building workers gaily eating their lunches, taking in the sun, flirting and strumming guitars — a true communitarian dream in federal jurisprudential space, and far enough from any possible truck bomb to make those shared moments entirely carefree.

But no has ever relaxed in either one of these plazas. The one in Central Islip is too windblown to hang out in almost any weather.  The D’Amato tower truly epitomizes the concept of a white elephant; it is the only building of its scale for what must be 20 miles all around — a largely empty monument to federally funded megalomania. On almost any day the sun beats off the bright white surfaces so intensely that polarized lenses are de rigeur and blinded lawyers quickly scurry across the plaza through the revolving-door entrance and into the heartless, icy lobby.

D'Amato Federal courthouse EDNYBut this same formula truly amounts to a miniature Judicial Conference death valley when applies in sunny Phoenix.  (Read more…)