If infringement falls in a forest….

Framing the Marshall courthouseCan there be “infringement” of a trademark without confusion? As she is so apt to do, and to do so well, Pamela Chestek asks that question in this post, entitled Infringement Without Confusion?, which is about something completely different from what I thought it was going to be about, because I know that, in New York at least, the answer can be yes. That’s not the question Pamela is asking.   But this is a great opportunity, and given the name of this blog and what I say up in the right-hand-corner there, a good place, to unpack a few things about this thing, and address what I thought she meant before proceeding to what she meant, as well as to what’s going on in the comments to her post.   The … confusion on my part is not, in fact, irrelevant. What was I thinking of when I read the question?  New York’s famous, or perhaps infamous, state-law tort of unfair competition by “wrongful misappropriation,” of course.  To wit: In New York, the “essence of unfair competition . . . is the bad faith misappropriation of  the labors and expenditures of another, likely to cause confusion or to deceive purchasers as to the origin of the goods.” Nabisco, Inc. v. PF Brands, Inc., 50 F. Supp. 2d 188, 212 (S.D.N.Y. 1999). To assert an unfair competition claim, a plaintiff must demonstrate (1) a likelihood of confusion, and (2) the defendant’s bad faith. Kraft Gen. Foods, Inc. v. Allied Old English, Inc., 831 F. Supp. 123, 135 (S.D.N.Y. 1993). Unlike a claim for trademark infringement, proof of secondary meaning ,or, indeed, of a protectable mark at all) is not required. Tri-Star Pictures, Inc. v. Unger, 14 F. Supp. 2d 339, 364 (S.D.N.Y. 1998). Ok, very nice.  But is “infringement without confusion” the same thing as “confusion without secondary meaning”?   Well, how would it be different?  Once you’re dealing with logical dead-ends, after all, they start to look quite similar, and end up in more or less the same place.blivet the devils tuning fork 

After all, the premise of confusion is a baseline of association — in trademark law, we call that secondary meaning, or… a protectable mark.   Same place.   Indeed, pointier heads than that of LIKELIHOOD OF CONFUSION® have long pondered what the heck it means to have a likelihood of confusion without secondary meaning, or without a protectable mark.   As one academic treatment of this odd creature put it,

Some legal theories, like the proverbial vampire, refuse to die. The common law tort of misappropriation is one such legal theory, and the recent Restatement (Third) of Unfair Competition (Restatement) may finally lead to the demise of this outdated cause of action.

Regrettably, the “recent” referred to in that quote was 1993.  The tort, and the illogic, live on, and you can see it in action every time a judge or, in the Second Circuit, a trio of them reaches for it.  It never makes any sense in action; it’s just stuck in there to bridge some gap of logic, not with logic, but with Magical Judicial Filler, and to get to the desired result for the desired party.   That’s the way it goes. Wretched J train station

And now to Pamela’s question.  Let’s see if I’m right that it is, in fact, related — or at least, as we say, not unrelated:

It’s a simple case, but simple doesn’t mean you get to take shortcuts on the legal rationale.

Okay — already you know I’m onto something!  Shh, ok, listen:

At the end of 1998 Ford and ThermoAnalytics entered into a License Agreement for RadTherm software for heat mapping. . . . The agreement provided that “FGTI … shall have ownership of all copyright, trade secret, patent, trademark and other intellectual or industrial property rights therein or associated therewith.” There was also this “Trademark Notice” clause:

All trademarks and trade names identifying FGTI Licensed Software or FGTI or Ford businesses are, and will remain the exclusive property of FGTI and Ford respectively. [ThermoAnalytics] shall not take any action that jeopardizes the Marks, and acquires no rights in the Marks except in the limited use rights specified below. [ThermoAnalytics] shall be limited to using the Marks exclusively to advertise and promote FGTI Licensed Software.

In 2000, ThermoAnalytics released version 5.0 of RadTherm but claimed it was an entirely different work [but] continued to pay royalties to Ford for 13 more years, finally terminating the agreement in March, 2014. ThermoAnalytics . . . called the new software “RadTherm,” even after the lawsuit was filed. ThermoAnalytics had also registered the RADTHERM trademark in 2000.

Ford brought suit against ThermoAnalytics [seeking]  relief . . .  under § 43(a) of the Lanham Act . . .

As Pamela explains, the contract was clear:  Under the contract, Ford owns the RADTHERM trademark. “But it’s after that where things go wrong,” she continues:

From there, the court found infringement (internal citations and quotation marks omitted):

“Here, Defendant terminated the License Agreement on March 1, 2014. Section 11.1 of the Agreement, “Effects of Termination,” states ‘the obligation to pay Royalties to FGTI shall survive until Licensee ceases to market, sell, and support the FGTI Licensed Software, Licensee Licensed Software or Jointly Owned Software.’ However, despite sending its last royalty payment in March of 2014 and being given a written demand to cease use of the Trademark in February of 2014, Defendant continued to use the RADTHERM mark until April of 2015. In fact, during oral argument, Plaintiffs revealed to the Court that, despite ‘officially’ changing the name of the software to TAITHERM, Defendant still uses the original name, RADTHERM, as a reference for its newly branded software on Defendant’s website. It’s even used in the URL. Therefore, Plaintiffs have provided clear and substantial evidence of unauthorized use to establish liability.Defendant has brought no evidence or defense sufficient to raise a genuine issue of material fact as to liability. Accordingly, the Court will grant Plaintiffs’ Motion with regard to this Count.”

It sounds simple enough on its face but the court missed a pretty significant step – Ford did indeed establish unauthorized use, but where was the liability? The only liability under the Lanham Act is for confusion but the court took a shortcut on that. Indeed, “typically, where an ex-licensee continues to use the licensed trademark, the continued use by itself creates a likelihood of confusion under the Lanham Act.” But this isn’t the “typical” case; the case law arose with respect to the franchise model, where the breaching party is an ex-licensee holding over and there is use of the same trademark by other licensees. Yes, in that situation there is absolutely confusion. But this was not that “typical” case, Ford did not have its own RADTHERM software. Instead, for fifteen years the only software distributed under the trademark RADTHERM was ThermoAnalytics’ software. What Ford product, exactly, was ThermoAnalytics sofware supposed to be confused with? There wasn’t any.

Appellate Division, Second DepartmentSo here’s the money graf:

I have no problem finding that, by contract, FGTI was the owner of the RADTHERM trademark and that ThermoAnalytics had to cease using the trademark when the agreement terminated. I also agree with the court’s conclusion that, because by agreement the RADTHERM mark could be used only to advertise and promote FGTI Licensed Software, the use of the mark for a different codebase was a breach of contract. But, I do have a problem with the theory that there was a Lanham Act violation, because there can’t be any confusion. Some may consider it a flaw that the Lanham Act doesn’t provide a claim for ownership per se (I do), but there isn’t one, there are only legal claims for confusion. . . . At the end of the day the contract did what it was supposed to do. Ford is the owner of the copyright and trademark for the RADTHERM software and absent the agreement it wouldn’t have owned either. But what Ford did accomplish with its faux Lanham Act claim was federal jurisdiction. The only claims here were for breach of contract and this case should have been in state court.

Wow!  Are you loving this yet?  Because if you’re not, it gets better!  First, the pseudonymous Lori writes, in the comments, as follows:

“What Ford product, exactly, was ThermoAnalytics sofware supposed to be confused with? There wasn’t any” In the licensing world, that statement sends chills down your spine. “Ford did not have its own RADTHERM software” – yes it did. The Radtherm product WAS Ford’s product, it was produced and distributed by a licensee, exclusively under license. From the licensor’s standpoint – I contracted with a licensee to have a product made under a brand I owned.

Pam’s got a response to that; read it there.  Then comes my friend Bob Cumbow, who writes:

Trademark infringement is not based on confusion between two products, but rather on confusion as to the source, sponsorship, or affiliation of a single product. As I read it, Ford was complaining that TheroAnalytics’ behavior was likely to confuse consumers into thinking that Thero rather than Ford was the source of the RADTHERM product. That sounds like Lanham Act confusion to me.

Pam’s ready for that too, and Bob’s ready for Pam, and her conclusion is this:

The problem for me is characterizing this as a “license” arrangement. There was software, Ford owned it, ThermoAnalytics paid a royalty to Ford on what it sold. There was no express trademark license, just an agreement on who owned the trademark. I don’t disagree with the case law on terminating licensees, I disagree it was the relevant law to apply in this fact pattern.

So at the end of the day is there any similarity to Pam’s question and mine?  Maybe a little bit (uh oh — here comes some Magical Blogger Filler!). Here’s what I’m thinking.  Very conceptual. Hudson County Superior CourtThis wasn’t, as Pam says, a real trademark license, just a flat-footed statement of who supposedly “owns” the trademark.

And what, after all, is at the core of both a real trademark license and real trademark ownership?  Class?

GOODWILL.

And, indeed, there is no recital or other indication of a bona fide concern regarding the administration — i.e., establishment and maintenance of or a threat to — goodwill in either the arrangement described in Pam’s blog post in the New York tort of Unicorn Horn Misappropriation.

  • This is why Pam’s concerns about the outcome described above are legitimate.
  • This is what happens when you don’t have lawyers with genuine understanding of intellectual property doing the corporate work.
  • And, YES, this is what happens when judges are allowed to use Genuine Licensed Radtherm Filler to irradiate, clean out and
    • give judicial life to Trademarks-that-Aren’t
    • remedy Confusion-that-Isn’t, and
    • Turn Boring Old State Contract Claims into Exciting Federal Court Trademark Claims.

And if that’s at all confusing to you, well, that’s confusion enough!

 

 

Ron Coleman

I write this blog.

3 Replies to “If infringement falls in a forest….

  1. “pseudonymous”? If I was going to give myself a pseudonym, I would hope it would be something more creative than “Lori” – nope, that’s my name. Wear it out if you will… (Did you mean, perhaps, mononymous – because I didn’t use a last name? I guess I need to comment on more trademark blogs before I can cultivate a “Madonna” or “Cher” status…)

    I didn’t really have time to engage in a deep debate over the alchemy of brand value last week – but since you bring it up again, I’ll take another stab. No less an authority than McCarthy agrees that “use by a licensee which is outside the scope of the license is both trademark infringement and a breach of contract”. Maybe you need to spend a lot of time trading in abstractions (as lawyers are wont to do) to be comfortable with the idea that parties can contract ownership of trademark rights and designate the “bucket” into which the goodwill will accrue. In this case, the license agreement specified that the trademark belonged to Ford – the license didn’t contain the magic words “and all goodwill appertaining thereto”, but the court determined that the absence of that specific language didn’t negate the intent that was evident in the terms of the agreement. And we know that ThermoAnalytics traded on that goodwill because they continued to use the name RadTherm.

    Pam’s argument seemed to be that the RadTherm product was “the same product” – whether it was produced within the license agreement or produced outside of the license agreement – it was just as “genuine” to the consumer – so that there was nothing that could potentially be confused. But outside of the license agreement, the product is a bootleg, plain and simple. It may be a very good quality bootleg – and the customer may be just as satisfied with the function of what was bought (or in this case licensed) – but it is not “genuine RadTherm software” because genuine RadTherm software only comes under the auspices of Ford. The new consumer might not care that there is no affiliation with Ford – but they presumably care that they are getting RadTherm – otherwise ThermoAnalytics could have just used the TAITherm name and touted it as “new” and better. And since, for the previous two decades, the RadTherm brand had been based on a product that Ford had paid $800,000 to develop, and that ThermoAnalytics continued to pay what we assume are not nominal royalties for the rights to sell, and since we know that by contract, all that goodwill was going into Ford’s bucket – then to me the question of confusion is pretty easy. They used the brand because “[the RadTherm name] is familiar to the OEMs”. Whatever that familiarity meant, whatever secondary meaning there was in the RadTherm name belonged to Ford, and outside of the license, ThermoAnalytics had no right to trade on it. The “delta” of the cost of redeveloping that brand equity in the TAITherm name as opposed to continuing to market as RadTherm – that’s the liability for trademark infringement.

    It can’t be the case that auspices of the licensed relationship have no bearing on confusion as to source. How does formerly licensed differ from unlicensed, from a legal standpoint? Does Rolex not have a trademark claim against the vendor that makes a bootleg watch, even if the consumer knows – or doesn’t care – that the watch isn’t made by Rolex?

    I’m not sure what is required in order to qualify as a “real trademark license” that wasn’t present here. I’m not aware of any trademark license that wouldn’t make a “flat-footed statement of who supposedly ‘owns’ the trademark” – all the trademark licenses that I work with are quite adamant about it, and a trademark license that is vague about ownership isn’t much of a license. In any case, the court at least considered whether this was a “naked” license and determined that it wasn’t – and given that the parties had discussions over the years about reviewing source code, it doesn’t sound like that was the practice. It’s possible that the parties under a long-term licensing relationship might get a bit complacent in the day-to-day mechanics over the course of 15 years.

    So is the objection that it was inappropriate for Ford to raise a false designation of origin claim over a licensee’s continued use of Ford’s trademark outside the scope of the license? That this was a backdoor way to get federal jurisdiction over what should have been just “Boring Old State Contract Claims”? Since it was ThermoAnalytics that registered the mark, I’m not sure that Ford had any choice – but I can see how the most valuable part of the dispute might be over a technical software brand with 20 years of equity behind it. I certainly don’t think that this case didn’t raise issues of likelihood of confusion and that the Lanham Act claims were unwarranted. I’m not entirely comfortable being on the other side of this issue from such luminaries as Pam Chestek and Ron Coleman – but I do have the courage of my convictions on this one (I’ll even use first and last name on the comment, what the heck!) so I’ll go re-read that line in the McCarthy treatise a few times, and maybe Bob Cumbow will once again pop up on my side…

  2. Lori,

    Where we disagree is what relationship the document memorialized. I don’t think there was a trademark license in it. It was a software development and distribution agreement without an express grant of a trademark license and no behavior by Ford, either in the terms of the agreement or its actions, that one would expect to see from a trademark owner. There happened to be a few incidental mentions of “trademark” in the agreement but going only to ownership of “IP,” in my view not evidence of a license. The parties allocated ownership of the trademark as a matter of contract, which fully accomplished Ford’s goals and should have been the end of it. But, if you want to do down a confusion path, then at least do the analysis. The court didn’t, it relied on a legal truism in a fact pattern that was situationallly different from the origin of the truism. You can’t have source confusion when there’s only one source.

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