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Trademark Litigation: Response to Ars Technica’s Article on Hermes $100 million Default Judgment

Monday, 14 May, 2012 06:00 Written by Aaron Thalwitzer 3 Comments
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A recent article on Ars Technica decried abuses by the judge in a copyright case in which $100 million in damages plus vast injunctive relief was granted to the plaintiff, Hermes, a French high fashion house alleging counterfeiting by way of trademark infringement. The judgment was granted by default because the defendants failed to respond, the author Venkat Balasubramani (with comments from Eric Goldman) is not pleased, not pleased at all with this result.

Mr. Balasubramani  concludes that “there was no evidence of damages whatsoever” and that the judge should have “given[n] the defendants a chance and warn[ed] them before making a decision.” According to Mr. Balasubramani, “ party’s failure to respond to lawsuit documents that were emailed to them—particularly where there’s no proof even that the documents have been received by the defendants—is not the type of scenario where courts typically smack defendants for frustrating the judicial process.”

I disagree.

I won’t claim to know with certainty whether the damages were inflated, but according to Wikipedia, Hermes made $2.401 billion in revenue in 2010, netting $421.7 million. I never heard of them before I read the article, but they’re big, and while $100 million is a big number, it doesn’t seem patently absurd that they might be damaged in $100 million. Under the circumstances, I don’t think it’s “laughably” large. Bear in mind, this is coming from someone with his fair share of legal knowledge, but without an ounce of fashion knowledge.

But the damages number is not really what interests me. It’s the impassioned cries that the judicial system has failed the defendants that get me. In this case, the defendants were apparently served by the appropriate means. They failed to respond. The judge is a neutral party. He or she hears facts, argument, and law, and decides accordingly. When one one party doesn’t make any argument or fails to appear to contest allegations, it is not the judge’s role to advocate on their behalf. To do so would violate the due process rights of the plaintiff. Think about what the author is suggesting here. Rather than scales of justice held by Lady Justice, the author would have the Lady prop up one side — even though that side has failed to stand up for itself. That is not fair and it asks too much of our judges. How can they possibly remain neutral and partisan simultaneously?

Now, I’m not suggesting that the defendants shouldn’t have a chance to explain their failure to respond. We have mechanisms and avenues for that, and if they care to utilize them, they probably will. It will be an uphill battle, but my experience suggests that if they have a good reason, the judgment will be vacated.

Mr. Goldman implies that decisions such as this are not good for anyone, missing the point entirely in his attempt to force this decision into a rant about SOPA. The decision is good for one party and bad for the another. Mr. Goldman then says that “[t]rademark owners look like greedy SOBs making pie-in-the-sky demands using procedural shortcuts that almost certainly negate any possibility of opposition.” Obtaining a default judgment is not a shortcut. Our rights often must be asserted or lost. That’s a default judgment, and there’s nothing wrong with it. As for “pie-in-the-sky”, see above. Should plaintiffs ask for less than they think they’re due?

Mr. Goldman concludes that decisions such as this breed “distrust” in our judicial system, but he would have judges assume the role of defense attorneys, to some degree. I would not trust such a judge.

I Got Sued By a Copyright Troll Part V: Judge Finds IP Address Does Not Identify Person

Monday, 07 May, 2012 06:00 Written by Aaron Thalwitzer 0 Comments
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The BitTorrent lawsuits (otherwise known as copyright troll lawsuits, often involving porn-related plaintiffs), have been smacked down again. I’ve spoken about these cases many times before, including the basics of pre-suit strategy, defenses both procedural and on the merits, and even the discovery shenanigans that go into such cases.

Those trolls just got smacked down. New York Judge Gary Brown spelled it out in a 26-page order dated May 1, 2011. I highly recommend reading the entire order. It’s a great read and provides an outline for other courts to deal with the onslaught of copyright troll litigation. Judge Brown recites some of the factual defenses presented by defendants:

The factual defenses presented are vastly different and highly individualized. One movant, John Doe #16 has stated that he was at work at the time of the alleged download. John Doe #2 states under oath that he closed the subject Earthlink account, which had been compromised by a hacker, before the alleged download. John Doe #29’s counsel represents that his client is an octogenarian with neither the wherewithal nor the interest in using BitTorrent to download Gang Bang Virgins. John Doe #10 represents that downloading a copy of this film is contrary to her “religious, moral,ethical and personal views.” Equally important, she notes that her wireless router was not secured and she lives near a municipal parking lot, thus providing access to countless neighbors and passersby.

(internal citations omitted).

Judge Brown also found that since a single IP address could be used by many different computers, the trolls’ quest for names associated with IP addresses disingenuous:

An IP address provides only the location at which one of any number of computer devices may be deployed, much like a telephone number can be used for any number of telephones . . . Thus, it is no more likely that the subscriber to an IP address carried out a particular computer function here the purported illegal downloading of a single pornographic film than to say an individual who pays the telephone bill made a specific telephone call.

Judge Brown notes that different members of the same household could additionally have performed the alleged downloads, as well as neighbors or passersby (if the wireless routers were unsecured). Citing a case from just a few months ago, the Court chastised counsel for their extortionist practices:

The Court is concerned about the possibility that many of the names and addresses produced in response to Plaintiff’s discovery request will not in fact be those of the individuals who downloaded “My Little Panties # 2.” The risk is not purely speculative; Plaintiff’s counsel estimated that 30% of the names turned over by ISPs are not those of individuals who actually downloaded or shared copyrighted material. Counsel stated that the true offender is often the “teenaged son … or the boyfriend if it’s a lady.” Alternatively, the perpetrator might turn out to be a neighbor in an apartment building that uses shared IP addresses or a dormitory that uses shared wireless networks. This risk of false positives gives rise to the potential for coercing unjust settlements from innocent defendants such as individuals who want to avoid the embarrassment of having their names publicly associated with allegations of illegally downloading “My Little Panties # 2.”
Digital Sin, Inc. v. Does 1-176, — F.R.D. –, 2012 WL 263491, at *3 (S.D.N.Y. Jan. 30, 2012).
Other courts have found that the litigation tactics indicate:
[T]hat the plaintiffs have used the offices of the Court as an inexpensive means to gain the Doe defendants’personal information and coerce payment from them. The plaintiffs seemingly have no interest in actually litigating the cases, but rather simply have used the Court and its subpoena powers to obtain sufficient information to shake down the John Does.” Raw Films, 2011 WL 6182025, at *2.
The Judge sorted through the BS and found that all they trolls really wanted was a name, someone to threaten and extort and from whom they could make a few thousand dollars.

Judge Beach labels mass-BitTorrent lawsuits a “waste of judicial resources” and recommends that other judge do likewise. Lastly, Judge Beach also found that the “swarm” joinder of unnamed defendants violated Rule 20, further wasting judicial resources and improperly avoid paying filing fees.

The Court granted subpoenas to John Doe 1 only in each of the cases and recommended that each John Doe be filed as a separate lawsuit in the future. If the severance recommendation become the rule of law nationwide, we would likely see the end of this type of copyright troll. The filing fees aren’t worth it for them.

USPTO: Entire U.S. Economy Relies on IP

Monday, 30 April, 2012 06:00 Written by Aaron Thalwitzer 0 Comments
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Last month, the USPTO released  a reporttitled “Intellectual Property and the U.S. Economy: Industries in Focus”. Weekend reading material! The report “aims to promote a better understanding of the industries where IP plays a particularly important role.” The report goes on to note that “[t]he entire U.S. economy relies on some form of IP, because virtually every industry either produces or uses it.” So they may have gotten a little carried away with themselves — or did they? I defy you to identify an industry that doesn’t produce or use IP. I can’t think of one, though there are industries which are certainly more IP-intensive. According to the report, “75 industries (from among 313 total) [are] IP-intensive.” These IP-intensive industries directly accounted for 18.8 percent of all employment in the U.S. economy, in 2010.

The breakdown is even more interesting. Off the top of my head, I might have guessed that patents would lead the way. Nope. Trademark-intensive industries provided 22.6 million jobs, patent-intensive industries accounted for 3.9 million jobs, and copyright-intensive industries provided 5.1 million jobs (all data 2010). The report states that these industries accounted from “about $5.06 trillion in value added, or 34.8 percent of U.S. gross domestic product (GDP).” Note the distinction. They’re not saying IP independently added trillions in value; the industries did. But without the protections afforded by IP, would those industries generate so much revenue?

Since many IP-intensive industries are in the manufacturing sector, which has long been on the decline in terms of jobs created (but not productivity), these numbers are actually low, particularly for patent-intensive industries. Another surprise to me was that “[w]hile trademark-intensive industry employment had edged down 2.3 percent . . . copyright-intensive industries [grew] by 46.3 percent between 1990 and 2011.” Another fun fact for you to ponder this Monday morning.

Not surprisingly, IP has been recovering from the Great Recession at a higher rate than non-IP intensive industries. “[B]etween 2010 and 2011, the economic recovery led to a 1.6 percent increase in direct employment in IP-intensive industries, faster than the 1.0 percent growth in non-IP-intensive industries. Growth in copyright-intensive industries (2.4 percent), patent-intensive industries (2.3 percent), and trademark-intensive industries (1.1 percent) all outpaced gains in non-IP-intensive industries.”

Furthermore, these are good jobs, on average 42 percent higher than the average weekly wages in other (non-IP-intensive) private industries. And the discrepancy is growing, having “nearly doubled from 22 percent in 1990 to 42 percent by 2010.” Much of this corresponds to the fact that these workers are better educated than their non-IP counterparts.

Importantly, merchandise exports of IP-intensive industries accounted for 60.7 percent of total U.S. merchandise exports. The U.S. doesn’t manufacture goods, it manufactures innovation (I should be in marketing).

The report sums up the importance of IP. It’s an ideal, and hopefully one which the USPTO and Congress will seek to facilitate:

One important way to help encourage innovation is through the protection of intellectual property (IP). The investments necessary to develop IP are often quite substantial. Firms and individuals, in order to invest the necessary resources, need some assurance that they will benefit from and recover the costs of the creation of intellectual property. IP rights help protect authors, inventors, and merchants of goods and services from having their creations and innovations quickly and easily exploited by other firms or individuals, diminishing the benefits to the inventor of the IP. This reduction in private benefits to be gained from the underlying innovation could, in turn, reduce the incentives to undertake the investments necessary to develop the IP in the first place.

Here, here!

Trademark Cease and Desist Letters: Not the Only Option

Monday, 23 April, 2012 06:00 Written by Aaron Thalwitzer 2 Comments
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I’ve written previously on using the virtues of judo when responding to a cease and desist without going overboard. What about when you’re faced with someone infringing or diluting your trademark? What options are there, other than the C&D?

Understandably, many trademark owners, after the initial rage subsides, will call up their brother’s ex-girlfriend’s cousin who once knew a lawyer in Omaha and have them write a nasty C&D and “see what happens”. That might work. It is certainly cheaper on the front end. Or is it? Whether to send a C&D is not a simple question.

For many product and service providers (i.e. businesses), their brand is their stock in trade. Without trademark protection, their brand may as well be your competitor’s brand. I’m fond of saying that only McDonald’s could serve billions of crappy burgers in every corner of the globe. John Doe’s Burgers could never pull that off. It’s all in the brand. Infringers are taking shortcuts, cheating, and basically capturing your goodwill, as embodied in trademarks, which are worth fighting over. The question is whether a fight is necessary, and if so, how and when should you start the fight.

Most trademark owners know, at a gut level, that an infringer must be stopped, or at least put on notice that they are infringing. Failure to do so causes the trademark to lose its integrity and legal protections. C&Ds are cheap, and especially for small businesses and startups, are a cost-effective way to enforce their rights.

A C&D is not unlike most demand letters. The trademark owner states that she owns certain rights, the recipient is infringing on said rights, such infringement creates certain causes of action for damages and injunctive relief (e.g. trademark infringement, unfair competition, cybersquatting or dilution under federal and state laws); and litigation may ensue if the infringement does not cease.

You are well advised to consider a C&D prior to litigation, for obvious reasons. Litigation is expensive, time-consuming, stressful, and uncertain. On top of that, if you sue without first making demand to cease, the judge may believe you are being a hasty litigant.

However, sending a C&D can have unforeseen consequences. Your competitor could read your letter and decide that rather than bothering with negotiation or waiting to be sued by you, it should take the offensive and sue first. A suit in federal court for declaratory relief — basically a court order stopping you from infringing on the infringer, could ensue.

In a declaratory judgment lawsuit, the alleged infringer would ask the court to “declare” that it is not infringing your rights. They might ask the judge to hold that your trademark is unenforceable. Now you’re on the defensive — though you can, and maybe should, counter sue.

There are advantages to suing first. You can pick the most favorable venue for your case, probably your home turf. This advantage is greater if your adversary is far away, or if they have a smaller war chest with which to litigate. Of course, the other party can move to transfer the case, but then you’re already behind the eight ball.

Additionally, dispensing with the customary C&D and suing on your home turf, while possibly more costly at first, certainly sends a stronger message. Your adversary might be unable or unwilling to defend a lawsuit.

A third option might be to send a different sort of letter. Rather than demanding that the infringer cease and desist and accusing them of infringement, you might simply inquire as to their use of the mark and make clear your intent to resolve the matter amicably. Before sending any letter, be sure that you have higher priority rights to the trademark. Nothing is worse than sending a C&D full of bravado, then learning that your competitor has better rights to the mark. Do your homework. If it turns out that the would-be infringer has better rights, sending out the first C&D could foreclose defenses that the marks do not overlap.

So, next time you spot a potential infringer, think hard before sending a C&D. You have options, so use them.

Aaron Thalwitzer is an attorney with Zies Widerman & Malek practicing civil litigation and intellectual property law in Melbourne, Brevard County, Florida.

Trademark Infringement of Your Name’s URL: Here’s What Can You Do

Monday, 16 April, 2012 08:32 Written by Aaron Thalwitzer 0 Comments
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It’s happened to everyone. You get the itch to register your name’s “.com” URL. Mine’s available (I need to get around to registering it), but my last name isn’t. My last name, thalwitzer.com, is taken by what appears to be a German printing business. There’s nothing I can do from a legal perspective to get that URL, though I could try to buy the name, if I really wanted to. But what if aaronthalwitzer.com was taken by one of those parking sites that offers no content, just ads, pop-ups, porn or all of the above — could you do something then?

Maybe. If you’ve got a relatively unique name (check) have some level of notoriety (well . . .), and the registrant registered the site in bad faith, you’ve got a good shot of getting your rightful site back. That’s because if your name has become well-enough known that people associate you with your name (as opposed to someone else, or no one), then you may have a trademark on your name.  According to the World Intellectual Property Organization (WIPO), the intellectual property arm of the United Nations:

“[Y]ou can register your name as a trademark provided the Trademark Office of your country or the country for which you are seeking protection considers it “distinctive.” As to whether a name is distinctive or not depends on a variety of factors. As a rule of thumb, the more common the name is the less likely it will be considered distinctive as there may be many others with the same name. Likewise, the more unusual the name is the greater the distinctiveness and the greater the likelihood that registration will be granted.

In any event, even if you have been refused registration of your name as a mark either for the reason that it was not considered distinctive or because someone else had already registered it you are not prevented from using your name in the course of your business for ordinary business purposes.”

In a famous case, the actor Morgan Freeman, noted for playing the role of the wizened old guy in every movie ever, sued a company that registered morganfreeman.com. WIPO arbitrated the case and held that based upon his long and illustrious career, Mr. Freeman was recognizable enough. Just as importantly for his case, WIPO held that the registrant, Mighty LLC had registered the URL “in bad faith to divert Internet traffic to a commercial search engine.”

To sum up, to prove cybersquatting infringement in order to have a URL canceled or transferred to its rightful trademark owner, you must prove that:

  1. the domain name is identical or confusingly similar to the trademark;
  2. the registrant has no right or legitimate interest in the domain name; and
  3. the domain name has been registered and is being used in bad faith.

There are no guarantees in litigation, but registering your name as a trademark could only bolster your case before a WIPO arbitrator. Do that, and hire a reputable trademark attorney to do it. That zoomy legal website place may save you a few bucks up front, but can’t give you any advice on your intellectual property issues, leaving you out in the cold, and possibly forcing you to spend thousands or more to protect your trademark. Do it right.

Aaron Thalwitzer is an attorney with Zies Widerman & Malek practicing civil litigation and intellectual property law in Melbourne, Brevard County, Florida.

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THURSDAY, MAY 17, 2012

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