FUNCTIONALITY IN TRADE DRESS CASES

By Bert Andia, Member/Manager, Higgins Benjamin, PLLC
            Whether it is used for the appearance of a suite of furniture, or the shape of a soft drink bottle, the legal concept of “trade dress” has been used to protect a wide variety of designs that were otherwise not protectable under traditional notions of trademark or patent law.  While the legal concept of trade dress traditionally referred to the packaging and labeling of a product (see, e.g., Wal-Mart Stores, Inc. v Samara, 529 U.S. 205, 209 (2000)), Trademark Law protects more than a word, term, or name.  Instead, the Lanham Act protects a wide variety of “symbols” and “devices” that identify the source or quality of a product or service.  These non-verbal source identifiers are often grouped together as “trade dress.”  Protection is indefinite in time.
            Trade dress today goes much further than packaging, and includes the overall appearance and impression of a product, including design, size, shape, texture, color, and graphics.  (See, e.g., Mattel, Inc. v. Walking Mountain Productions¸353 F.3d 792, 808 n.13 (9thCir. 2003)).  The Supreme Court has held that “almost anything at all that is capable of carrying meaning” could be used as a “symbol” or “device” to identify the source or quality of a product.  (Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159, 162 (1995) (noting that courts and the Patent Office have protected shape, sound and scent as well as color)).
            In the recent Fourth Circuit case of McAirlaids, Inc. v. Kimberly-Clark Corp., 2014 U.S.App. LEXIS 11945 (4th Cir. Jun 25, 2104), the Court discussed a specific limitation that has been placed on the broad concept of trade dress, i.e., that trade dress cannot be used to protect a “functional” feature.  A functional feature is one that “is essential to the use or purpose of the device or…affects the cost or quality” of the product.  (TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23, 33 (2001)).
            McAirlaids products a material composed of cellulose fiber that is used in a wide variety of absorbent goods.  As the airlaid fiber is manufactured, an embossing pattern becomes imprinted on the material. The embossed design is important to adequately hold the material together, and must fall within certain general size and spacing parameters.  McAirlaids chose a “pixel” pattern for its products – rows of pinpoint-like dots on the material.  McAirlaids registered its pattern as trade dress as follows: the mark is a [three-dimensional] repeating pattern of embossed dots” used in absorbent pads.  The trademark, given registration number 4,104,123, is shown below:
McAirlaids’ Registered Trade Dress
            Kimberly-Clark began manufacturing GoodNites bed mats, an absorbent product manufactured in a different manner from McAirlaids’ pads.  However, because Kimberly-Clark used a similar dot pattern on its absorbent bed mats, McAirlaids initiated a lawsuit alleging trade-dress infringement and unfair competition under the Lanham Act.  The district court bifurcated the issues for trial:  in the first phase, the only question was whether the dot pattern on McAirlaids’ products was functional, and thus not protectable as trade dress.  The district court granted summary judgment to Kimberly-Clark, but the Fourth Circuit found genuine issues of material fact and reversed.
            The legal concept of functionality has been defined by two Supreme Court cases.  In Qualitex Co. v. Jacobson Prods., Co., 514 U.S. 159, 165, functionality was defined as a feature that “is essential to the use or purpose of the article or if it affects the cost or quality of the article.”  Later, in TrafFix, 532 U.S. at 34, functionality was further defined as “the reason the device works” or if it’s exclusive use “would put competitors at a significant non-reputation-related disadvantage.”
            The parties in this case agreed that pressurized bonding points were functional because these areas actually fused the layers of pulp into a textile-like material.  The dispute was whether McAirlaids’ chosen embossing pattern was functional.
            The Significance of Utility Patents to the Question of Functionality.  The Supreme Court emphasized that a “utility patent is strong evidence that the features therein claimed are functional.”  TrafFix, 532 U.S. at 29.  In TrafFix, the central advance of several utility patents was a “dual-spring” design that allowed outdoor signs to remain upright in windy conditions; therefore, the dual spring design was functional, and not “an arbitrary flourish.”  Id. at 34.
            The pixel pattern in McAirlaids was distinguished from TrafFix on two grounds.  First, because McAirlaids had registered its design as trade dress, its registration served as prima facie evidence that the trade dress was valid (and therefore not functional) – and in TrafFix the burden was on the trade dress claimant to prove that its dress was “not functional.”  See 15 U.S.C. § 1125(a)(3).  Thus, the burden should have been place on Kimberly-Clark to show functionality.  Second, McAirlaids’ utility patents covered a process and the resulting material, but made no mention of a particular embossing pattern.   Thus, the pixel pattern is not the “central advance” of any utility patent, and is not the same “strong evidence” of functionality as the patents in TrafFix.  See 532 U.S. at 29.
            The Appropriate Weighing of the Evidence of Functionality.  McAirlaids also argued that summary judgment of functionality was not appropriate because the district court improperly weighed the evidence of record.  The Fourth Circuit agreed with McAirlaids that it had presented sufficient evidence to create a genuine factual issue as to whether their pixel pattern was a purely aesthetic choice among many alternatives.
            The Fourth Circuit, citing to Valu Engineering, Inc. v. Rexnord Corp., 278 F.3d 1268, 1274 (Fed. Cir. 2002) looked at four factors to assess a design element’s functionality.  They are:
(1) The existence of utility patents.  As addressed above, the utility patents disclosed that many designs could be used.  Testimony established that the pixel pattern was chosen for its appearance.
(2) Advertising focusing on utilitarian advantages of the design element.  Some marketing presentations arguably touted the pixel pattern as increasing absorbency.
(3) Availability of functionally equivalent designs.  Both parties’ experts testified that many shapes could be used to fuse the layers together, and that McAirlaids had previously used an embossing design of diagonal lines which had nearly identical performance testing as the pixel pattern.
(4) The effect of the design on manufacturing.Both parties agreed that any embossing design must meet genera size and spacing specifications to successfully bond the layers of material into an absorbent pad.
In light of those factors, the Fourth Circuit determined that sufficient evidence had been presented to raise a genuine issue of material fact; and the issue of functionality should be left for a jury to weigh evidence and to make credibility determinations.
            Protection of design features through “trade dress” can be very powerful because it does not expire.  Registration of such design features as a registered mark can provide important legal benefits.  Manufacturers should consider whether their product has a non-functional feature that could be considered as “trade dress”, and whether they should protect such feature.
            Bert Andia is a registered patent attorney and his practice is focused on litigation of complex business disputes.  If you would like to discuss the availability of patent or trade dress protection or if you are involved in a dispute arising from alleged patent or trade dress infringement, please contact Bert Andia at 336-273-1600 or via email at bandia@greensborolaw.com

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A FEW THOUGHTS ON NATTY GREENE’S TRADEMARK DISPUTE

By Bert Andia, Member/Manager, Higgins Benjamin, PLLC
          In the Greensboro area, there have been numerous news reports about the Notice of Opposition filed by Anheuser Busch LLC, claiming that the registration of “NATTY GREENE’S” will damage Anheuser Busch.  This article attempts to address some of the issues and questions that have arisen since the filing of that opposition.
What is a Notice of Opposition?        The process for obtaining registration of a trademark or service mark is fairly straightforward.  In the initial step, the Trademark Office ensures that the application has met the minimum filing requirements; if so, the application if assigned to a Trademark Examining Attorney.  The Examining Attorney reviews the application for a number of specifics, but is primarily tasked with determining whether there are any marks which conflict with the mark for which registration is sought.  In the case of NATTY GREENE’S, the Examining Attorney “searched the Office’s database of registered and pending marks and has found no conflicting marks that would bar registration” of NATTY GREENE’S.
            The Examining Attorney then approves the mark for publication in the Trademark OfficialGazette, a weekly publication of the United States Patent and Trademark Office.  The purpose of publication in the Official Gazette is to put the public on notice of the potential registration of the proposed mark, and to allow any party who believes it may be damaged by registration of the mark to file a Notice of Opposition.  On June 18, 2014, Anheuser-Busch, LLC filed its Notice of Opposition to the mark NATTY GREENE’S, claiming that registration might damage their marks;  NATTY LIGHT; FATTY NATTY; and NATTY DADDY.
            The process that follows the filing of a Notice of Opposition is an administrative proceeding conducted within the Trademark Office before a board called the Trademark Trial and Appeal Board.  Typically, a case is heard by three Administrative Trademark Judges .In an opposition proceeding, the Board may refuse to register the opposed mark, or may modify the application or registration by limiting the goods or services specified therein.  See 15 U.S.C. § 1068.
What Factors are Considered in an Opposition?        The most common ground for an opposition and the likely basis for the opposition in this case, is an allegation that consumers are likely to be confused between the respective marks of the parties.  The determination involves a consideration of a number of factors, including (1) the relationship of the parties’ goods sold under their respective marks; (2) the channels of distribution of the goods; (3) the methods of advertising and promotion of the parties; (4) the class of purchaser of the goods; and, (5) an analysis of the sound, appearance, and meaning of the marks.  Where there is doubt, the doubt must be resolved against the newcomer and in favor of the prior user.  See, e.g. TBC Corp. v. Holsa Inc., 126 F.3d 1470, 44 U.S.P.Q.2d 1315 (Fed. Cir. 1997);
            When looking at whether the marks are similar in their appearance, sound, meaning, or connotation and commercial impression, the similarity in any one of those elements may be sufficient to find a likelihood of confusion.  In re White Swan Ltd, 8 U.S.P.Q.2d 1534, 1535 (TTAB 1988)(the mark SHAKE SCATTER & GROW is not registrable in light of the registration for SHANK-N-GROW).  Similarity in the first word, prefix, or syllable is significant when evaluating likelihood of confusion.  Presto Prods., Inc. v. Nice-Pak Prods., Inc., 9 U.S.P.Q.2d 1895, 1897 (TTAB 1988)(it is often the first part of a mark which is most likely to be impressed upon the mind of a purchaser and remembered when making purchasing decisions).  Thus, the fact that both marks begin with “NATTY” weighs against the registration for NATTY GREENE’S.
            When looking at the goods that are to be sold under each of the marks, the goods need only be “related in some manner and/or if the circumstances surrounding their marketing [be] such that they could give rise to the mistaken belief that the [goods] emanate from the same source.”  Coach Servs., Inc. v. Triumph Learning LLC, 668 F.3d 1356, 1369, 101 U.S.P.Q.2d 1713 (Fed.Cir. 2012).  The fact that both marks are to related to “beer” and likely would be sold to the same class of purchasers and encountered under similar circumstances are factors that weigh against the registration of NATTY GREENE’S. 
Does it Matter that Natty Greene’s Is The Name of a Historical Figure?      Some people have attempted to argue that because Natty Greene’s trademark is based on a historical figure, i.e. Nathanael Greene, that is cannot be confusing with NATTY LIGHT in which the word “NATTY” is a slang term for “Natural.”
            The answer may best be answered by an analogy that demonstrates that someone cannot use his own name if that name is confusingly similar to a registered trademark.  In the case of E&J Gallo Winery v. Gallo Cattle Co., 12 U.S.P.Q.2d 1657 (E.D.Cal. 1989), aff’d, 955 F.2d 1327, amended by 967 F.2d 1280 (9th Cir. 1990).  Ernest and Julio Gallo sued the Gallo Cattle Company for trademark infringement of, among other things, their trademark GALLO for wine, prepared meat products, and cheese.  The Gallo Cattle Company was operated by Joseph Gallo, a brother of Ernest and Julio Gallo and a person that spent his career in farming.  Joseph started the Gallo Cattle Company and began making cheese under the trademark “Joseph Gallo.”
            The court found that there was substantial evidence of actual consumer confusion.  The court weighed the other factors relevant to “confusion” and determined that Joseph Gallo could not use his own name as a trademark to sell cheese.  The court pointed out that surnames, when used as trademarks, are inherently weak trademarks.  Such marks only become strong after they become well known to the community through extensive use, significant advertising, and public recognition.  The GALLO mark was found to have secondary meaning and to be a strong mark.
            This type of analysis demonstrates that it doesn’t matter who NATTY GREENE’S is named after.  The issue is whether it is confusing to consumers in light of the use of NATTY LIGHT.
 Does it Matter That NATTY GREENE’S is Primarily Local?          Some people have argued that there is not a likelihood of confusion because NATTY GREENE’S is a small brewery specializing in craft beers; therefore, people would not confuse NATTY LIGHT (a mass-produced and mass-marketed beer) with NATTY GREENE’S.
            One of the factors to consider when analyzing ”likelihood of confusion” is the “quality” of the junior user’s product (in this case, NATTY GREENE’S product).  Court’s recognize that a difference in the products’ quality may affect the likelihood of confusion.  When the senior user and the junior user have products that are similar, comparable quality that supports the consumers’ belief that the products emanate from the same source and thus contribute to consumer confusion.  Morningside Group, Ltd. v. Morningside Capital Group, L.L.C., 182 F.3d 133, 142, 51 U.S.P.Q.2d 1183 (2d Cir.1999).  A marked difference in quality, on the other hand, may reduce the likelihood of confusion.
            A related factor in the “likelihood of confusion” analysis examines the sophistication of typical consumers and the level of care they exercise when purchasing the products at issue.  Sports Auth. v. Prime Hospitality Corp., 89 F.3d 955, 965, 39 U.S.P.Q.2d 1511 (2d Cir. 1996).  The courts generally consider that consumers exercise greater care in purchasing expensive products than in purchasing cheap products and purchasers of expensive products are less likely to be confused.  Id. 
            In reviewing these factors regarding quality and “sophistication of consumers,” there is no clear indication that either of these factors will weigh heavily in the ultimate determination.  However, if NATTY GREENE’S can demonstrate that its consumers look for a higher quality product, these factors are potentially in favor of NATTY GREENE’S.
Who will Win?            The last survey reviewed by this author demonstrated that only 5% of oppositions filed eventually go to a hearing.  While much of this case will depend on the quality of the evidence presented, I am fearful that NATTY LIGHT may be able to prove that it has a strong mark, and may be able to provide some survey evidence that confusion is likely.  If they do that, I believe that NATTY GREENE’S will be denied their registration.

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USE OF DESIGN PATENTS IN THE FURNITURE INDUSTRY

By Bert Andia, Member/Manager, Higgins Benjamin, PLLC
            Those in the furniture industry who invest in new designs are in a constant fight to protect those designs from others who would rather spend money on designs after they have proven popular.  Historically, design patents have been one tool used by companies trying to protect their new designs.  The expense is relatively minor for obtaining design patents, and the value can be extremely important in, at a minimum, deterring companies from the potential exposure of infringement.
            This article is designed just to introduce you to the requirements for obtaining a design patent.
            The Patent Laws.        When most people discuss “patents,” they are typically referring to “utility patents.”  A utility patent covers a “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof….”  35 U.S.C. § 101.   A utility patent is considered as protection for the “function” of an item; it is valid for up to twenty (20) years from the date of application subject to certain conditions.

           A design patent can be issued for “any new, original, and ornamental design for an article of manufacture….”  35 U.S.C. § 171(a).  A design patent, therefore, protects the way an item “looks.”  A design patent is valid for up to fourteen (14) years from the date of the patent grant.


            “The language ‘new, original and ornamental design for an article of manufacture’ set forth in 35 U.S.C. 171 has been interpreted by the case law to include at least three kinds of designs: (A) a design for an ornament, impression, print, or picture applied to or embodied in an article of manufacture (surface indicia); (B) a design for the shape or configuration of an article of manufacture; and (C) a combination of the first two categories. Best Lock Corp. v. Ilco Unican Corp., 94 F.3d 1563, 40 USPQ2d 1048 (Fed. Cir. 1996) (Newman, dissenting); Manual of Patent Examining Procedure § 1504.01 (8th ed. 2001 rev. Oct. 2005).
To qualify for patent protection, a design must be inseparable from the article to which it is applied and cannot exist alone merely as a scheme of surface ornamentation. It must be a definite, preconceived thing, capable of reproduction and not merely the chance result of a method.  Manual of Patent Examining Procedure§ 1502 (8th ed. 2001 rev. Oct. 2005).
A broad definition has been given to the phrase “article of manufacture” to include a “sarcophagus monument” (Crier v. Innes, 170 F.324 (2d Cir. 1909)), a “grandstand” (In re Hadden, 20 F.2d at 276 (D.C.Ct. Appeals ), but not a water fountain which was believed to be merely “a fleeting product of nozzle arrangements” (In re Hruby, 373 F.2d 997 (CCPA 1967).

Requirements for a Design Patent.      The Manual of Patent Examining Procedure establishes that “ornamentality, novelty, nonobviousness, enablement, and definiteness” are prerequisites to the grant of a design patent.  Manual of Patent Examining Procedure (8th ed. 2001 rev. Oct. 2005) §1504. 

 
            To be ornamental, a design must present a pleasing aesthetic appearance and must not be dictated solely by functional considerations.  See, e.g., In re Stimpson, 24 F.2d 1012, 1012, 58 App. D.C. 86 (D.C. Cir. 1928) (design of rivet-setting machine not patentable; “There is nothing about the assembled mechanical device which serves to beautify, embellish, or adorn it. …The design in issue may be new and original as to form, but it is not ornamental, inasmuch as it does not please the senses or excite the emotions by its color effects, or by its proportion of form. It is not necessary that the design … should be a work of the fine arts, but it is necessary that the design should be … either embellished or adorned, or distinguished by its grace of symmetry of form.”).
 
               The requirement of “novelty” or “nonobviousness” is determined by a review of the ornamental shape or configuration of the article in which the design is embodied or the surface ornamentation which is applied to or embodied in the design.  Id.  In other words, the Patent Office will search other designs, catalogs, and trade journals to determine whether the applied-for design is “new” and not obvious in light of previous designs.  The claim must be nonobvious when compared with prior art using two tests:  (A) if an ordinary observer purchases an article supposing it to be the other; it is obvious; and (B) if the design appropriates the point of novelty that distinguishes the patented design from other prior art, it is obvious.  Bernhardt, L.L.C. v. Collezione Europa USA, Inc., 386 F.3d 1371, 1373, 72 U.S.P.Q.2d 1901 (Fed. Cir. 2004).
Design Must be Nonfunctional           A design that is dictated by considerations of function is not a proper subject for a design patent.  Further, if the sole points of novelty over prior designs are dictated by functional improvement or alteration, a design is not patentable.
Parts of Articles can be Protected      Section 171 also authorizes a patent claiming the design for a part of an article.  In In re Zahn, the court determined that a design need only be embodied in some article, but did not need to be a design for a complete article.  In Zahn, the design patent was embodied in the shank portion of a drill.  As seen in the figure, below, design patents are available on  just the “table leg” which would protect the use of the table leg with any type of table top.
Conclusion.     If you invest in new designs for furniture, and you are tired of having your new designs copied and sold at lower cost, protecting your new designs with a design patent can prove beneficial.  A later article will address the question of infringement of such patents, but most decisions would prevent an exact knock-off of your design.   A design patent can significantly help in your pursuit of such knock-offs, provide enhanced damages for such infringement, and thereby protect your investment..
If you would like to discuss the availability for design patent protection or a dispute arising from the alleged infringement of a design patent, please contact Bert Andia at (336) 273-1600 or bandia@greensborolaw.com.

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CAN CIGARETTE MANUFACTURERS BE REQUIRED TO REMOVE BRANDING FROM THEIR PACKAGING?

By Peter D. Isakoff, Associate Attorney, Higgins Benjamin, PLLC
On November 21, 2011, the Australian Parliament passed the Tobacco Plain Packaging Act 2011, requiring tobacco products to be sold in plain packaging without any trademarked logos.  Australia’s legislation comes as a result of studies showing that cigarette packaging plays an important role in promoting smoking and encouraging young people to try cigarettes.  This legislation deals an expensive blow to cigarette manufacturers who have a substantial investment in their trademarks and packaging.  Will other countries follow a similar path?

After passage of the Australian legislation, Philip Morris Asia immediately filed a Notice of Arbitration against the Australian government, claiming that Australia’s plain packaging legislation is an indirect expropriation of Philip Morris Asia’s intellectual property and good will.  Philip Morris Asia’s arbitration, filed with the United Nations Commission on International Trade Law, seeks the suspension of the plain packaging law and compensation for the loss of the use of its trademarks.

Since past arbitral tribunals have been unclear as to what exactly constitutes indirect expropriation of trademark rights, Philip Morris Asia’s claim raises an important issue in international investment law: what exactly constitutes indirect expropriation?  Past arbitral tribunals have considered a variety of factors in indirect expropriation cases, including the effect of a state action on foreign investors and the purpose behind the state action.  Here, two factors that merit special consideration as to whether the Tobacco Plain Packing Act 2011 constitutes indirect expropriation are: i) whether the law substantially deprives Philip Morris Asia of the economic use and enjoyment of its intellectual property and good will; and (ii) whether the law was reasonably predictable to Philip Morris Asia as a foreign investor.

First, since Philip Morris Asia can still sell tobacco products in Australia, it may have to prove that it has been completely deprived of its profit-making ability.  Philip Morris Asia’s strongest argument for indirect expropriation under this factor would be that its sales in Australia under the new legislation will fall below the point of any profitability.  Philip Morris Asia has offered this argument in its preliminary Notice of Claim.  The success of this claim would depend on expert analysis of the cigarette market in Australia regarding the extent to which trademarks and branding impact tobacco sales.

As to the second factor, Philip Morris Asia would have to prove that Australia’s legislation was not predicable to foreign investors.  Although Australia is the first country to implement plain packaging legislation, it can argue that this concept has a long-standing background.  The Toxic Substances Board of New Zealand’s Health Department first recommended plain packaging for cigarettes in 1989.  Additionally, a Canadian parliamentary committee recommended its legislature pass plain packaging legislation in 1994.  In 2010, the European Commission proposed a revision to Directive 2001/37/EC that would include plain packaging requirements, and in recent years similar proposals have occurred in France, Turkey, and the United Kingdom.

Philip Morris Asia’s strongest argument is that when it initially entered the Australian market, plain packaging legislation was not reasonably predictable, even if the likelihood of such regulation later became apparent.  Philip Morris Asia could also argue that, because plain packaging legislation was debated for several decades without implementation, it expected that countries would not enact such regulations.

The pending arbitration case also has implications for Bilateral Investment Treaties in general.  In April 2011, Australia announced in a Trade Policy Statement that it will no longer pursue investor-state dispute resolution clauses in international treaties.  In its Trade Policy Statement, Australia openly alluded to Philip Morris Asia’s arbitration case as a catalyst for this policy reform when it stated “[t]he Government has not and will not accept [investor-state dispute resolution] provisions that limit its capacity to put health warnings or plain packaging requirements on tobacco products.”

Pending the outcome of Philip Morris Asia’s arbitration case, other nations could follow Australia’s lead for future Bilateral Investment Treaties.  Consequently, Philip Morris Asia’s arbitration case will be influential not only in defining when indirect expropriation occurs, but also in shaping the future of Bilateral Investment Treaties as a mechanism for international business dispute resolution.

As of publication of this blog post, a decision has not yet been rendered in the above-referenced arbitration case. 


This blog post is based on an article by Peter Isakoff published in Volume 3, Issue 2 of The Global Business Law Review (Peter D. Isakoff, Defining the Scope of Indirect Expropriation for International Investments, 3 Global Bus. L. Rev. 189 (2013)).  The full article can be found at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2394980.

If you would like to discuss a dispute arising in the context of business litigation, please contact Peter Isakoff at (336) 273-1600 or pisakoff@greensborolaw.com.

 

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Trade Secrets Misappropriation Claims Against Non-Employees Survive Motion to Dismiss

By:  John Bloss, Member, Higgins Benjamin, PLLC

The North Carolina Business Court continues to be a battleground for disputes involving alleged misappropriations of trade secrets.  These lawsuits typically target disloyal former employees, but in a recent opinion, the Business Court allowed claims against non-employee defendants to move forward.

The plaintiff in Koch Measurement Devices, Inc. v. Armke, 2013 NCBC 48 (Oct. 14, 2013), is a wholesaler of high-end “beer growlers”—collectible glass jugs typically used to transport draft beer out of craft breweries. Koch sued its former web designer and web host, Michael Walsak, and Tote Glass, Inc., a company in which Walsak held an interest, alleging that Walsak and Tote had conspired with Koch’s former (and now-deceased) President to divert Koch’s assets, business opportunities, and trade secrets to Tote.  In particular, Koch’s complaint alleged that Walsak and Tote misappropriated confidential information including Koch’s customer lists, the ordering habits and history of Koch’s customers, and Koch’s pricing and inventory management strategies; diverted Koch’s inventory to Tote; imported growlers from Koch’s German supplier; used Koch’s glass decorator; used the same pricing schedule as Koch; stole Koch’s largest client; and removed Koch’s website from the web.

Business Court Chief Judge Jolly first ruled that the absence of any former employee of Koch as a defendant did not prevent Koch from maintaining the action, since Koch made “sufficient allegations . . . concerning the coordinated efforts of [Koch’s former President], Walsak, and Tote to, in essence, steal Koch’s business to allow this action to continue without the presence of [the former President].”  Judge Jolly then evaluated each of the causes of action asserted by Koch—misappropriation of trade secrets, unfair and deceptive trade practices, constructive trust, unjust enrichment, conversion, breach of contract, and civil conspiracy—and determined that each stated a claim for which relief could be granted.  The Court held that Koch had identified its allegedly misappropriated trade secrets with sufficient specificity, distinguishing Washburn v. Yadkin Valley Bank & Trust Co., 190 N.C. App. 315 (2008), in which the Court of Appeals upheld dismissal of a complaint that generally described the trade secret at issue at “business methods; clients, their specific requirements and needs and other confidential information pertaining to Yadkin’s business.”

If you would like to discuss a trade-secret misappropriation issue contact John Bloss at (336) 273-1600 or jbloss@greensborolaw.com.
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But I Wanted that Domain Name!!

By:  Bert Andia, Member, Higgins Benjamin, PLLC

Choosing and registering a correct domain name is an important part of any business
enterprise, and you should endeavor to pick a domain that cannot be disputed. This article uses the case of Disney Enterprises, Inc. v. McSherry, 2003 NAFDD LEXIS 11339 (June 17, 2003) to illustrate the domain dispute process.

Janice lived in North Carolina, but still owned a beautiful four-bedroom home in
Orlando, Florida in close proximity to the Walt Disney World resort and theme park. Janice
decided to keep her home, but rent it to vacationers who were looking to spend time in Orlando
and, probably, at Disney’s theme park. She began renting her own home, as well as the homes of others. Eventually, she was renting 55 homes in the Orlando, Florida area and started a business named Florida Vacation Homes, Inc. She registered the domain name www.disneyvacationvillas.com thinking that travelers looking for a single family house in close proximity to Disney® might be attracted to her website.

Janice operated her business for three (3) years – and then she got a certified letter from Disney Enterprises, Inc. claiming that she was improperly using the Disney trademark, and demanding that she transfer ownership of her domain name to Disney.

Janice quickly found out about an administrative procedure specifically set up for disputes over domain names. Since it was launched in December 1999, the Uniform Domain Name Dispute Resolution Policy (UDRP) is the mandatory global procedure for resolving disputes over all top-level domains and some country code top-level domains. The UDRP was established in response to individuals registering domain names using well known trademarks (also known as “cybersquatters”), without the trademark owner’s permission, hoping to sell the domain name at an inflated price. Currently, the UDRP procedure is provided by The Asian Domain Name Dispute Resolution Centre (ADNDRC), the National Arbitration Forum (NAF), the World Intellectual Property Organization (WIPO), the Czech Arbitration Court, and the Arbitration Center for Internet Disputes.

Disney filed a UDRP complaint with the National Arbitration Forum. The paper-only arbitration procedure is designed to determine whether the Complainant can establish three elements:

(1) The domain name registered by Respondent is identical or confusingly similar to a trademark or service mark in which the Complainant has rights;

(2) The Respondent has no rights or legitimate interests in respect to the domain name; and

(3) The domain name has been registered and is being used in bad faith.

Identical or Confusingly Similar. Disney provided evidence of its registration of the mark DISNEY®. The one-arbitrator panel determined that Janice’s domain name was confusingly similar to the DISNEY® mark. The inclusion of generic words, or ordinary descriptive words (like “vacation” and “villas”) was found to be insufficient to detract from the overall impression of the dominant part of the name. Note that common law or unregistered trademark rights are sufficient to show rights in a mark for the purposes of the UDRP.

Rights or Legitimate Interests. Under UDRP policy, if the Complainant can prove that Respondent had no rights or legitimate interests for Respondent’s use of the mark, the burden of proof on this element shifts to Respondent to prove rights and legitimate interests in the domain name. The UDRP provides examples of how Respondent might prove a legitimate interest in the domain name: (1) by proving that, before receiving any notice of the Complainant’s rights, Respondent used the domain name in a legitimate manner; (2) by proving that the domain name corresponds with a name by which Respondent is commonly known; or (3) by proving that Respondent is making a fair non-commercial use of the domain name.

Janice introduced evidence that, for a number of years prior to receiving notice from Disney, her company was known as Disney Vacation Villas. However, the panel found that Janice did not, and could not, demonstrate that she was known as Disney Vacation Villas prior to registration of the domain name.

Janice also introduced evidence that she was making a bona fide offering of service on her website. However, since Janice admittedly used the word “Disney” in her domain name to attract Internet users to her site and since Janice was in competition with Disney for vacation rentals, Janice’s use of the domain name was found to be in violation of UDRP policy (use which intentionally trades on the fame of another cannot constitute a bona fide offering of services).

Registration and Use in Bad Faith. UDRP policy provides four non-exclusive examples of bad faith use and registration: (1) circumstances indicating that Respondent has registered the domain name primarily for the purpose of selling, renting, or transferring the domain name to the Complainant or a competitor of Complainant for valuable consideration in excess of the Respondent’s documents costs directly related to the domain name; (2) Respondent registered the domain name in order to prevent the trademark owner from reflecting the mark in a corresponding domain name provided that Respondent has engaged in a pattern of such conduct, (3) Respondent registered the domain name primarily to disrupt the business of a competitor; or (4) Respondent intentionally attempted to attract, for commercial gain, Internet users to its website by creating a likelihood of confusion with the Complainant’s mark as to the source, sponsorship, affiliation, or endorsement of Respondent’s website.

Disney set to prove “bad faith” under the fourth example, i.e. that Janice was intentionally using the domain name to attract Internet users to her website by creating a likelihood of confusion. Janice countered that argument by establishing that her website was designed to avoid any confusion with a Disney-sponsored website, including the use of a disclaimer. Janice provided information from consumers that they were not mislead or confused when viewing her website.

The panel, however, decided that Janice admittedly chose to include “Disney” in her domain name in order to attract Internet users looking for rental properties close to Disney’s theme park. Janice also admitted that Disney® provided rental lodging within the theme park and, therefore, she was in competition with Disney®. Therefore, the panel concluded that Janice’s use met the standard for “bad faith”.

The panel ordered that the domain name be transferred from Janice to Disney.

For more information on disputing a domain name or registering the correct domain name please contact Bert Andia at Higgins Benjamin PLLC. bandia@greensborolaw.com (336) 273-1600.
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