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Courts address functionality and advice of counsel

Today’s annual review of U.S. case law will cover key trends such as U.S. courts’ recent approaches to assessing trademark functionality and how getting advice of counsel could change the game for fraud cases post-Bose. Eileen McDermott reports.

Trademark Reporter authors Jordan S. Weinstein of Oblon Spivak McClelland Maier & Neustadt and Theodore Davis of Kilpatrick Townsend & Stockton will once again examine the hottest trademark cases of the past year in today’s session reviewing key case law developments since last year’s Annual Meeting.

While In re Bose is now news of the past, Weinstein says that another case regarding the role of advice of counsel in fraud claims could be a game changer. In the federal and state courts, Davis will analyze three headline-grabbers that raise important questions about the doctrine of functionality and how courts are interpreting the Trademark Dilution Revision Act.

(Dys)Functionality


In 2010 and 2011, courts have been grappling with how to apply the concept of trademark functionality to word marks. In both Rosetta Stone v Google (4th Cir, 2010) and Fleischer Studios v A.V.E.L.A (9th Cir Court of Appeals, 2011) courts found pure word marks to be functional as a matter of law. Since the doctrine of functionality is normally aimed at product designs and packaging, these cases “are a different animal altogether,” says Davis.

In Rosetta Stone, the US District Court for the Eastern District of Virginia found in August last year that Google could not be held liable for trademark infringement, contributory trademark infringement, vicarious trademark infringement, trademark dilution, unfair competition or unjust enrichment for allowing advertisers to purchase Rosetta Stone’s trademarks to use as keywords to trigger sponsored links.

Addressing the issue of intent to infringe, the court said that Google’s approach to aggregating information and providing advertising space is “akin to a newspaper or magazine selling advertising space.” Since Google does not sell its own products, “any argument that Google is trying to palm off its goods as those of Rosetta Stone’s is unfounded,” said Judge Gerald Bruce Lee.

Lee also rejected Rosetta Stone’s argument that Google’s intent is evident in its acknowledgment of the fact that using trademarked keywords in the text of sponsored links can generate more revenue, saying that “evidence of financial gain alone is insufficient evidence of intent.” On the point of actual consumer confusion, Lee said that “Rosetta Stone’s evidence of actual confusion—testimonies of five individuals out of more than 100,000 impressions over six years—is de minimis.”

But perhaps most controversially, Lee also found that using trademarked keywords to identify relevant sponsored links is a functional use, and that Google is therefore protected from infringement claims under the doctrine of functionality. That doctrine says that “a product feature is functional ‘if it is essential to the use or purpose of the article or if it affects the cost or quality of the article’”.

INTA vigorously criticized this analysis in its amicus curiae brief asking the Fourth Circuit Court of Appeals to hear the case (see box).

No Boop for you


Several months later, in March this year, the Ninth Circuit Court of Appeals affirmed a lower court’s ruling of summary judgment dismissing a copyright and trademark infringement action over unauthorized Betty Boop merchandise.

In Fleischer Studios v A.V.E.L.A, the plaintiff asserted AVELA had infringed its IP rights by selling merchandise featuring the iconic American cartoon character Betty Boop. But the Ninth Circuit found Fleischer Studios had not adequately shown chain of title to the character and did not have a valid copyright. Further, the court held that since AVELA’s use of Betty Boop was functional and was never portrayed as “official” merchandise, there was no trademark infringement.

The court also said that the Supreme Court’s 2003 ruling in Dastar Corp v Twentieth Century Fox Film Corp teaches that “where a copyright is in the public domain, a party may not assert a trademark infringement action against an alleged infringer if that action is essentially a substitute for a copyright infringement action.” Applying that case, the court held that Fleischer’s trademark claims were not valid because the Betty Boop character is in the public domain and the trademark claims would essentially be a substitution for a copyright infringement action. “If we ruled that A.V.E.L.A’s depictions of Betty Boop infringed Fleischer’s trademarks, the Betty Boop character would essentially never enter the public domain,” wrote the majority.

INTA is arguing in its amicus brief urging the Ninth Circuit Court of Appeals to re-hear the case that this analysis is a misinterpretation of Dastar because that case involved whether a party copying a work for which the copyright has expired is required to credit the original author. “Appellant’s concern is that Appellees have used the Betty Boop trademarks on Appellees’ goods and are passing those goods off as Betty Boop-brand merchandise, confusing consumers as to the source of those goods. Unlike the claim in Dastar, that is the essence of a trademark infringement claim,” said the INTA brief. Davis agrees, and called the court’s analysis on this point “a profound misreading of Dastar.” (INTA’s brief also argues that the court’s holdings on aesthetic functionality were in error.)

The MPAA, Edgar Rice Burroughs (creator of Tarzan) and a number of major professional sports leagues have also filed amicus briefs asking the court to re-hear the case for similar reasons to INTA. Davis authored the brief on behalf of Major League Baseball, the National Basketball Association, the National Football League and the National Hockey League.

If a rehearing is granted, the issues raised by Fleischer and the amici will be addressed either by the same panel of judges or a limited en banc panel of the court’s 26 active judges. However, the court does have discretion to grant a rehearing by the full court. Davis says that both Fleischer v. AVELA and Rosetta Stone “are significant in their own right,” particularly because the judgments were a matter of law. “This is the kind of result you get without the benefit of briefing by the parties,” says Davis.


Advice is nice


At the TTAB, Weinstein says that the “game changer” this year was M.C.I. Foods v Brady Bunte, a case in which the Board ruled that the defendant’s efforts to obtain advice of counsel as to the scope of goods for which it could register its CABO PRIMO mark was enough to prove that it did not intend to deceive the USPTO.

When M.C.I. Foods attempted to cancel Bunte’s mark CABO CHIPS, Bunte replied by accusing M.C.I. of fraud against the USPTO because M.C.I. had never used its mark for tortilla chips, despite claiming use in its application for registration. But the TTAB found that, because M.C.I. had obtained advice of counsel in determining the scope of goods for which to register, it could not be charged with fraud.

The hitch was that M.C.I. merely stated that it had obtained advice of counsel, and Bunte failed to ask for specifics, says Weinstein. Based on testimony given by M.C.I.’s president, the Board determined that, “because MCI filed its application to register the CABO PRIMO and design mark with the advice of counsel, the overly expansive description of goods, while a false statement, falls short of constituting a fraudulent statement which carries with it an actual or implied intent to deceive the USPTO.”

The Board went on to say that “it was incumbent upon Bunte” to “[elicit] further testimony as to the actual advice MCI received when it ‘discussed with counsel’ the list of goods it intended to include in the application and whether or to what extent MCI relied on such advice.” However, the Board noted that “our finding here does not mean that mere assertion that one acted on ‘advice of counsel’ will make out a good defense to a charge of fraud. Rather, our finding should be taken as an indication that the charging party must be able to show at trial that the defense is inapplicable or inappropriate under the particular circumstances of the case at hand.”

“We’ll see new tactical movements being made by both plaintiffs and defendants in fraud cases and a lot more attorneys being deposed at the Board,” says Weinstein. And, because fraud has been such a hot topic since In re Bose and the fraud line of cases so closely followed, Weinstein predicts that the impact of the ruling will be felt within the next six to 12 months.

Weinstein will also cover In re Chippendales USA, in which the Board allowed an applicant to file a second application for the same mark covering the same goods in order to attempt to prove inherent, rather than acquired, distinctiveness.

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