“The year 2022 paved the way for courts to resolve what arguably is the most important unresolved issue in trademark law: the appropriate test for balancing trademark rights with First Amendment rights.”
This year saw an increased focus on the extraterritorial application of the Lanham Act, setting up a showdown at the Supreme Court in 2023. The last year also saw cases pressing the intersection of the Lanham Act with the First Amendment and artistic expression—both in the physical world and in the metaverse—and some rulings that will help clarify the likelihood of confusion analysis in various circuits.
As 2022 comes to an end, we look forward to what 2023 has in store.
Extraterritoriality Issues are Coming to a Head
The extent to which the Lanham Act reaches beyond U.S. borders was a hot topic in 2022 and will carry into 2023.
Meenaxi Enter., Inc. v. Coca-Cola Co.
In Meenaxi Enter., Inc. v. Coca-Cola Co., 38 F.4th 1067 (Fed. Cir. 2022), the Federal Circuit highlighted the high bar companies face to establish liability for infringement of a trademark that is used only outside of the United States.
Coca-Cola sought to cancel Meenaxi’s United States trademark registrations for THUMS UP and LIMCA based on Coca-Cola’s prior distribution of Thums Up cola and Limca lemon-lime soda in India and other foreign countries. Coca-Cola initially succeeded before the TTAB, and Meenaxi appealed to the Federal Circuit, which considered whether Coca-Cola had established grounds for a statutory cause of action to cancel Meenaxi’s trademarks under Section 14(3) of the Lanham Act.
The Federal Circuit held that the plain language of the statute does not require that a plaintiff possess or even use a trademark in United States in commerce. Thus, even though Coca-Cola did not own United States trademark registrations for THUMS UP or LIMCA or have any sales of those products in the United States, it was not foreclosed from seeking cancellation of Meenaxi’s U.S. trademarks. The Federal Circuit expressly noted that “the extent to which the Lanham Act applies to activities outside the United States is not a question implicated here” because Coca-Cola’s claim was based “entirely on alleged injury occurring in the United States.”
The court nevertheless reversed the TTAB because Coca-Cola was unable to identify any lost sales or reputational injury in the United States, and the court was not persuaded that members of the Indian-American population in the United States were aware of Coca-Cola’s foreign products, let alone that they would be misled into thinking Meenaxi’s beverages were the same as those sold by Coca-Cola in India.
Hetronic Int’l, Inc. v. Hetronic Germany GmbH
The Supreme Court has taken up Hetronic Int’l, Inc. v. Hetronic Germany GmbH, 10 F.4th 1016 (10th Cir. 2021), cert. granted sub nom. Abitron Austria GmbH v. Hetronic Int’l, Inc., 143 S. Ct. 398 (2022) to address whether the Lanham Act can be applied extraterritorially to a foreign defendant’s foreign sales, including purely foreign sales that never reach the United States. A key, underlying question before the Supreme Court is which framework courts should apply to determine when the Lanham Act applies to foreign conduct. Although the Supreme Court has held that the Lanham Act can apply extraterritorially in some circumstances, there is currently a circuit split as to precisely how to determine when extraterritorial application is appropriate. This disagreement amongst the circuits allows for forum shopping and Hetronic Int’l, will likely bring much needed clarity on these issues in 2023.
U.S. Plaintiff Hetronic sued foreign Defendants (who were Plaintiff’s European distributors) for “reverse engineering” Plaintiff’s products and selling their own “Hetronic” products in Europe that were indistinguishable to the average customer. At trial, Plaintiff won $115 million in damages and a worldwide inunction.
The primary issue on appeal was whether the district court erred in concluding that the Lanham Act applied extraterritorially to reach the Defendants’ foreign activities. The Tenth Circuit held that, “when the defendant is not a U.S. citizen, courts should assess whether the defendant’s conduct had a substantial effect on U.S. commerce . . . [and] only if the plaintiff has satisfied the substantial-effects test, courts should consider whether extraterritorial application of the Lanham Act would create a conflict with trademark rights established under foreign law” The court was unpersuaded by Defendants’ arguments that the Lanham Act should not apply in this case because only 3% of their foreign sales crossed into the United States. Adopting the Defendants’ position would mean that “billion-dollar-revenue companies could escape Lanham Act liability by claiming that millions of dollars of their infringing products entering the United States represented only a fraction of their sales.” The court also found that the Lanham Act applied because Defendants diverted foreign sales that otherwise would have gone to Plaintiff in the U.S., and thus constituted a substantial effect on U.S. commerce.
Courts Look to Clarify the Application of the First Amendment to the Lanham Act
The year 2022 paved the way for courts to resolve what arguably is the most important unresolved issue in trademark law: the appropriate test for balancing trademark rights with First Amendment rights. Since 1989, the predominant approach to balancing these interests has been through the “Rogers Test,” and while a plurality of circuits have adopted the Rogers Test the Supreme Court has not yet weighed in. That may be about to change.
Jack Daniel’s Properties, Inc. v. VIP Products LLC,
In November 2022, the Supreme Court granted certiorari to review the Ninth Circuit’s decision in Jack Daniel’s Properties, Inc. v. VIP Products LLC, No. 21-16969, 2022 WL 1654040 (9th Cir. 2022), which has the potential to reshape the Lanham Act’s application to expressive goods.
In VIP Prods., the Ninth Circuit summarily affirmed dismissal of Jack Daniel’s trademark infringement and dilution claims against dog toy manufacturer VIP Products. The case centered on VIP Products’ manufacture and sale of a dog chew toy called “Bad Spaniels,” which was shaped like a Jack Daniel’s whiskey bottle and displayed a “label” resembling Jack Daniel’s trade dress, but with scatological-themed jokes and puns. The district court initially found that the Bad Spaniels toy resulted in significant consumer confusion and that the jokes displayed on the toy were not protected commentary on Jack Daniel’s itself. It thus denied VIP Products’ motion for summary judgment to dismiss all of Jack Daniel’s infringement and dilution counterclaims on First Amendment grounds. The Ninth Circuit, however, reversed and remanded for the district court to apply Rogers, and on remand, the district court dismissed Jack Daniel’s claims finding the toy’s use of the Jack Daniel’s trade dress to be artistically relevant and not explicitly misleading.
The question presented to the Supreme Court is whether humorous use of another’s trademark as one’s own on a commercial product is subject to the Lanham Act’s traditional likelihood-of-confusion analysis, or instead receives heightened First Amendment protection from trademark-infringement claims. The Court may clarify the Rogers Test—for example, making clear that expression that incorporates another party’s trademark is protected by the First Amendment only to the extent that it comments on the mark or the owner of the mark. Or the Supreme Court could discard the Rogers Test and instead adopt a completely different, novel test for balancing expressive interests with the public interest in avoiding consumer confusion. In any event, artists and brands alike are closely watching VIP Products, and many will undoubtedly file amicus briefs, with the expectation that the Court’s decision will resonate far beyond VIP Products’ dog toy.
Vans, Inc. v. MSCHF Prod. Studio, Inc.
Before the Supreme Court accepted cert in VIP Prods., the Second Circuit had the opportunity to clarify the Rogers Test when Vans, Inc. sued the art collective MSCHF in the Eastern District of New York over MSCHF’s Wavy Baby artwork, in Vans, Inc. v. MSCHF Prod. Studio, Inc., No. 22-cv-2156, 2022 WL 1446681 (E.D.N.Y. Apr. 29, 2022).* That case, however, has been stayed pending the outcome of VIP Products.
MSCHF designed and manufactured Wavy Baby shoes as a parody of Vans’ Old Skool skate shoe. In contrast to the flat-soled, functional Old Skool, Wavy Baby had large waves in the sole that made the shoes non-functional as sneakers (let alone skate shoes) as well as a wavy side stripe, other warped elements, and a caricature of former President George W. Bush falling off a Segway. Despite MSCHF’s First Amendment arguments, the district court granted Vans’ motion for a temporary restraining order and preliminary injunction, without any reference to Rogers, holding that Wavy Baby was likely to cause consumer confusion.
MSCHF appealed to the Second Circuit, and argued that Vans’ claims are precluded by the First Amendment under Rogers and that the district court’s failure to analyze MSCHF’s First Amendment defense was reversible error. Vans argued that Rogers applies only to inherently expressive works like films and books but not to ordinary consumer goods like shoes, and that a standard likelihood-of-confusion analysis was the appropriate test for considering Vans’ trademark infringement claims.
In re Elster
The Federal Circuit in In re Elster, 26 F.4th 1328 (Fed. Cir. 2022) addressed a different First Amendment issue and reversed a trademark examiner’s refusal to register the mark TRUMP TOO SMALL for use on t-shirts. The ruling continues a trend of decisions favoring First Amendment rights over federal trademark restrictions. In 2017, the Supreme Court held in Matal v. Tam, that the Disparagement Clause—which prohibits trademarks that disparage the members of a racial or ethnic group—was unconstitutional. And in 2019, the Supreme Court held that the prohibition on federal registration of “immoral” or “scandalous” marks was similarly unconstitutional. The Federal Circuit’s recent decision likewise protects the right to free speech and expression in the form of criticism of politicians and other public figures through trademark rights, absent a showing of actual malice.
The TTAB held that registration of the TRUMP TOO SMALL mark would violate section 2(c) of the Lanham Act, 15 U.S.C. § 1052(c), because the mark included the surname of a living individual—President Donald J. Trump—without his consent. The Federal Circuit reversed, holding that the applicant’s substantial First Amendment interest in criticizing public officials outweighs those public officials’ right to control how their name is used in the marketplace. Section 2(c) was therefore an unconstitutional content-based restriction, as applied. In August 2022, the Federal Circuit denied the Trademark Office’s motion for en banc review.
Emerging Trends to Watch in the Metaverse
As consumers move into the metaverse, so too do trademark disputes. 2022 saw a wealth of NFT-related litigation filed, leaving all of us to wonder if 2023 will be the year we get a decision clarifying whether and how the law will adapt to this novel technology.
Hermès v. Rothschild
Luxury designer Hermès challenged the sale of “MetaBirkins” NFTs featuring furry renderings of Hermes’s well-known Birkin handbag. Hermes Int’l v. Rothschild, No. 22-CV-384 (JSR), 2022 WL 1564597, at *1 (S.D.N.Y. May 18, 2022). In May 2022, Judge Rakoff denied the defendant’s motion to dismiss, holding that, although the Rogers v. Grimaldi test could apply in this context—because the MetaBirkin NFTs, as “digital images of handbags,” “could constitute a form of artistic expression”—Hermès had adequately alleged instances of actual confusion and that the MetaBirkin label was explicitly misleading, which was sufficient to overcome any protection Rogers would provide. The court also questioned whether the NFTs at issue were per se artistic works, noting that, “if the NFTs were attached to a digital file of a virtually wearable Birkin handbag . . .the ‘MetaBirkin’ mark would refer to a non-speech commercial product (albeit not one that is, as yet, considered ordinary or quotidian).” The parties have cross-moved for summary judgment, with the question of Rogers’ applicability remaining front and center. A decision is expected sometime in the new year.
It remains to be seen whether courts will agree that digital images sold via NFTs can constitute commentary or artistic works that should be analyzed under the Rogers test, or whether they are purely commercial products to which the typical likelihood of confusion standard applies. For example, if courts rule against the defendant’s position, that may have a substantial chilling effect on future digital artwork premised on or incorporating well-known brands or products. It will also be interesting to see whether and to what extent the Supreme Court’s decision in VIP Products will resolve these issues for digital products as well, or leave a gap for new case law to fill. In the meantime, the parties have cross-moved for summary judgment and a decision is pending.
Yuga Labs, Inc. v. Ryder Ripps
In another novel NFT case, Yuga Labs, the company behind the hugely successful “Bored Ape” collection of NFTs, sued artist Rider Ripps, alleging that Ripps and others were copying its trademarks and selling copycat Bored Ape NFTs in the same marketplaces that Yuga Labs’ sells its Bored Ape NFTs. Yuga Labs, Inc. v. Ryder Ripps, No. 22 CV 4355 (C.D. Cal.). In response, Ripps argued that he created the new NFTs “based on” Bored Ape images but that he “re-minted” them and thereby created a different digital ownership token, which he claimed “recontextualized” the images “illuminating truths about their origins . . . [and] the power of NFTs to change meaning, establish provenance and evade censorship.”
As with the Hermès case, Ripps’ defense raises complex questions of the intersection between trademark law and the First Amendment. Ripps argues that he is commenting on widely discussed issues with NFTs—to what extent they truly convey ownership rights over reproducible digital images, and the significance of anonymity in the blockchain industry—while Yuga Labs argues that “copying is not satire, it is theft.”
On August 15, 2022 Ripps filed an Anti-SLAPP motion to strike the complaint or, in the alternative, to dismiss it arguing that his work is protected speech and artistic work insulated from liability by the Rogers v. Grimaldi precedent, and that he did not infringe Yuga Labs’ trademarks because his use constitutes nominative fair use. On September 1, the court ordered that motion to be stricken for being filed without permission of the court, but later allowed Ripps to re-file on October 3, 2022. The motion is now fully-briefed and pending decision by the court without oral argument.
Nike, Inc. v. StockX LLC
Turning to a different use of NFTs, at the beginning of the year, Nike Inc. sued StockX LLC over its use of NFT technology in connection with the re-sale of Nike products. Nike, Inc. v. StockX LLC, No. 22-CV-983 (VEC) (S.D.N.Y.) StockX provides a secondary market for consumers to trade genuine Nike (and other) goods, which a growing class of young consumer view as valuable investment assets. For some products, StockX offers consumers the ability to store purchases in its “vault” and provides NFTs depicting and referring to those products as a claim ticket for the vaulted product. Customers can then trade the products by buying and selling the claim ticket NFT, rather than wastefully shipping the underlying goods back and forth.
In its lawsuit, Nike has alleged that StockX’s use of NFTs (that are linked to images depicting the underlying Nike shoes the customer is purchasing) infringes Nike’s trademarks. StockX argues, among other things, that this practice is protected by the nominative fair use and first sale doctrines. The case remains in discovery, and the court has not yet issued any substantive rulings on the merits, which leaves undecided for now whether and to what extent these long-established trademark defenses apply to NFT technology when it is used to track ownership of a physical good—and to what extent brand owners will be able to police uses of their marks in the metaverse or in connection with NFTs.*
Confusion Among Direct Competitors
A pair of 2022 cases will provide further guidance on how to analyze the likelihood of confusion among direct competitor products with similar sounding names.
In RiseandShine Corp. v. PepsiCo, Inc., 41 F.4th 112, 116 (2d Cir. 2022), the Second Circuit vacated a preliminary injunction enjoining Pepsi’s use of the mark MTN DEW RISE ENERGY because, it held, the district court erred in assessing the strength of Plaintiff’s RISE trademark used for nitro-brewed coffee. The Second Circuit agreed with the district court that RISE is a suggestive mark (since it evokes images of morning, which suggests qualities of the plaintiff’s product through the use of imagination, thought and perception), but it disagreed with the district court’s “fail[ure] to note that the strong logical associations between ‘Rise’ and coffee represent weakness and place the mark at the low end of the spectrum of suggestive marks.” When a mark like “Rise” is used to “evoke[ ] the claimed virtues of the product it references,”—such as rising out of bed or rising energy levels—“that that mark . . is weak under the trademark law.” The decision is notable in that the Second Circuit appeared to resolve factual findings—as to the strength of the mark and the similarity of the marks—for which the district court is usually afforded broad discretion.
Separately, in H&R Block, Inc. et al v. Block, Inc., 4:21-cv-00913-NKL (W.D.M.O. April 28, 2022),* well-known tax preparation service H&R Block sued Jack Dorsey’s company Square, Inc. after it changed its name to Block, Inc. and started using the “Block” name and a green square logo (similar to H&R Block’s registered green square logo) in connection with its Cash App Taxes service, among other services.
The court entered a preliminary injunction against Block, Inc., which Block Inc. appealed to the Eighth Circuit, arguing that the district court erred because Block, Inc. was simply a corporate name and was not using “Block” as a brand. Rather, Block, Inc. argued, consumers would see an association between Block, Inc. and Cash App Taxes only in legal fine print on its mobile app and website. In response, H&R Block pointed out that Block, Inc.’s public statements and social media posts, such as “Block is Cash App,” were also likely to confuse consumers as to the source of the services and trade on H&R Block’s longstanding reputation in the tax services industry, and that the media has reported Cash App Taxes as coming from “Block.” The case presents issues regarding whether use of a corporate name can cause consumer confusion, and whether evidence of confusion by the media can be considered by a court in connection with the likelihood of confusion assessment. As of this writing, the Eighth Circuit has yet to rule on these issues.
* Debevoise & Plimpton represents MSCHF, StockX, and H&R Block in the cases discussed above.
Image Source: Deposit Photos
Image ID: 616672070
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