Showing posts with label Court. Show all posts
Showing posts with label Court. Show all posts

Saturday, July 7, 2012

Internet Independence Declared, But the War to Regulate the Internet Has Only Just Begun

Wikipedia, Yahoo, Google and Facebook are among the usual suspects that have successfully galvanized public opposition to proposed online regulations.  The same cast of characters recently declared an Internet "Day of Independence."  But those seeking to enforce existing laws and enter into treaties regulating the Internet are finding themselves facing even more formidable foes – ranging from China to the U.S. Federal Reserve Bank.  And all signs suggest that the war to regulate commerce on the Internet has only just begun.

Part I:  Early Attempts at Regulation

Having been accused of aiding and abetting trademark infringement by jewelry icon Tiffany & Co., online auction site eBay successfully convinced the U.S. Court of Appeals for the Second Circuit that it was not vicariously responsible for the multitude of counterfeit Tiffany products that were being sold through its popular trading platform. Rather, the appeals court held that the onus lies on the brand owner to diligently police its marks against counterfeit items sold by eBay users.

After the eBay decision, brand owners’ focus began to shift away from eBay when seeking to stop the online sale of counterfeits, and began to focus more on websites and China-based “trading boards,” such as Alibaba, TradeTang, DHGate, Taobao and others. “Posting on these heavily-trafficked wholesale sites, a manufacturer located in mainland China or Hong Kong can make and sell hundreds of thousands of counterfeit products per week, and ship to distributors located all around the globe.  His sales make ten thousand listings for counterfeit goods on eBay seem like small potatoes in comparison,” says one source familiar with the Chinese trading sites.

As China’s online infrastructure expands, so too does the number of trade board users.  According to estimates, China now has 1 billion mobile phone subscriptions, but only about 14 percent of these already operate on China’s faster 3G networks, a number that will only increase as that nation invests in cellular infrastructure.

As a result, international trading boards run by Chinese Internet giant Alibaba Group are gearing up for an explosion in the number of consumers using their smartphones and tablet devices to buy products online in the next two years.  For example, Taobao Marketplace and Taobao Mall, which between them account for more than 400 million users, are already reporting a rapid sales growth by means of their iPad and iPhone applications.

Part II:  The Empire Strikes Back

The Chinese government has not sat idly by while its growing online companies are accused of harboring online counterfeiters.  When the U.S. Trade Representative recently listed Alibaba’s Taobao online retail site as one of the world’s most notorious markets in a U.S. government report, China’s Ministry of Commerce shot back with a vigorous attack:  “Since there is no conclusive evidence, there is no detailed analysis, this is very irresponsible and not objective,” said China Ministry of Commerce spokesman Shen Danyang.  “China believes the U.S. should … make fair assessments and avoid creating unnecessary negative effects for Chinese companies.”

In response to the mounting pressure, Alibaba hired high-powered lobbying firm Duberstein Group, and former Bush White House trade official James Mendenhall, now a partner at First Lady Michelle Obama’s former law firm Sidley & Austin, to represent Alibaba Group in talks with the U.S. government and industry groups.  These measures have already improved Alibaba Group’s image.

But an increase in the number of recently filed court cases suggests that the number of Chinese merchants that are actively trafficking in counterfeit goods on the Internet, through the use of “rogue websites” operating under spurious domain names incorporating trademarked brands, continues to skyrocket.

According to brand owners, “rogue websites” are unauthorized e-commerce sites that mimic legitimate channels of trade.  Consumers are lured to these sophisticated and well-designed websites that are replete with corporate advertising, credit card logos, and other indicia of legitimacy.  These sites often call themselves “sale outlets” in order to suggest that their merchandise is authentic.

However, such sites are actually devoted to illicit conduct, typically trafficking in counterfeit products, or offering illegal downloads of pirated music, movies or software.  These sites are also sometimes also used to steal consumers’ identities when the consumer reveals credit card information to make purchases, according to experts.  The U.S. Chamber of Commerce notes that studies demonstrate the dire implications and consequences of rogue websites distributing their illicit goods and illegal content to consumers.

Part III:  The Long Arm of the United States

In response to the growing problem, U.S. law enforcement and brands alike have taken concerted legal action against thousands of such sites in recent months. Similarly, the U.S. Department of Justice’s recent international raids on MegaUpload sent the signal that the federal government does not perceive online digital piracy of movies and music to be a victimless crime.

But following through to see these complex cases to completion is another story.  First, online distribution networks are fluid, and the common ownership and control of rogue websites is very difficult to trace and track down, requiring constant monitoring.  For example, forensic investigators using advanced data-mining software programs such as RogueFinder are able to link dozens — even hundreds — of seemingly unrelated domain names and websites.  This careful research can thereby lay the foundation to properly sue the anonymous entities operating a vast number of infringing websites, but also illustrates the enormous challenge of monitoring online counterfeiting networks that not only grow exponentially but are also in a constant state of flux.

Using this type of data, federal courts in New York, Florida and Nevada have ordered thousands of domain names and corresponding websites to be taken down, and handed over to intellectual property owners.  But Internet counterfeiters can simply shift the infringing content to new websites with new domain names only days later, brazenly hawking the same counterfeit products in open violation of court orders.

Second, no longer relegated to dimly lit basements and backrooms in factories, some accused infringers are now organized--and well represented.  MegaUpload’s founders have showed up in federal court in Virginia represented by mega-firms Hogan Lovells, Squire Sanders, Sidley Austin, and most recently, Quinn Emanuel. 

And their high-priced legal representation has paid off, so far.  The Quinn Emanuel lawyers have already raised questions about the procedural aspects of the Justice Department’s MegaUpload seizures, and have cast serious doubt on whether New Zealand’s arrest warrants will even stick, undoubtedly giving Justice Department lawyers heartburn.  “I frankly don't know that we are ever going to have a trial in this matter,” District Judge Liam O’Grady said to a Justice Department prosecutor at a recent hearing in the case.

Part IV:  "Follow the Money"

Law enforcement authorities have realized the critical importance of regulating online payment processing—which is essential to Internet counterfeiters’ business model—but have found it equally challenging to monitor and seize cash flows associated with the purchase of counterfeit goods online.

In April 2012, the U.S. Department of Justice and U.S. Immigration and Customs Enforcement seized more than $896,000, plus the domain names of seven websites accused of selling counterfeit sports apparel. Aggressively using anti-money laundering statutes in conjunction with the PATRIOT Act’s specific provisions giving the federal government jurisdiction over “Interbank” accounts, the Justice Department was able to use warrants to allow the U.S. to seize $826,883 that had been transferred from PayPal accounts to Interbank accounts held by Chinese banks in the U.S.

However, while the PATRIOT Act gives Justice Department lawyers a powerful weapon, no such provision exists in U.S. law for intellectual property owners acting on their own in civil cases.  In fact, some intellectual property owners have been stymied in their ability to even gather insight into the finances of international counterfeiters from international banks operating in the U.S. itself.

In one such case, Tiffany & Co. alleged that major Chinese state-owned banks maintain bank accounts for counterfeiters in China that ship fake designer goods into the United States.  The three accused banks - Bank of China, China Merchants Bank and the Industrial and Commercial Bank of China - all have branches in New York City.  The luxury-goods maker had petitioned to have the Chinese banks freeze assets in accounts owned by the alleged counterfeiters and turn over information about the clients to their attorneys.

However, the banks’ lawyers pointed out that the Federal Reserve, which regulates New York-based branches of foreign banks, supports the notion of treating each branch as a “separate entity,” and the idea that New York branches of foreign banks cannot be used as conduits through which to export American laws abroad.  A lawyer for the New York Federal Reserve had presented an oral argument in a similar case involving offshore accounts, warning that a decision in favor of disclosure could spark “a global asset hunt” in the New York court system, according to a court transcript.

In fact, an amicus brief the Federal Reserve Bank filed became part of a series of arguments in the Tiffany case that led District Judge Pauley to rule that Tiffany needed to seek information from the banks’ headquarters in China – and not in a New York courtroom.

However, just weeks after the Tiffany decision, another judge in the same courthouse, faced with essentially identical facts, held that luxury brand group Gucci America, Inc., was entitled to information held by Bank of China and other Chinese financial institutions, and that those banks were required to freeze the defendants’ assets. This matter is currently before the Second Circuit Court of Appeals, which is now charged with resolving the contradictory rulings

It is clear that a simple legal solution to bringing the Internet in line with established laws and traditional norms of intellectual property ownership is simply not in the foreseeable future.   Beleaguered intellectual property owners, faced with such significant opposition, must both adapt their existing business models, and continue to lobby for the passage of more creative laws as well as aggressive application of existing laws.  However, doing so will likely place them in a protracted battle with political and commercial forces far more powerful than they may have ever bargained-for.

And that is just the beginning.

Friday, July 6, 2012

The Gloves are Off: Rawlings Sues Wilson for Trademark Infringement

In St. Louis, Missouri, Rawlings Sporting Goods has filed a federal lawsuit against competitor Wilson Sporting Goods for displaying a baseball glove with gold-colored webbing and stitching in its promotional materials.  Rawlings alleges the product violates its Gold Glove Award trademarks.

Wilson's 2012 promotional materials had shown Brandon Phillips, a second baseman with the Cincinnati Reds, holding a Wilson-brand baseball glove with metallic gold-colored webbing, stitching and lettering, according to Rawlings' Complaint.

After Phillips won a Gold Glove Award in 2011, Rawlings alleges Wilson supplied the Major League Baseball player with a glove made by Wilson with gold coloring that Rawlings alleges violates its trademarks.

Eighteen Gold Gloves are awarded each year (with the exception of 1957, 1985 and 2007), one at each of the nine positions in each league.

Rawlings claims that it owns the trademarks for the words "Gold Glove Award" and for the distinctive gold-colored baseball glove that is the centerpiece of the award.

In addition to the award, Rawlings supplies winners with baseball gloves with metallic gold distinguishing marks.  Since 1957, the Complaint notes that Rawlings has distributed 981 Gold Glove Awards.

"(Wilson's) unauthorized use of the Gold Glove Marks dilutes and is likely to dilute the distinctiveness of these marks by eroding the public's exclusive associations and reputation of the marks, and otherwise lessening the capacity of the marks to identify and distinguish Rawlings' good and services," Rawlings' Complaint alleges.

It is not clear if Wilson sold any of the allegedly infringing gloves in commerce, but its use of a copycat gold glove as a promotional item may be sufficient to violate the Lanham Act if the Court finds that such use was likely to cause confusion and/or dilute the famous Gold Glove Marks.

Is "CHIPOTLE" a Valid Trademark?

Chipotle chilis - meco variety
The word "chipotle" comes from the Nahuatl word chilpoctli meaning "smoked chili pepper," and is a smoke-dried jalape├▒o pepper.  It is a flavorful chili pepper used primarily in Mexican and Mexican-inspired cuisines, such as Mexican-American and Tex-Mex.  The word has widely been used generically to describe this type of flavor.

Enter Chipotle Mexican Grill, Inc., a chain of restaurants located in the United States, UK and Canada, specializing in delicious burritos and tacos, and known for its fresh, natural ingredients and “assembly-line” production method. 

Despite its enormous success and popularity (as long lines of customers can attest), the company continues to face an uphill battle in legally capturing the word “CHIPOTLE” as a trademark. When the restaurant chain applied for the word trademark in 2003, the US Trademark Examiner initially refused to register it, finding that it was "highly descriptive of the goods and/or services."  

However, the Examiner went on to invite the company to offer specific evidence of distinctiveness, including dollar sales under the mark, advertising figures, samples of advertising, consumer or dealer statements of recognition of the mark, and any other evidence that establishes the distinctiveness of the mark as an indicator of source.  The Examiner reminded the company that "the [Trademark] Office will decide each case on its own merits."

Subsequently in June 2008, the CHIPOTLE trademark application became a registration on the Supplemental Trademark Register.  The Supplemental Register is a purgatory for descriptive or otherwise problematic marks which may (or may not) mature to the Principal Register.A quick search on Google demonstrates that CHIPOTLE has clearly become associated with the Plaintiff's restaurants.  

But can the CHIPOTLE word ever qualify to become a legally protectable trademark in its own right?  It may depend on whether CHIPOTLE is deemed "generic" or "descriptive" by a court.  The distinction is subtle, but meaningful.  A generic mark can NEVER become a trademark.  Examples of generic words are CHICKEN, RESTAURANT and GRILL. However, a mark that is descriptive CAN become a trademark, if sufficient "distinctiveness is acquired" by a single company.  Here, generic/descriptive use by unauthorized third parties create a chicken-and-egg problem for the restaurant chain, which is stuck with creating "distinctiveness in the making."  

Can such a brand owner who is still trying to establish trademark rights meaningfully assert a viable legal claim?  For example, Subway sandwich shops offer a product called CHIPOTLE CHICKEN. This usage does not appear to be licensed, and has apparently not drawn a lawsuit (yet). However, when the Kroger Company launched a product called CHIPOTLE CHICKEN in supermarkets, it was summarily sued and chose to settle.  Such outcomes can help a Plaintiff demonstrate good faith efforts to police the marketplace, but they do not in and of themselves resolve the ultimate linguistic -- and legal -- matter.  If larger and more visible third parties (such as Subway) continue to use the word in a generic or descriptive (i.e., non-trademark) manner, CHIPOTLE may be confined to those marks that never escape their perpetual sentence in trademark purgatory.  Only time will tell.