Maxim magazine is a popular mens' "lifestyle" magazine with a circulation of over two million. Maxim magazine's publishers, Alpha Media Group, intend to license the "MAXIM" trademark to a line of body sprays, perfumes and colognes.
Corad Healthcare, Inc. manufactures antiperspirants to treat hyperhidrosis, a medical condition which causes excessive sweating. Corad has used the term MAXIM since 2001, but historically used clinical-looking packaging on "prescription-strength" medication.
More recently, Corad began to use colorful packaging with "lifestyle" graphics, such as pictograms denoting golf and exercise. Further, Corad's "Maxim" name on its antiperspirant wipes started to look a lot more like Maxim's logo. Consequently, upon learning of the new packaging, Alpha Media sued Corad, and sought a preliminary injunction.
|The Accused Products|
The court rejected the plaintiff's application for a preliminary injunction. In its decision denying Alpha's motion, the District Court essentially agreed that there was the potential for Maxim's publishers to lose the ability to control its brand through Corad's unlicensed third party use. However, the Court then found that the publishers did not put forth evidence that such a result "will, in fact, occur."
The problem with the court's decision is that it requires a brand owner to prove the impossible until after the damage is already done.
Furthermore, a simple economic analysis demonstrates the flaw in the Court's logic.
It used to be the law that a preliminary injunction should usually issue when the use of a mark creates a likelihood of confusion in the consumers' minds as to the ownership or sponsorship of a product, because a high probability of confusion as to sponsorship almost inevitably establishes irreparable harm.
However, in 2010, in Salinger v. Colting, Judge Calabresi sitting in the Second Circuit Court of Appeals, penned a copyright decision finding that "a court deciding whether to issue an injunction must not adopt 'categorical' or 'general' rules or presume that a party has met an element of the injunction standard.
In plain English, Judge Calabresi effectively required that intellectual property owners factually "prove" the impossible, before it occurs: that they are likely to be harmed by unlicensed third parties abusing their rights.
The reason such factual proof is impossible is not because it is untrue. It is because there is no simple way to measure the harm to a brand before such harm actually occurs. And once that harm occurs, it cannot be recovered. Judge Calabresi is a renowned law and economics scholar who should fully understand this point.
Here is an example: Suppose Maxim's publishers seek to market and expand their brand to sell antiperspirants. They set up a meeting with an established company that manufactures and distributes such products (such as Procter and Gamble).
In this hypothetical scenario, P&G would decline to market the Maxim-branded products on the basis that the trademark is already registered and used by Corad.
There is no way to ever calculate with precision the economic "harm" wrought on Alpha by the continued existence of Corad's unlicensed product in the marketplace.
However, the economic opportunity cost to Alpha is significant: It cannot meaningfully market a product that was its right to do so until after trial, which could be four years away.
At the conclusion of the lawsuit, a jury might award damages to Alpha Media based upon Corad Healthcare's infringement.
However, as this chart shows, the recovery of Corad's profits does not equal the opportunity cost to Maxim's publishers. In other words, Alpha loses out on more than Corad actually gains:
The Second Circuit Court of Appeals has ignored this reality, and effectively would require that intellectual property owners suffer these losses.
The problem is that Corad will never be able to adequately compensate the publishers for the harm it causes to the brand owner. Such "irreparable injury" is precisely why preliminary injunctions were commonplace when a brand owner could prove a high likelihood of confusion.
Under the new, "non-categorical" standard in the Second Circuit, brand owners must suffer these losses due to no fault of their own.