The Profound Ways that Wal-Mart Affects the Brands That It Sells

There is certainly no shortage of commentary on how the unprecedented expansion of Wal-Mart has affected American society, both for good and ill.

There are those who lament Wal-Mart's treatment of its own workers which the New York Times describes as "authoritarian," and those critics who decry Wal-Mart's (and similar large retailers') policies as tantamount to encouraging modern slavery.

But the chain also has its supporters, who argue that Wal-Mart can offer community support, as well as low prices on staple commodities for consumers on public assistance.

But the proliferation of Wal-Mart's ubiquitous retail stores has affected the very brands that it sells, often in ways that are subtle but profound.  Here are just a few:

• Potential for Quality Deterioration:  For certain basic products, Wal-Mart has a "clear policy" that its prices must go down from year to year, rather than up.  If a particular vendor does not keep its wholesale prices competitive with other suppliers, they risk having their brand removed from Wal-Mart's shelves in favor of a lower-priced competitor.  Critics say that this eventually pressures all vendors to shift manufacturing jobs to China and other developing nations, where the cost of labor is less expensive.  Over time, they argue, the quality of Wal-Mart's products must inevitably decline, rather than improve.
  
• Decreasing Brand Diversity:  Any retailer only possesses a limited amount of visible shelf-space to display products in a category, such as baby diapers.  Because of their packaging and size, baby diapers occupy a fair amount of the retailers' valuable "real estate."  Therefore, a retailer must carefully choose which brands to carry.  Wal-Mart, one of the nation's savviest retailers, chooses among the competing brands to determine shelf-space return on investment. Consequently, Wal-Mart chooses to devote 95% (or more) of its shelf space to Luvs, Pampers and Huggies, the three top sellers in that category. Per square foot, across all its stores, it simply may not make economic sense for Wal-Mart to even consider carrying any smaller, "alternative" brands such as Seventh Generation diapers which appeal to shoppers who want diapers free of bleach, latex or fragrances.  Wal-Mart's customers therefore benefit from lower prices for Luvs, Huggies and Pampers, but are not presented with a diverse selection of alternatives.  Over time, this trend can harm brand diversity, as Seventh Generation must rely upon niche market health food stores and online retailers to compete, thus creating a significant entry barrier for smaller brands.
• Weaker Intellectual Property protections:  Perhaps desiring to sell cheaper, lower quality mass-market versions of popular designs, Wal-Mart has also advocated and lobbied very effectively for limiting intellectual property protections for budding designers.  For example, in 1997, children's clothing maker Samara Brothers had sued Wal-Mart for "knocking off" its entire clothing line of high-end clothes.  Wal-Mart didn't dispute the copying, but took the case all the way to the U.S. Supreme Court to challenge the designer's claims, a process which took years and cost hundreds of thousands of dollars in legal fees.  The Supreme Court ultimately ruled that Samara's clothing line was unprotectable as a matter of law because it couldn't satisfy stringent legal "distinctiveness" criteria. Wal-Mart won not only the case, it helped to set precedent in its favor whenever it chooses to copy other designers. The Samara case is still the prevailing law of the United States, which limits the availability of trade dress protection to product configurations. The commercial reality is that very few private parties have the resources to litigate such cases against Wal-Mart, all the way to the Supreme Court, and even fewer can win. In contrast, Wal-Mart possesses both the will and the resources to dedicate serious efforts to altering the legal landscape in its favor.

Martinson Coffee's Advertising Campaign Risks Elvis Presley Estate Lawsuit

I recently came across a billboard on the side of a telephone booth (yes, those still exist) in New York City, and stopped dead in my tracks to snap a photograph of it.

The primary reason that the advertisement caught my attention was that about three years ago, I had considered approving a similar advertising campaign.  We considered utilizing a stock photograph of a cheesy Elvis Presley impersonator along with the tagline: "Not All Imitation Is Flattery."

Now, there is an ongoing debate in legal circles about whether such commercial use of a famous persona should be protected as free speech and constitute a form of parody or fair use, or whether such use could conceivably be an infringement of the late Elvis Presley's right of publicity and trade dress and trademark rights.

Absent such a finding of free speech or fair use, the unauthorized commercial use of a famous person's likeness can constitute an infringement of their right to publicity.  This right can be protected under state law, even long after their death, unless that right has lapsed, or the person's identity is in the public domain.

Last year, we reported on the legal developments involving Albert Einstein's likeness and how use of it embroiled General Motors in protracted litigation.

There has been much written in the academic literature about the fuzzy boundaries between unlawful imitation and flattery. For example, Touro Law Review published an article in 2012 about this subject.

Aware of how aggressive Elvis Presley Enterprises (EPE) has been in the past in protecting Presley's image and likeness, we had contacted EPE to discuss whether we could obtain a license. This standard "clearance" procedure is a prudent measure, regardless of whether a fair use/parody defense exists.

I was informed by EPE's representative that the Estate would not offer a license for Elvis' likeness to be used in this manner. (It is possible that the unflattering impersonator we were considering using may have played a role).

Regardless of the legal merits of EPE's position, out of respect for "the King's" intellectual property rights and to avoid the risk of litigation, we never approved or ran the advertisement.

Now, it would appear that Martinson Coffee had a similar idea, and decided to run the advertisement.

According to a press release issued by Martinson in October 2013, it is using a media blitz campaign, including with roving trucks emblazoned with the billboards. "The Martinson® Coffee trucks will appear in over two dozen locations during the campaign. The social media launch will run in conjunction with a city-wide advertising campaign. The ads, featured on New York commuter rail stations, subway stations and the like, will focus on proving why Martinson is the Real Joe."

I contacted Martinson Coffee's public relations department by e-mail, to ask if they had sought or received a license from EPE. This is what they said:

"We currently buy our images from a stock image company.  They provide all the licenses for all the images they own.

We don’t do anything on our end.  They vet those issues out prior."

In other words, the advertising agency utilized "stock photography" and assumed that the stock photography company had acquired and provided all relevant licenses.

But this assumption is usually factually and legally incorrect.

For example, iStockPhoto, Getty Images, ShutterStock and other "stock image" galleries offer a variety of "Elvis Impersonator" photographs.

However, the licenses offered for such stock photographs is typically "for editorial use only."  Their Terms of Use specifically state that "Files for Editorial Use Only cannot be used for any commercial purposes. These files may contain identifiable brands, locations or people without the proper legal releases needed for commercial use.  They may be used in blogs, magazine and newspaper editorial applications, or other non-commercial uses." Shutterstock explains the distinction on its website.

Therefore, assuming for argument's sake that Martinson acquired its Elvis impersonator image from such a third party stock image company, its commercial use would clearly fall outside the scope of the editorial use only license.

Consequently, Martinson could not avail itself of the license defense, and could not drag the third party stock image company into the case to indemnify (defend) it.

Further, whatever "releases" the stock image company acquired for use of the image would only involve the model depicted in the photograph -- not the Elvis Presley Estate, who has the legal right and obligation to protect the King's likeness.

Commentators have noted that EPE is strategic about its litigation targets. It is yet to be seen if Martinson Coffee incurs its wrath, as there is no word yet on whether a lawsuit has been filed. 

Stay tuned.

Preliminary Injunction Against MAXIM Deodorant Denied, Court Finds "Insufficient" Harm to the Brand From Unlicensed Use

In a startling decision, a federal court refused to grant a court order against the continued unauthorized use the trademark "MAXIM" to sell antiperspirant, on the basis that the likely consumer confusion and harm to the brand was not sufficiently "irreparable" to justify a preliminary order halting the infringement.

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.

Use of Square Bottle Sparks Trade Dress Lawsuit With Jack Daniel's

Fox News is reporting on a newly-filed trademark lawsuit pending between Jack Daniel's Properties, Inc., a subsidiary of Brown-Forman, the makers of Jack Daniel's whiskey and Defendants J&M Concepts, and Popcorn Sutton Distilling, LLC, a small distiller.

Photo Courtesy of Ann Richardson

Sutton's whiskey is packaged in a very similar square bottle, with angular proportions and dimensions that are clearly reminiscent of the classic Jack Daniels' whiskey bottle.

Sutton's alcoholic beverage is named after a famous moonshiner Marvin "Popcorn" Sutton.  Sutton, known for his long gray beard and overalls, committed suicide by carbon monoxide poisoning in 2009 rather than go to prison for violating alcohol manufacturing laws.  According to Wikipedia, Sutton received his "Popcorn" nickname after damaging a bar's faulty popcorn vending machine with a pool cue in the 1960's.

Jack Daniel's, produced in Lynchburg, Tennessee, filed the suit in federal district court in Nashville, alleging that the Defendants' use of a square bottle is likely to cause confusion among consumers.

The Complaint further alleges that the Jack Daniel's square bottle has been "a consistent commercial impression" for decades. That packaging is part of "one of the oldest, longest-selling and most iconic consumer products" in U.S. history, the Complaint alleges.

Jack Daniel's specifically describes its claimed "Trade Dress" as a "combination of a square-shaped bottle with angled shoulders that house a raised signature on four sides, and beveled corners, and labeling with a white on black color scheme and filigree designs."

While Jack Daniel's does not own a federally registered trademark on the square bottle shape standing alone, it does own a trademark for the labeling elements of its claimed "Trade Dress."  

The Defendants' website which had been advertising the accused whiskey appears to have been shut down, possibly in response to the filing of the lawsuit.

Trade dress lawsuits involving alcohol bottle shapes are rare, but not unheard of. For example, in 2012, the Ninth Circuit Court of Appeals reversed the lower court's dismissal of a case involving a skull-shaped vodka bottle.  In that case, the Court noted that the shape of a skull for a bottle was purely ornamental, served no functional purpose whatsoever and may have garnered sufficient secondary meaning among the consuming public to be identified with its producer.  Further, the Appeals Court noted the availability of many alternative designs to competitors.

Texas Roadhouse Sues to Protect Its Restaurants' Country Western Style

Can the style of a country western restaurant function as a valid trademark?

Texas Roadhouse believes that it can -- and does, and has sued to block other rustic-themed restaurants with similar country western motifs and names located in Indiana, Illinois and Michigan.

Texas Roadhouse is an American chain restaurant headquartered in Louisville, Kentucky, that specializes in steaks and barbecue fare, and promotes a rustic country western theme.  The chain operates over 300 locations in nearly every state.  The restaurants are known for their rough and ready look, with steel buckets of peanuts on every table.

The company is now demanding that a federal court order competing restaurant chains Texas Corral and Amarillo Roadhouse to cease their uses of confusingly similar names and themes, claiming that consumer confusion is likely.




According to the lawsuit filed in the Western District of Michigan, Texas Corral operates a Western-themed, casual, family restaurant that is "markedly similar in appearance to the Texas Roadhouse concept."




In an interview with the press, the senior director of public relations for Texas Roadhouse claimed that instances of actual confusion have occurred, with "even delivery drivers going to the wrong location on occasion."

Texas Roadhouse is claiming exclusive ownership of "the overall appearance" of its restaurants, including wooden booths and tables with light brown stain and green bench seat cushions, dish shaped, green metal light fixtures hung over individual tables, galvanized metal pails filled with free peanuts on the tables, and upbeat country music playing over speakers.

Texas Roadhouse's argument is not unprecedented.  Indeed, the U.S. Supreme Court has unequivocally held that federal trademark law can protect the theme of a restaurant.

Taco Cabana operated a chain of fast food restaurants in Texas which served Mexican food. Taco Cabana described its Mexican-themed trade dress as "a festive eating atmosphere having interior dining and patio areas decorated with artifacts, bright colors, paintings and murals. The patio includes interior and exterior areas with the interior patio capable of being sealed off from the outside patio by overhead garage doors. The stepped exterior of the building is a festive and vivid color scheme using top border paint and neon stripes. Bright awnings and umbrellas continue the theme."

Subsequently, a Two Pesos restaurant opened in Houston.  Two Pesos adopted a motif very similar to Taco Cabana's trade dress.  Two Pesos' restaurants expanded rapidly in Houston and other markets, but did not enter San Antonio.  In 1986, Taco Cabana entered the Houston and Austin markets and expanded into other Texas cities, including Dallas and El Paso where Two Pesos was also doing business.

A Texas jury found that Taco Cabana owned a distinctive concept as a form of "trade dress," that taken as a whole, was non-functional, and that there was a significant likelihood of consumer confusion between the two restaurants based on Two Pesos' intentional copying of the distinctive Mexican motif.

In 1992, a unanimous Supreme Court affirmed the lower's court's finding that the restaurant concept was indeed distinctive, and upheld the jury's finding of intentional infringement.

Texas Roadhouse is no stranger to litigation over its "style."

In recent years, it faced EEOC charges that hiring managers at the company allegedly told jobseekers ages 40 and older that “we need the young, hot ones who are ‘chipper’ and stuff” and that they were “basically looking for young teenagers.” 

The company has also been sued for underpaying its waitstaff, allegations which it reportedly settled by paying millions.

Additionally, the company has also faced litigation when one of its customers claimed to have slipped on peanut shells and suffered injuries, and been sued by one of its customers who allegedly found hair in their steaks.