Copyright and Fashion Design Confusion: Let’s Move to Tennessee [1]

In Varsity Brands Inc. v. Star Athletica LLC[2] the court brings a new spin to on the bank shot to create in the United States a protectable zone of intellectual property rights for fashion designers.  Varsity is just another recent example of the fashion industry floundering for protection of design rights; it is also novel as an example of judicial activism in an area ripe, over ripe, for Congressional Legislation.

In a recent exploration[3] of the Adidas v Skechers “Stan Smith” case, the twisted shoe horning of trademark law to fashion design was discussed wherein it was shown that the true solution to addressing design knock off and copying is legislative action; the author suggested tracking the European Union (“EU”) Directive 98/71/EC of the European Parliament and of the Council of 13 October 1998 citing the failure of a United States solution. The Innovative Design Protection Act of 2012 (the “IDPA”) ( S.3523-112th Congress (2011-2012) introduced by Sen. Charles Schumer failed to pass Congress even though it was at best a compromise which would ineluctably have limited benefit to the fashion industry and its creative designers. Thus a gaping legislative hole continues to exist.

This intellectual property hole is due to the strict statutory limitation for the grant of copyright protection to apparel. The Copyright statute, 17 U.S.C. § 101 does not permit useful, functional articles be subject to copyright protection; clothing is both functional and useful and therefore the ability to decompile the aesthetic from the utilitarian has been considered a practical non-starter for protection of fashion designs, or for others the holy grail.

In Varsity the court jumped over decades of precedent manifested by at least twelve (12[4]) different tests to determine if a pictorial or graphic design can be identified separately from the utilitarian aspects of the article, in the instant case a cheerleader’s uniform. The Court decided to meld into a grand uniform “hybrid approach”[5] to determine if  “an artistic design is conceptually separable from the utilitarian aspects of the article.”  The Varsity court reversed a lower court’s conventional decision finding the designs on the cheerleader’s uniform, such as chevrons, were not inseparable and therefore there can be no copyright protection for the designs which are a part of the cheerleader’s uniform. If one pauses for a moment the holding belies credulity: one company now has the copyright on chevrons for cheerleader uniforms?[6]

Cutting through the “hybrid” analysis Varsity comes full circle to a very simplistic analysis: the designs on the cheerleaders uniforms are more like fabric designs than clothing designs and are therefore subject to copyright protection. Of course fabric designs are subject to protection but precedent holds “that clothing, in addition to covering the body, serves a ‘decorative function,’ so that decorative elements of clothing are generally ‘intrinsic’ to the overall function, rather than separable from it.”[7]  In other words clothing design is intrinsically useful by its function. Any other interpretation is a bald circumvention of the Copyright Law as written. However the Varsity  court blithely rejected  precedent since such precedent would make nearly “all artwork unprotectable.”

If the Varsity holds fashion designers concerned about design protection may well be served by moving their corporate headquarters to the Sixth Circuit of the United States Court of Appeals. A better result would be for Congress to do it’s a job an adopt appropriate legislation to remedy the problem of misappropriation of original designs.

[1] Or Kentucky, Michigan and Ohio all within the Sixth Circuit

[2] Westlaw citation 2015 WL 4934282; 115 USPQ 2nd 1773

[3] See Rube Goldberg Trademark Infringement: Adidas AG v Skechers USA Inc. — A lesson on why we need to learn from the EU by Leonard N. Budow

[4] See Westlaw citation 2015 WL 4934282, 15-16

[5] Hybrid melding the second and fourth circuit opinions.

[6] Note the Varsity court did not rule on the originality issue which would seemingly address this issue

[7] See Jovani Fashion, Ltd. v. Fiesta Fashions , Docket No. 12-598-cv, 2012 WL 4856412

The International Trade Commission and Section 337: An Underused Trademark Enforcement Mechanism

The Tariff Act of 1930[1] (“Act”) provides that infringement of patent and registered trademark rights[2] to be unfair practices in the importation of goods into the United States.  The Act is  implemented by the United States  International Trade Commission (“Commission”) which is an agency of the United States government that serves a bi-partisan function to advise the President, Office of the United States Trade Representative, and Congress on matters related to international trade. In addition, it also has a judicial function which is too often overlooked by apparel companies seeking to enforce its rights against importers of goods which infringe their intellectual property rights. Globalization of the fashion industry means that it is more likely than not a domestic United States enterprise will directly or indirectly be involved in the international sale of goods. Thus, the Commission may seem to be an obvious avenue of recourse to strike at the heart of many infringement claims; the production of goods entering the United States which infringe on a company’s intellectual property rights. So why the dearth of actions before the Commission by fashion companies?

There are several reasons why an apparel company and counsel may feel the Commission is not a viable forum to seek relief. First, tactical.  The nature of an infringement may be best appreciated or understood by a jury as opposed to an Administrative Law Judge (“ALJ”). The   ALJ is designated by the six (6) Commissioners who are nominated by the President, confirmed by the Senate and serve for nine (9) years. Proceedings before the Commission[3] are more administrative[4] than judicial so depending upon the nature of the trademark or even upon the location of the plaintiff, an apparel company may feel it has tactical advantage before a jury in a “home” jurisdiction as opposed to before  a “sterile” ALJ.

The next disincentive for selecting the Commission for relief is actually the nature of the relief desired.  The Commission cannot grant monetary damages[5] or targeted relief.  If the goal is to secure monetary damages that relief is not available before the Commission.  The nature of relief is in the form of a General Exclusion Order (“GEO”) or a Limited Exclusion Order (“LEO”).  The GEO generally bans importation of the infringing goods even an importer is not a party to the proceeding before the Commission and the LEO is targeted to the actual named infringer. However, there is no calibration of the relief.  While goods may be banned from further import into the United States the Commission cannot order destruction, re-call or other flexible relief.[6]

Then there is the rocket docket.  Counsel may see the expedited processing of the administrative tribunal to be a negative. The ramp up function in itself will be time consuming. Prior to filing with the Commission it is critical that all ducks be lined in  a straight row; that will be an advantage to plaintiff and will place defendant in an accelerated defensive position. Depending on the nature of the defendant’s internal operations, and its intellectual property and  litigation counsel, the commencement of the process in itself might lead to an expedited settlement. But the plaintiff might not be able to take advantage of the tactical move if it too suffers from the defendant’s internal limitations.

The rocket docket also has a very practical negative side for all parties: accelerated legal fees and costs. Those costs and expenses will include expensive surveys, census analysis as well as other experts. Depending on the solvency of the plaintiff as well as its cash flow, it might be imprudent to start an action that will have an immediate impact on its expenses. In a judicial proceeding, although the relief may be delayed, one can practically budget for a slower, protracted, as opposed to a fleeting, war.

Another disincentive or threshold bar to an action before the Commission is jurisdictional.  As noted above while apparel companies may be involved in the importation of goods, there are times when establishing that the targeted goods have been imported. If you cannot establish importation the Commission will not have jurisdiction.

Also one must establish harm to a domestic industry.[7] This means the plaintiff in a  trademark infringement case must show at least one of the following three: a material investment in plant and equipment; a significant investment of labor or capital; or a substantial investment in research and development or licensing.[8] If the plaintiff cannot show both domestic industry impact as well as importation of goods the Commission will not have jurisdiction.

Notwithstanding the apparent limitations or hurdles presented by a Section 337 action, an apparel company must view such an action as being just another weapon to enforce its intellectual property rights.[9] For example to combat grey market goods[10] as opposed to outright infringement, recourse to the Commission may be a viable option. The plaintiff in a Section 337 grey market case would have to show the goods are materially different, such as differing warranties which is almost a given on foreign versus domestic sale of goods. The relief, since it is based on the in rem jurisdiction against the goods, could be a broad GEO implemented in the time frame of a rocket docket.

Although the availability of a GEO or LEO and not monetary damage is identified as negative for a Section 337 proceeding, note that damages are also available in a Federal District Court proceeding; the remedies and actions are not mutually exclusive although it is likely that the Federal District Court case will be stayed pending the proceeding before the Commission.

For luxury brands or any brand concerned about dilution, as well as infringement of its trademark, the rocket docket is a positive not a negative.  A trademark owner may see the import of infringing goods as adversely affecting its good will and the value of its brand. The greater the dissemination of the products, the length of time permeating the domestic market, the greater the impact on brand value.  Thus the expedited time frame afforded by the Commission can be a great tactical advantage.

Practically speaking sometimes the effective target of an action may not be subject to the in personam jurisdiction of the United States courts. A manufacturer which may not have contacts for long arm jurisdiction will not be adversely affected by an action brought in Federal District court. However the jurisdiction of the Commission is in rem thus it is against the goods. So while a manufacturer may not appear before the Commission a GEO will bar the importation of the offending goods.

The Section 337 proceeding while common for patent actions is still a relatively rare bird for trademark. However it can be effective tactical weapon if wisely deployed in the appropriate circumstances.  Precipitous preclusion or implementation are both to be avoided; however, either through over sight or ignorance, to date  Section 337 enforcement actions have not been deemed a conventional part of enforcement mechanisms for a fashion and that is a strategic error.

[1] 19 U.S.C. §1337

[2] See 19 U.S.C. §1337(a)(1)(B)-(E). Misappropriation of trade secrets, palming off, misleading or false advertising and general violations of antitrust laws are also subject to the bailiwick of the Commission

[3] The rules of the Commission are set forth in 19 CFR Part 210

[4] But to be clear the investigations conducted by the ALJ are subject to procedural that are similar to the Federal Rules of Civil Procedure. The hearing is conducted in accordance with 5 U.S.C. 551 et seq. which does provide for notice, cross examination, the right to object, motion practice etc.

[5] Under the Lanham Act one can recover the infringer’s profits in addition to actual damages.

[6] E.g. Levi Strauss & Co v Sunrise International  Trading, Inc.  51 F 3d 982  (11th Cir 1995)

[7] See Sections 337(a)(2) and (3) of the Act.

[8] See 19 U.S.C. §1337(a)(1)(B).

[9] In  the  Matter  of  Certain  Handbags,  Luggage, Accessories,  and  Packing  Thereof Investigation  No. 337- TA-754  Publication 4387  USITC March 2013

[10] See Grey Market Trademark Infringement Actions at the U.S. International Trade Commission: The Benefits of the Forum and Analysis of Relevant Cases,” 8 John Marshall Review of Intellectual Property Law 271 (2009).

Rube Goldberg Trademark Infringement: Adidas AG v Skechers USA Inc. — A lesson on why we need to learn from the EU

Trademarks and design rights are a woeful but combustible combination. Another day and another trademark infringement suit is commenced to circumvent the lack of effective design protection rights in the United States.  On September 14, 2015, Adidas America Inc., sued Skechers USA Inc. in the Federal District Court in Oregon alleging in a 35 page complaint that Skechers infringed the Adidas trademarks known as Stan Smith Trade Dress and Three Stripe Mark.[1]

There are both commercial and legislative reasons why Adidas apparently decided to continue to pursue enforcement of trade dress and design claims which should not be under the purview of the Lanham Act and trademark laws in the United States.[2] Commercially, one can speculate that the announcement in May 2015[3] that Skechers apparently became the number 2 player in the sports footwear market with prior number 2 Adidas “sinking” to number 3 did not sit well internally with Adidas.  Skechers leapt into second place with approximately 5% of the marketplace and Adidas sank to third with 4.6% of the United States share.[4]  Failure in the competitive marketplace must lead to post mortems; was the failure due to misfiring of the  marketplace position with cutting edge designs or fabrics, or was it due to various forms of unfair competition? From the perspective of the design team and middle managers, the latter response obviates any need to explain commercial marketplace failures.

However, the real failure lies with the present intellectual property regime surrounding fashion designs in the United States.  The European Model shows a way forward.  The European Union (“EU”) in its Directive 98/71/EC of the European Parliament and of the Council of 13 October 1998 (“Directive”) on the legal protection of designs required each member nation to:

  1. (P)rotect designs by registration, and shall confer exclusive rights upon their holders in accordance with the provisions of this Directive.
  2. A design shall be protected by a design right to the extent that it is new and has individual character.
  3. A design applied to or incorporated in a product which constitutes a component part of a complex product shall only be considered to be new and to have individual character:

(a) if the component part, once it has been incorporated into the complex product, remains visible during normal use of the latter, and

(b) to the extent that those visible features of the component part fulfil in themselves the requirements as to novelty and individual character.(Emphasis Added)

Simply put, a design is subject to protection if the design is novel, meaning that  it is new, has not been made available prior to publication and it must resonate with an informed consumer who would find it unique from other designs.  This makes business sense and ameliorates issues regarding knocking offs[5] let alone exact copying.   Registered designs are protected for the first term for five years and thereafter subject to extension for up to twenty five years.  Unregistered designs are protected for three years from publication. In addition to the EU protection, the Member States can create and enforce their own intellectual property protection structures[6].

In the United States no such regime exits. The most recent attempt at protecting fashion design  was introduced by Senator Charles Schumer by The Innovative Design Protection Act of 2012 (the “IDPA”). ( S.3523-112th Congress (2011-2012). Although woefully short of the Directive[7], it would have ameliorated the worst offenses.

That leaves designers with recourse to Rube Goldberg complaints which conflate intellectual property crafted and intended to connote source of goods to design protection.  Today a designer must look to trademark, patent[8] and copyright protection which effectively is not structured or intended to protect fashion designs.

Copyright protection protects original works of authorship fixed in any tangible medium of expression[9] and should be the obvious default for apparel design protection. But fashion designs are not protected by copyright law.  The reason is that clothing is considered by definition to be functional so it is a useful article and useful articles are not subject to copyright protection.[10]  While it is possible to secure copyright protection if one can show the design can be identified from and apart from the apparel, it is a functional high bar.

Trademark law seeks to apprise a consumer of the source of the goods. This means a unique, distinctive trade name or logo so there is no confusion as to the creator of the goods.  Trade dress protection goes to the overlook and feel of packaging that serves to identify source. The key in both of these frameworks is to identify who or what produced the goods. Style as to how that is done is not the concern. So long as a consumer, without confusion, can identify the source of goods based upon the trade name, logo or trade dress which has acquired secondary meaning[11], trademark protection is available. But a fashion design is not indicative of source otherwise every garment would be a trademark.

The paucity of United States fashion design protection encourages counsel to grasp at whatever arrows may be in the quiver of United States intellectual property rights to protect a perceived or actual misappropriation of an original design. So what to make of the Adidas case against Skechers? Adidas effectively is arguing that Skechers produced a “Stan Smith Kock Off,” a design copy,  and therefore infringed the Mark. Therein lies the Rube Goldberg quality of this case; Adidas complains of a design copy and brings a case based on source confusion.

First recall that trademark must connote source of goods.  Applying that concept to the Adidas case, one is factually befuddled when viewing the Stan Smith Knock Off and the Stan Smith Trade Dress Shoe. The Stan Smith Trade Dress Shoe replaces the Adidas three stripe mark with angled perforations which does not resemble a stripe. Looking at that design, it will take creative surveys and evidence to establish the secondary meaning by which the Stan Smith Trade Dress Shoe is associated with Adidas; to be clear if the Stan Smith Trade Dress Shoe had the Adidas Three Stripe Mark[12] the argument might be different. But that is not the case. So if the Stan Smith Trade Dress Shoe does not denote Adidas, it will take a leap of faith to find confusion with the Skechers shoe.

But most telling is the Complaint denomination of the Skechers shoe as the Stan Smith Knock Off.  Without belaboring it, knocking off has been seen as the creative engine of the fashion industry. A knockoff is not counterfeit wherein one affixes a trademark to confuse the actual source of goods.  In the Adidas Skechers case there is a close resemblance; but merely knocking off, as labeled in the Complaint, is not a violation of trademark law.

While this will be an interesting case to follow the real response from the legal and fashion community to address the paucity of existing fashion design protection in the United States and to converge with the regime existent in the EU.

[1] The Complaint also alleges infringement of the Supernova trademark which unlike the Stan Smith and Three Strip is not trade dress but a true trademark.

[2] The purpose herein is to address only the Federal trademark and Trade Dress Infringement and Trademark Dilution claims, not the related State and Common Law claims

[3] See Skechers Overtakes Adidas; Becomes No 2 in U.S. Footwear Zacks Equity Research Published May 20, 2015 here.

[4] Nike was and remains the Number 1 brand in the United States.

[5] See discussion below regarding the “Stan Smith Knock Off”

[6] For example see the French Intellectual Property Code  Artc. L 112.2. See Red Soles Aren’t Made for Walking: A Comparative Study of European Fashion Laws, 5 Landslide 6, available here.

[7] The IDPA only protected against intentional, deliberate copies that are “substantially identical.” This language is a potential bonanza for the Intellectual Property  litigation bar.

[8] 35 U.S.C.A. § 171 Design Patents are theoretically available but due to the extended time necessary to secure the same, cost and the burden of proving that the design is novel or nonobvious, they are rarely deemed a useful vehicle.

[9] 17 USCA §102

[10] 17 U.S.C. § 101

[11] For background on trade dress and secondary meaning see 1 McCarthy on Trademarks and Unfair Competition §8:5 (4th ed.); TarfFix Devices, Inc. v. Marketing Displays, Inc. 532 US 23, 58 USPQ2d 1001 (2001)

[12] The three stripes have acquired secondary meaning and are ineluctably associated with Adidas

Trademark Infringement in the Fashion World: Aesthetic Functionality and Other Defenses

It is a truism that a fashion company is nothing more than its brand, it is an identity affixed to clothing so the purchaser may adopt by osmosis the brand’s genre.[1] The brand, the trademark, encapsulates all of the good will and secondary meaning associated with apparel and accessories.  Essentially the same garment produced and labeled from parallel, divergent sources will be perceived and priced accordingly. Moreover, the art of valuation goes beyond a multiple of EBITDA in the present or projected; it captures, or should capture, the intangible value represented by the trademark.

Since the trademark or brand is so core to a fashion company it is no wonder that prosecution of trademark claims[2] is replete to the extent of its own parody.[3]  To effectively protect and enforce a company’s true, bona fide and essential commercial rights without the speciousness of broad fire prosecutions incurring unnecessary legal costs and diversion of business efforts, it is important to have a familiarity with likely defenses to claims of confusion[4] and therefore infringement.

Aesthetic Functionality is a key defense for a fashion brand against a trademark infringement claim due to design.  There exist two types of functionality: utilitarian and aesthetic.

Very simply trademark protection cannot be granted for an item or product which is utilitarian that is inherently useful.  Utilitarian functionality has three fundamental considerations:

(i) Whether the feature or aspect is essential for the product use;

(ii) Does the feature impact cost and quality; and

(iii) If the grant of a trademark would place newcomers or competitors at a commercial, in contradistinction to a reputational, disadvantage.[5]

If one is subject to claim of trademark infringement based upon a trademark which is functionally utilitarian, as determined by the factors set forth above, then such claim will fall.  However, the more interesting defense for the fashion company accused of infringement is aesthetic functionality. To conceptualize this issue of aesthetic functionality it is best to ask whether the purported trademark identifies a source (a bona fide trademark) or the product (an invalid trademark). If the trademark places a competitor at a non-reputational commercial disadvantage then that trademark should not stand.[6]

The Christian Louboutin S.A. v. Yves Saint Laurent America, Inc., 778 F. Supp. 2d 445, 447-48 (S.D.N.Y. 2011), often mischaracterized, is simply a dispute as to aesthetic functionality.  The district court held against Christian Louboutin because its red outer sole served an aesthetic function which was vital for competition in the fashion industry.  To claim exclusive use of the color red for outer soles would place competitors at a commercial, not reputational, disadvantage.  So the Court reasoned Christian Louboutin was not entitled to trademark its outer red sole.

The Circuit Court reversed due to what it viewed as a misapplication of Qualitex v. Jacobson Products, 514 U.S. 159 (1995). The Court ruled that in Christian Louboutin S.A. v. Yves Saint Laurent America, Inc the red outer sole with a contrasting upper did serve to identify the source so the issue was reputational.  While there was no aesthetic functionality defense to the Christian Louboutin red sole trademark, the court concluded that no confusion was likely to arise since Yves St Laurent used a monochromatic look and had no contrasting upper. In sum, Christian Louboutin had a valid trademark, was not aesthetically functional and the red sole did have secondary meaning, but factually there was no confusion, so no harm to Christian Louboutin.

The take away is that aesthetic functionality is laser like, fact specific. Is the design functional, i.e. is it essential for the function or affect costs and quality? If it is, then it is not a valid trademark. If the design is not functional then it still must show whether there would be an adverse effect upon competition.  The purpose of the aesthetic functionality review is to ensure the integrity of the marketplace, avoiding the adverse impact of a trademark registration.

Aside from aesthetic functionality there are various other trademark infringement defenses perhaps not so relevant in fashion specific cases but nonetheless a staple in infringement cases. One can look to the Trademark Dilution Revision Act of 2006 (“Act”) which encapsulated certain defenses theretofore recognized by the courts.[7]

The Act also adopted a fair use defense, meaning use of a trademark other than for designation of source for one’s own goods and services. There are two prongs to the fair use defense: classic and nominative. The statutory provision states that fair use is  “the use of the name, term, or device charged to be an infringement is a use, otherwise than as a mark . . . or of a term or device which is descriptive of and used fairly and in good faith only to describe the goods or services of such party, or their geographic origin.”[8] Classic fair use occurs when a junior user uses the existing trademark of another (1) as description of the junior user’s goods (2) in good faith and (3) other than as a trademark.

Nominative Fair Use occurs when one refers to another brand for advertising, parody, commentary or news reporting.[9]   In Playboy Enterprises, Inc. v. Welles, 279 F.3d 796 (9th Cir. 2002) the concept of nominative use was extended to identification of oneself when Ms. Welles used the trademark “Playmate of the Year” to identify her role in that capacity.

Other defenses against confusion claims include invalidity of the trademark.  The most common claim for invalidity is prior use. In the United States use ordinarily trumps registration. So if a claim is made by a registrant of a trademark but it can be shown that another party made prior use of the trademark before the registrant, then the registrants claim will fail.[10]  Some other standard defenses to trademark infringement include fraud on the trademark office[11], laches[12] and unclean hands[13].

There exists panoply of defenses to trademark infringement which expand as the claims for trademark effloresce. Before acquiescing to a random cease and desist, measure the trademark against the above defenses and push back.

[1] See Fashion Brands by Mark Tungate (2012), Introduction, “You don’t buy clothes, you buy an identity”

[2] The provenance of trademark claims for confusion can be found in 15 U.S.C. § 1114 which states the holder of a registered trademark can file a trademark infringement claim against any person who, without the registered trademark holder’s consent,…(4) where such use is likely to cause confusion, or to cause mistake, or to deceive.

[3] See Under Armour is suing pretty much every company using the name ‘Armor’,  The Washington Post, August 19, 2015.

[4] Lack of confusion is the ultimate defense and is fact driven. Courts look to a variety of factors, namely, similarity of the overall impression as well as the goods and services, whether the trademark is strong, arbitrary or fanciful, or weak generic or descriptive (See Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 768 (1992), the existence of actual confusion, the intent of the junior party in using the mark, channels of distribution in the marketplace, sophistication or degree of care to be exercised by a consumer and possible bleed or expansion of product lines.

[5] See Qualitex v. Jacobson Products, 514 U.S. 159 (1995)

[6] See Tarfix Devices Inc. v Mktg Displays 532 US 23 (2001)

[7] See  15 U.S.C. § 1125(c)(3) which states: (3) EXCLUSIONS—The following shall not be actionable as dilution by blurring or dilution by tarnishment under this subsection: (A) Any fair use, including a nominative or descriptive fair use, or facilitation of such fair use, of a famous mark by another person other than as a designation of source for the person’s own goods or services, including use in connection with— (i) advertising or promotion that permits consumers to compare goods or services; or (ii) identifying and parodying, criticizing, or commenting upon the famous mark owner or the goods or services of the famous mark owner. (B) All forms of news reporting and news commentary. (C) Any noncommercial use of a mark

[8] See 15 U.S.C. § 1115(b)(4)

[9] See New Kids on the Block v. News America Publishing, Inc., 971 F.2d 302 (9th Cir. 1992).

[10] See Bauer Bros. LLC v Nike Inc. 2012 WL 1900047 (SD Cal. May 24, 2012)

[11] See Bauer Bros. LLC v Nike Inc.

[12] Precision instruments  Mfg v Auto Maint Mach Co 324 US 806 (1945)

[13] Chattanoga Mfg Inc. v Nike Inc. 301 F3rd 789 (7th Cir. 2002)

Louis Vuitton and Damier: Inherent versus Acquired Distinctiveness in the European Union

When a Louis Vuitton (“LV”) trademark, duly registered in the European Union, is subject to a declaration of invalidity and therefore cancelled, it is a worthwhile exercise to determine what went wrong; a legal post mortem. This is not a question of schadenfreude for a respected brand and design but a question of what went legally awry and how to avoid any mistakes identified by the European General Court (“EGC”).

A Community Trademark is a unitary trademark for the EU as constituted at the time of trademark application and for subsequent accession countries. On September 18, 1996, LV filed an application to register as a Community Trademark its famous, but as we shall see not distinctive, checkerboard design. At the time of the LV application, there were 15 constituent units of the EU and today there are 28. The application was granted by the Office of Internal Harmonization (“OIHM”) on August 27, 1998. Eleven years later on September 28, 2009, Nanu-Nana of Germany intervened to have the application declared invalid, in effect to have the OIHM overruled, and to cancel the trademark registration.

The EGC on April 21, 2015, affirmed the decision of the OIHM’s First Board of Appeal to grant the declaration of invalidity. While the decision itself may not have surprised (or disappointed) many observers, the breadth of the decision was stunning. Simply put, the EGC gave no succor to LV’s claims that the checkerboard as used by LV in connection with leather goods was either (a) inherently distinctive or (b) had acquired distinctiveness through use.

The findings on inherent distinctiveness, was conventional. The EGC focused on identification of origin or source and asked fundamentally a simple question: does the brown and beige checkerboard, with the weft and warp structures, have inherent distinctiveness? While the court appears to have placed a greater burden of proof on three dimensional marks as opposed to marks based on a graphic or word element, it did so for good reason. The average consumer is most likely to associate a product source with a word or logo as opposed to a shape or design. Particular designers may have a look and feel, the consumer will always have a reservation of doubt as to who or what is the actual producer of a particular product unless it is blatantly spelled out via words or unique graphics.

It is possible to perceive that underlying this analysis — as evidenced by the broad language of the findings — was a distrust of using trademark law to protect a design. The EGC was borderline insulting to the LV trademark. The design was deemed to be “basic and commonplace”; there was no “notable variation” in relation to conventional checkerboards; and probably most damming the design was no different from other checkerboard designs due to its great “simplicity.”

The EGC unequivocally held, although as a composite trademark of several possible distinctive elements, when viewed in its totality, it was not distinctive; if it’s not distinctive it cannot stand as an identifier of source. While the EGC did appear to protest too much, clearly it felt comfortable enough that LV did not carry its burden of proof that as of the date of its application the checkerboard was not distinctive enough to differentiate LV sourced goods from others.

The second claim presented a more prosaic issue: from the time of the application to the date intervenor Nanu-Nana appeared, did LV acquire the requisite distinctiveness by mere use? The door was wide open for the EGC to find for LV. Article 52(2) of EU Regulation No. 207/2009 specifically states that even if registration was erroneously granted by the OIHM for a trademark lacking inherent distinctiveness, would not be subject to invalidation, cancellation, if it had acquired distinctiveness through use. As noted above the time period of use was eleven years. It is safe to say, via a neutral term, that the checkerboard in tan and brown with weft and warp structures was and is an iconic design; but for the EGC even 11 years of continued, open, notorious and EU wide use was insufficient to sustain acquired distinctiveness .

Evidence of such use may include the amount of market share, the intensity, breadth and long standing use, the amounts invested in promoting the trademark, surveys showing the proportion of relevant persons identifying the trademark as being from a particular source, statements from chambers of commerce and opinion polls. LV submitted 8 exhibits worth of evidence as well as a survey. The exhibits showed what one would expect namely extensive, continued and consistent use.

The post mortem shows the EGC laser like focus on the issue of acquired distinctive use. LV appears to have erred in connection with the above mentioned evidence by claiming that it reflected “increased” inherent distinctiveness as opposed to “acquired distinctiveness.” Clearly not the cleanest of arguments and yet the same would not ordinarily cause a court to turn its back from such clear evidence of acquired distinctiveness.

The court also argued that of the 15 member nations of the EU at the time of application there was inadequate proof of acquired distinctiveness in Denmark, Portugal, Finland and Sweden. Since the Community trademark is a unitary mark the acquired distinctiveness argument must carry in the jurisdictions of the EU existent as of the time of the original application. The court held there was inadequate evidence to support the claim in Denmark, Portugal, Finland and Sweden.

The EGC also took LV to task over the quality of its survey stating it was faulty since it covered consumers of luxury goods and not the “average consumer” in the EU. This is on its face a stretch. The average consumer to have relevance must be the typical consumer in the particular channel of distribution.
While often times reading opinions in much like reading tea leave for future guidance, it is clear that the EGC did not merely hold against LV, it created significant hurdles to using trademarks to protect a design. The checkerboard is iconic but should a design be elevated to a source identifier no matter how iconic? While many have focused on what appears to be the technical flaws in LV’s position as identified by the court, the strategic message is simply that designs have significant and material hurdles to be afforded trademark status and the various attempts to elevate design to trademark are facing pushback.

The Virtue of a UPC Code for Brand Protection

A brand is a brand is a brand…or so it would seem. Purveyors of fashion understand the allure of a brand in connection with sales.  While knock-offs are ubiquitous and virtually a religion in the United States, apparel which is branded with a recognized label has a greater cachè and commands both prestige and better pricing.  The trademark serves not only to identify the source of the garment but the quality and standards associated with the trademark.  So when a consumer opts to buy a branded product as opposed to a knock off, there is an implied guaranty of certain quality standards associated with such a brand.

Licensing brands and ancillary thereto franchising have become integral to the growth and breadth of a brand’s expansion.  Because of the consumer’s understanding, a licensor who engages in naked licensing can lose its trademark.  A naked license is one in which the licensor does not retain or enforce quality controls.  The reason should be obvious, if a trademark is indeed to represent a value associated with the brand, a diminution due to lack of controls makes the brand at best deceptive.

Failure to maintain quality can lead to claims that the licensor granted a naked license which is a defense against trademark infringement. The antithesis occurs when one imposes quality controls and seeks to enforce the same. Under those circumstances the courts will seek to enhance the remedies available to a trademark holder, such as granting an injunction against the sale of grey market goods, an equitable remedy, which would otherwise be unavailable.

The courts will look to three (3) key factors in determining if a license constitutes a naked license; all of those factors pivot on the issue of quality. First, did the brand owner retain the right to determine quality standards?  Second, even if the brand owner retained the right to exercise control over quality, did he in fact exercise the control, or did he just sit back. Third, was there a reasonable reliance to rely upon the licensee to maintain control?

The first and third quality factors in determining a naked license are obvious. However the exercise of control is what often trips up the licensor.  What steps should a licensor undertake to maintain control?  Zino Davidoff (“Davidoff”) exemplifies the extent to which some manufacturers will go to protect quality and as a concomitant the added value to the brand by doing so.

In Zino Davidoff SA v. CVS Corp., No. 07-2872 (2nd Cir. 2009), Davidoff sued CVS due to its removal of uniform protect code (“UPC”) symbols form Davidoff packaging for its Coty licensed “Cool Water” fragrance packaging.  This UPC code permitted Davidoff to protect against both diversion from the specified channels of distribution and from counterfeiting.  The Davidoff UPC contained information regarding each unit including where and when it was produced, ingredients used and distribution path.

Davidoff restricted Coty’s rights of distribution to maintain the luxury, prestige reputation of “Cool Water”.  CVS was not part of those channels of distribution. So when Davidoff discovered CVS was selling  “Cool Water” packaged goods,  it sent a cease and desist letter.  Eventually CVS agreed to cease selling goods that were known to be counterfeit.  However, since the UPC codes had been removed but the genuiness was not in doubt, CVS argued it should be allowed to sell off its remaining, legitimate inventory.  On its face this appears reasonable since no one disputed the Cool Water goods being sold in CVS were genuine, Coty produced goods.

Davidoff pivoted the dispute to trademark infringement. Relying on Warner-Lambert Co v. Northside Dev. Corp., 86 F.3d 3 (2nd Cir. 1996) which held that a trademark holder was entitled “to an injunction against one who would subvert its quality control measures upon a showing that (i) the asserted quality control procedures are established, legitimate, substantial, and nonpretextual, (ii) it abides by these procedures, and (iii) sales of products that fail to conform to these procedures will diminish the value of the mark”, the Court in Davidoff held the removal of the UPC code which qua  quality control measure to prevent harm to the brand’s good will and reputation, resulted in trademark infringement entitling Davidoff to an injunction against the CVS sale of the goods, again even though those goods were genuine.  Further Davidoff did not have to prove injury just the risk of injury.

By using a UPC as a proactive measure to protect the quality of its brand, Davidoff was able to secure an injunction against CVS for trademark infringement. By moving aggressively to promote, retain and defend the quality of a brand, one is rewarded beyond avoiding the issue of a naked license. The brand holder is rewarded for its vigilance by being granted remedies such as an injunction against the sale of non-counterfeit goods. The court recognized the inherent contradiction to on the one hand require a licensor to protect the quality of its brand or otherwise be deemed a naked licensor and to withhold the remedies which would enable the licensor to protect its brand and control its licensees. The take away is that creative qualitative enforcement of one’s branded products is not only smart business practice but also leverages equitable and legal rights.