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Exploring the Latest in Intellectual Property Law
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Hot Mess? Second Circuit Douses Injunction Based on Weak Mark

by | May 2, 2024 |

The US Court of Appeals for the Second Circuit reversed a district court’s grant of preliminary injunction for abuse of discretion based on an erroneous evaluation of the strength of the “inherently descriptive” marks at issue. City of New York v. Henriquez, Case No. 23-325 (2d Cir. Apr. 16, 2024) (Livingston, CJ; Walker, Carney, JJ.)

Juan Henriquez is a first responder with the Fire Department of New York (FDNY). Henriquez began organizing what he called “medical special operations conferences” (MSOCs) around the United States. In New York, he partnered with the FDNY. Six years into organizing with the FDNY, the relationship soured. Henriquez then applied to register “Medical Special Operations Conference” as a trademark. The US Patent & Trademark Office (PTO) rejected his application on the basis that the mark was merely descriptive. Henriquez amended his application under § 2(f) of the Lanham Act, which allows registration of descriptive marks that have been used on a “substantially exclusive and continuous basis” for at least five years. The PTO agreed to register his mark.

The FDNY and the City of New York brought suit, seeking to cancel Henriquez’s trademark. Henriquez counterclaimed for trademark infringement of his registered “Medical Special Operations Conference” mark and the related unregistered mark “MSOC”. The district court granted Henriquez a preliminary injunction and barred the FDNY from using “medical,” “special” and “operations” in its branding. The FDNY appealed.

The FDNY raised two issues on appeal: did the district court abuse its discretion by enjoining the FDNY’s use of the marks, and alternatively, did the district court grant an “overbroad” injunction?

The Second Circuit agreed with the FDNY on the first injunction issue and therefore did not reach the second.

The Second Circuit requires analysis of the eight “likelihood of confusion” factors under Polaroid when considering a preliminary injunction. While no one factor is dispositive, the strength of a mark “is especially important,” and therefore the Court is “reluctant to affirm any preliminary injunction founded upon an erroneous strength analysis.”

The Second Circuit found three “missteps” that led the district court to commit legal error by improperly categorizing Henriquez’s two marks as “at least strongly suggestive,” when in fact the marks were inherently descriptive.

First, the Second Circuit explained that the district court did not properly consider Henriquez’s past concessions about his marks. Henriquez registered his mark under § 2(f) of the Lanham Act – conceding descriptiveness. Henriquez also argued to the district court that both of his marks were valid based on secondary meaning, which is only necessary for descriptive marks. Because “[w]hat parties say about their marks matters,” the district court was wrong to ignore admissions of descriptiveness.

Second, the Second Circuit found that the district court did not properly consider the PTO’s characterization of the marks as descriptive. Courts should “accord great weight to the PTO’s conclusions” and only decline to follow those conclusions “for compelling reasons.” The Court noted that the PTO initially rejected Henriquez’s application and only granted registration under § 2(f), which [...]

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ITU Applicants Beware: Federal Courts Have Jurisdiction Over Pending Trademark Applications

by | Apr 11, 2024 |

The US Court of Appeals for the Ninth Circuit affirmed in part a district court’s ruling in a trademark dispute, upholding its decision to invalidate trademark applications. The Ninth Circuit held that district courts have jurisdiction to alter or cancel trademark applications in an action properly brought under 15 U.S.C. § 1119, and that in the context of challenges to intent-to-use (ITU) applications, proof of a lack of bona fide intent can invalidate. BBK Tobacco & Foods LLP v. Central Coast Agriculture, Inc., Case Nos. 22-16190; -16281 (9th Cir. Apr. 1, 2024) (Hurwitz, Desai, JJ.) (Bumatay, J., dissenting).

BBK sells and distributes smoking-related products with BBK’s “RAW” branding. Central Coast Agriculture (CCA) sells cannabis products using “Raw Garden” branding. BBK filed a complaint against CCA including claims of trademark infringement and a petition to void several ITU trademark applications owned by CCA for lack of a bona fide intent to use the relevant trademarks in commerce. Instead of disputing the merits of BBK’s claims, CCA argued that the district court had no jurisdiction to adjudicate this issue. The district court granted summary judgment in favor of BBK on its claims to invalidate the trademark applications. CCA appealed.

The Ninth Circuit affirmed the summary judgment in favor of BBK on its claims to invalidate CCA’s trademark applications. The Court explained that “when an action involves a claim of infringement on a registered trademark, a district court also has jurisdiction to consider challenges to the trademark application of a party to the action.” The Lanham Act, at 15 U.S.C. § 1119, provides that “[i]n any action involving a registered mark the court may determine the right to registration, order the cancelation of registrations, . . . restore canceled registrations, and otherwise rectify the register with respect to the registrations of any party to the action.” The Lanham Act, at § 1051, defines an application for use of trademark as a “request for registration of a trademark on the principal register.” Because a challenge to an application affects the applicant’s right to the registration, the Court reasoned that § 1119 authorizes a district court to resolve disputes over trademark applications.

The Ninth Circuit held that a “lack of bona fide intent to use a mark in commerce is a valid basis to challenge a trademark application,” aligning with decisions in sister circuits and the Trademark Trial & Appeal Board. An applicant can seek to register a mark if the mark is already being used in commerce or if the applicant has a bona fide intention, under circumstances showing the good faith of such person, to use a trademark in commerce. While applicants filing under the ITU provisions may begin the registration process based on a bona fide intent to later use the mark in commerce, the Lanham Act requires such applicants to either subsequently file a verified statement of actual use of the mark or convert their application into a use application. As a result, the Ninth Circuit affirmed the district court’s ruling [...]

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First Amendment Bowled Over by Lanham Act – Again

by | Jan 25, 2024 |

In response to the Supreme Court of the United States’ ruling in Jack Daniel’s, the US Court of Appeals for the Ninth Circuit reconsidered its 2022 decision in Punchbowl v. AJ Press and determined that Jack Daniel’s reset prior Ninth Circuit precedents regarding the interaction of First Amendment rights and the Lanham Act. The Ninth Circuit reversed its original decision and remanded the case to the district court to conduct a likelihood of confusion analysis under Lanham Act precedent. Punchbowl, Inc. v. AJ Press, LLC, Case No. 21-55881 (9th Cir. Jan. 12, 2024) (Owens, Bress, Fitzwater, JJ.)

The Ninth Circuit had previously held that despite use of the PUNCHBOWL trademark for a news service covering politics, AJ Press was not subject to liability under the Lanham Act. The PUNCHBOWL mark was registered by Punchbowl, Inc., a website specializing in online communications “with a focus on celebrations, holidays, events and memory making.” The Ninth Circuit’s original decision was based on the Court’s understanding of the Rogers test, which protected creative use of trademarks if the defendant could “make a threshold legal showing that its allegedly infringing use is part of an expressive work protected by the First Amendment.” This test was easily met if the artistic relevance of the trademark’s use was “above zero.” Shortly after the Ninth Circuit issued its initial decision, the Supreme Court granted certiorari in Jack Daniel’s Properties v. VIP Products, a case that addressed the same basic underlying precedent.

In its Jack Daniel’s decision, the Supreme Court held that the Rogers test exception to the Lanham Act did not apply when the expressive mark was used as a mark. The Supreme Court therefore drew a line between VIP’s use of “Bad Spaniels,” a direct play on “Jack Daniel’s” that was an expressive use of a mark as a mark, and use of a mark that was expressive but not used as a trademark. The Supreme Court’s ruling prompted the Ninth Circuit to reconsider its original decision in Punchbowl.

In its new decision, the Ninth Circuit, applying the rule of Jack Daniel’s, held that the Rogers test did not apply and that AJ Press’s use of the mark “Punchbowl” was not excepted from the Lanham Act as protected First Amendment expression. Rather, AJ Press’s use of “Punchbowl” was as a mark identifying its news service.

The Ninth Circuit stressed that this was not an automatic victory for Punchbowl, however. The Ninth Circuit instructed the district court on remand to proceed with a likelihood-of-confusion analysis test under the Lanham Act – an analysis that would consider many of the factors (such as the expressive nature of the trademark’s use) that had been relevant to the application of the Rogers test.



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Here’s a Great Concept: Fraud After Registration Is Not a Basis for Cancellation

by | Oct 26, 2023 |

In a split panel decision, the US Court of Appeals for the Federal Circuit overturned the Trademark Trial & Appeal Board and ruled that a fraudulent declaration under Section 15 of the Lanham Act is not a basis for cancellation of an otherwise incontestable registered mark. Great Concepts, LLC v. Chutter, Inc., Case No. 22-1212 (Fed. Cir. Oct. 18, 2023) (Dyk, Stark, JJ) (Renya, J., dissenting).

Great Concepts applied to register “DANTANNA’S” as a mark for a “steak and seafood restaurant” in 2003, which resulted in a registration in 2005.

In 2006, Chutter’s predecessor-in-interest, Dan Tana, petitioned the Board to cancel the registration based on an alleged likelihood of confusion with Tana’s common law “DAN TANA” mark for restaurant services. That cancellation proceeding was suspended during a pending civil action in which Tana successfully sued Great Concepts for trademark infringement.

Afterward, the Board dismissed Tana’s cancellation proceeding “based on petitioner’s apparent loss of interest” after he failed to respond to the Board’s order to show cause.

Meanwhile, prior to the finality of the infringement action, Great Concepts’ former attorney, Frederick Taylor, filed a combined declaration of use (pursuant to Section 8 of the Lanham Act) and a declaration of incontestability (pursuant to Section 15). In the Section 15 portion of the declaration, in relation to Great Concepts’ effort to obtain incontestable status for its already registered mark, Taylor falsely declared “there is no proceeding involving said rights pending and not disposed of either in the U.S. Patent and Trademark Office [PTO] or in the courts.”

Chutter then petitioned the PTO for cancellation of the registration based on Taylor’s false Section 15 affidavit. The Board found that Taylor’s Section 15 declaration was fraudulent and cancelled the registration under Section 14 of the Lanham Act. Great Concepts appealed.

The Federal Circuit was confronted with the issue of whether Section 14, which allows a third party to seek cancellation of a registration when the “registration was obtained fraudulently,” permits the Board to cancel a trademark’s registration based on a fraudulent Section 15 declaration, filed for the purpose of acquiring incontestability status for its already registered mark. Reversing the Board’s decision, the Court held that Section 14 does not permit the Board to cancel a registration in these circumstances.

Focusing on the statutory language, the Federal Circuit noted that Section 14 permits a third party to file “[a] petition to cancel a registration of a mark” … “[a]t any time if” the registered mark’s “registration was obtained fraudulently.” Explaining that the word “‘obtaining’ has a plain and ordinary meaning,” i.e., “[t]o get hold of by effort; to gain possession of; to procure…,” the Court then noted that, by contrast, Taylor’s fraudulent Section 15 declaration only sought incontestable status for its already registered trademark—a different right from registration.

Since “fraud committed in connection with obtaining incontestable status is distinctly not fraud committed in connection with obtaining the registration itself” and since fraud committed in connection with an incontestability declaration is not found among the “numerous bases [...]

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What’s Kühler Than Kühl? No Likelihood of Confusion

by | Sep 28, 2023 |

Addressing unfair competition claims under the Lanham Act, the US Court of Appeals for the Tenth Circuit concluded that no reasonable juror would confuse an alcohol distributer’s use of the word “kühl” with use of a similar mark by a clothing company. Alfwear, Inc. v. Mast-Jägermeister US, Inc., Case No. 21-4029 (Fed. Cir. Sept. 7, 2023) (Holmes, Kelly, Carson, JJ.)

Alfwear has used the mark KÜHL on its outdoor apparel line since 1993 and has registered the mark in connection with apparel, wine and beer. Mast-Jägermeister US (MJUS), a German herbal liqueur distributor, began incorporating “kühl” into its advertisements on billboards, commercials and digital advertising in phrases such as “kühl as ice” and “drink it ice kühl.” In response, Alfwear filed suit against MJUS, asserting trademark infringement and unfair competition. The district court granted MJUS’s motion for summary judgment, finding that there was no likelihood of confusion because all but one factor for assessing likelihood of confusion supported MJUS. Alfwear appealed.

Alfwear argued that the district court erred by not concluding that MJUS’s use of the word “kühl” was likely to cause confusion with Alfwear’s use of the essentially the same word. To determine whether a likelihood of confusion exists, the following factors must be considered:

  • The degree of similarity between the marks
  • The intent of the alleged infringer in adopting its mark
  • Evidence of actual confusion
  • Similarity of products and manner of marketing
  • The degree of care likely to be exercised by purchasers
  • The strength or weakness of the marks.

The Tenth Circuit found that the two marks were not similar in sound, meaning or appearance, and that MJUS only used “kühl” in association with other MJUS marks. The Court explained that Alfwear often depicts the KÜHL mark alongside a logo of a shield-type shape containing a stylized, snow-covered mountain peak in the colors brown, black and white against a bright blue sky. In contrast, MJUS uses the word “kühl” in phrases such as “kühl shots” or “kühl as ice,” on top of a black or green background and accompanied by a combination of either the mark JÄGERMEISTER, the Jägermeister logo or images of a Jägermeister bottle.

The Tenth Circuit also found that MJUS did not intend to copy Alfwear’s mark, explaining that MJUS was not aware of Alfwear’s trademark when designing the new advertising campaign, and noting that when MJUS became aware of the trademark, MJUS intended to avoid infringement by not placing the mark on its apparel or liquor products. The Court also determined that there was insufficient evidence of actual confusion. Alfwear presented anecdotal evidence from Alfwear executives who had heard about confusion from individuals and survey evidence that demonstrated consumers experienced an approximately 30% chance of confusion. The Court found that the anecdotal evidence was de minimis and found that the survey was not designed properly because the products were not shown to survey participants as they would appear in the marketplace and used leading questions. The Court also found that the two [...]

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Watermelon Sugar: Candy Shape and Color Deemed Functional

by | Sep 21, 2023 |

The US Court of Appeals for the Third Circuit upheld a district court’s decision that a candymaker cannot trademark the shape and colors of watermelon candy, finding that the combined colors and shape of the candy are functional because they help signal to consumers that the candies have a watermelon flavor. PIM Brands Inc. v. Haribo of America, Inc., Case No. 22-2821 (3rd Cir. Sept. 7, 2023) (Chagares, Bibas and Matey, JJ)

PIM is a leading confectionary company that introduced its Sour Jacks Wedges, a chewy gummy candy, in the early 2000s.

PIM obtained a federal trademark registration in “the shape of a wedge for candy, with an upper green section with white speckles, followed by a narrow middle white section and followed by a lower red section with white speckles.”

Haribo, a well-known German confectionery company, introduced its own watermelon-flavored sweet treat in 2019. Like the Sour Jacks Wedges, Haribo’s candy is red, white and green, with an elongated watermelon wedge shape. PIM sued Haribo for trademark and trade dress infringement under the Lanham Act and for unfair competition under New Jersey common law, alleging that Haribo copied PIM’s Sour Jacks Wedges design.

Haribo countered that PIM’s trade dress was functional and requested that the district court cancel PIM’s trademark. Haribo claimed that it designed its chewy candy’s shape and colors to match its flavor (watermelon) and that PIM’s trademark should not have been granted since it closely resembled an actual slice of watermelon. The district court agreed, finding that PIM’s trademark design was functional and not protectable since PIM’s combination of colors and shape helps identify the candy’s watermelon flavor. PIM appealed.

PIM acknowledged that the coloring of its watermelon candy was functional since it identified the candy’s flavor. However, PIM argued that the candy’s wedge shape identified the brand and challenged the district court’s decision because it did not consider the wedge shape in isolation from the colors when assessing functionality.

The Third Circuit rejected PIM’s argument, concluding that each feature of the candy’s trade dress serves a single function, which is to identify its flavor, and therefore is ineligible for trademark protection. The Court explained that a design is functional if it is useful for anything beyond branding. The Court cited to its 2021 decision in Ezaki Glico v. Lotte International America, explaining that “[e]ven if the design chosen both promotes a brand and also ‘makes a product work better,’ it is functional and unprotectable.” The Court went on to explain that if design choices (e.g., shape and color) serve the same function (e.g., identifying the flavor), they should be considered together.

PIM further argued that its Sour Jacks Wedges do not match exactly with watermelon, noting that the bottom could be more curved and have a thinner band of darker green, the wedge could be wider, the point could be sharper and a deeper red, and there could be black seeds. The [...]

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Back to the Future: Prior Third-Party Settlement Doesn’t Impact Future Trademark Licensees

by | Sep 7, 2023 |

The US Court of Appeals for the Eleventh Circuit ruled that under certain circumstances a trademark licensee can bring a claim against a third party for unfair competition under the Lanham Act even if the licensing agreement does not expressly authorize it to do so. Overhead Door Company of Kansas City v. OGD Equipment Company, LLC, Case No. 22-10985 (Fed. Cir. Aug. 22, 2023) (Branch, Brasher, JJ.; Winsor, Dist. J., sitting by designation).

This appeal involved three parties: D.H. Pace Company, Overhead Door Corporation and Overhead Garage Door (OGD). All three companies are involved in selling and servicing garage doors. Pace is a licensee of Overhead. Under its license, Pace is permitted to advertise and promote the trade name OVERHEAD DOOR COMPANY. OGD is a competitor of Overhead and Pace. Prior to the current appeal, Overhead and OGD had been involved in litigation involving OGD’s alleged trademark infringement and unfair trade practices, which resulted in a settlement. As a part of the settlement, OGD and Overhead could not bring suits against each other. However, the settlement terms were not expressly binding on any current or future licensees of Overhead.

In the current litigation, Pace filed suit against OGD for unfair competition in violation of § 43(a) of the Lanham Act, deceptive trade practices and various state trademark infringement violations. Pace alleged that OGD was leading consumers to believe that it was the same company as, or was affiliated with, Overhead (Pace’s licensor). In response, OGD moved for summary judgment, which the district court granted. The district court ruled that the licensing agreement between Pace and Overhead was a contractual bar to relief because the agreement did not affirmatively give Pace the right to sue. The district court also ruled that as a non-exclusive licensee, Pace lacked standing to bring its suit. The district court held that because Pace’s trademark rights were derived from a licensing agreement with Overhead, by discharging rights in the prior settlement with OGD, Overhead also discharged Pace’s right to sue.

Through a de novo review, the Eleventh Circuit disagreed with the district court’s grant of summary judgment against Pace. As the district court recognized, under § 43(a) of the Lanham Act, parties other than the owner of the mark can bring suit, but here the district court barred Pace’s claims based on the licensing agreement, Pace’s status as a non-exclusive licensee and the settlement agreement between OGD and Overhead. In reversing, the Eleventh Circuit held that none of these reasons was sufficient to bar Pace’s claims.

According to the Eleventh Circuit, the licensing agreement did not bar Pace from suing since there were no contractual term imposing a bar. While a licensee’s right to sue can be restricted, there was nothing in the licensing agreement at issue that limited Pace’s right to sue. The license agreement did not address trademark enforcement or either party’s ability to sue.

The Eleventh Circuit explained that the district court misread the Eleventh Circuit’s 2019 decision in Kroma Makeup v. Boldface [...]

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Burst That Bubble: Specific Knowledge Necessary to Prove Contributory Trademark Infringement

by and | Aug 3, 2023 |

The US Court of Appeals for the Ninth Circuit addressed contributory trademark infringement for the first time, finding that specific knowledge is required for liability to attach. Y.Y.G.M. SA, DBA Brandy Melville v. Redbubble, Inc., Case Nos. 21-56150; -56236 (9th Cir. July 24, 2023) (Callahan, Nelson, Thomas, JJ.)

Brandy Melville manufactures clothing and home goods and owns multiple trademarks, including the Brandy Melville Heart and LA Lightning marks. Redbubble is an online marketplace where individual artists upload designs for printing on demand on various articles and Redbubble handles payment, manufacturing and shipping.

In 2018, on two consecutive days, Brandy Melville notified Redbubble of infringing products on its marketplace. Redbubble removed them. One year later, Brandy Melville sued Redbubble for trademark infringement. The district court granted summary judgment to Redbubble on several of its claims. The case then went to trial on Brandy Melville’s contributory infringement and counterfeiting claims. The jury found Redbubble liable for contributory counterfeiting of the Brandy Melville Heart and LA Lightning marks, contributory infringement of those marks and contributory infringement of various unregistered trademarks. However, the court granted Redbubble judgment as a matter of law (JMOL) as to the contributory counterfeiting claim for the Heart mark. Brandy Melville moved for a permanent injunction, attorneys’ fees and prejudgment interest. The district court denied each of Brandy Melville’s motions.

Redbubble appealed the denial of JMOL on contributory infringement claims and the finding of willful contributory counterfeiting of the LA Lightning mark. Brandy Melville appealed the grant of JMOL on contributory counterfeiting of the Brandy Melville Heart mark and the denial of permanent injunction, attorneys’ fees and prejudgment interest.

Addressing Redbubble’s appeal, the Ninth Circuit considered contributory infringement and contributory counterfeiting together. The issue of the applicable standard in questions of contributory liability was novel for the Ninth Circuit. The Lanham Act provides a cause of action when a party intentionally induces trademark infringement or when the party continues to supply products to a third party, despite knowing or having reason to know that the third party is engaging in trademark infringement. This case dealt with the latter.

In other contexts, the Ninth Circuit has applied the “knows or has reason to know” standard as satisfying the willful blindness (in lieu of actual knowledge) element. Willful blindness requires a subjective belief that infringement is likely occurring and deliberate actions were taken to avoid knowledge of that infringement. Redbubble argued that willful blindness requires specific knowledge, while Brandy Melville argued that there is a duty to take reasonable corrective action once a party obtains general knowledge of infringement. The Court noted that for contributory copyright infringement, specific knowledge is not required. In keeping with its sister circuits, the Court held that “willful blindness for contributory trademark liability requires the defendant to have specific knowledge of infringers or instances of infringement.” The Court, therefore, vacated and remanded for the district court to reconsider Redbubble’s JMOL motion under this standard for contributory trademark infringement.

The Ninth Circuit next considered Brandy Melville’s appeal, beginning [...]

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Personal Jurisdiction? Selling Products via Interactive Website Will Do It

by | Jul 13, 2023 |

The US Court of Appeals for the Ninth Circuit reversed and remanded a district court’s dismissal for lack of personal jurisdiction, deciding that the sale of a product via an interactive website provides sufficient “minimum contacts” to support jurisdiction over a nonresident defendant in a state where the defendant causes the product to be delivered. Herbal Brands, Inc. v. Photoplaza, Inc., Case No. 21-17001 (9th Cir. July 5, 2023) (Graber, Clifton, Christen, JJ.)

Herbal Brands sells health, wellness, fitness and nutrition products directly to consumers and through authorized third-party retailers in Arizona. Photoplaza sold Herbal Brands products through two e-commerce storefronts without Herbal Brands’ permission. Herbal Brands sent three cease-and-desist letters, stating that Photoplaza’s sales harmed Herbal Brands in Arizona. Herbal Brands accused Photoplaza of trademark infringement and unfair competition under the Lanham Act, false advertising under the Lanham Act and tortious interference with contracts and business relationships under Arizona law. The district court granted Photoplaza’s motion to dismiss for lack of personal jurisdiction. Herbal Brands appealed.

The Ninth Circuit noted that Photoplaza failed to submit any evidence to contradict the jurisdictional allegations in the complaint. The Court found that under its three-part test, Photoplaza had sufficient minimum contacts with Arizona to warrant personal jurisdiction:

  1. Photoplaza purposefully directed its activities at the forum.
  2. Herbal Brands’ harm arose out of Photoplaza’s contacts with Arizona.
  3. Exercise of jurisdiction over Photoplaza would be reasonable.

The second and third prongs of the Ninth Circuit’s test were easily resolved. Herbal Brands’ claimed harm rose out of and related to Photoplaza’s conduct of selling the products to Arizona residents. The Court referred to its 2004 holding in Schwarzenegger regarding a plaintiff’s burden to establish jurisdiction, whereupon the burden shifts to the defendants under the seven-factor balancing test of Freestream Aircraft (2018). The Court found that Photoplaza did not meet its burden to present a compelling case that exercising jurisdiction would be unreasonable.

The bulk of the Ninth Circuit’s decision focused on the first prong (purposeful availment), which applies when “a case sounds in tort,” such as claims of trademark infringement, false advertising and tortious interference with business relationships, each of which requires an intentional tortious or “tort-like” act. Referring to the effects test from the 1984 Supreme Court decision in Calder v. Jones, the Ninth Circuit explained that Photoplaza purposefully directed its activities toward the forum if it (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that Photoplaza knew was likely to be suffered in the forum state. Related to the Calder test’s first and third prongs, Photoplaza’s product sales to Arizona residents were intentional acts, and the cease-and-desist letters informed Photoplaza that its actions caused harm in Arizona.

Regarding the “express aiming” prong, the Ninth Circuit explained that when a website itself is the only jurisdictional contact, the analysis turns on whether the site had a forum-specific focus or whether the defendant exhibited an intent to cultivate an audience in the forum. The Court explained that [...]

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False Advertising: Verifiably False Versus Subjective Opinion

by | Jun 22, 2023 |

In a case originally based on a false advertising claim under § 43(a) of the Lanham Act, the US Court of Appeals for the Ninth Circuit affirmed in part, reversed in part and remanded the district court’s dismissal of the claim. The Ninth Circuit concluded that the defendant’s description of a competitor’s software product was plausibly alleged as an element of false advertising. Enigma Software Group USA, LLC v. Malwarebytes, Inc., Case No. 21-16466 (9th Cir. June 2, 2023) (Clifton, Bumatay, Baker, JJ.) (Baker, J., concurring) (Bumatay, J., dissenting).

Enigma is a security software company whose products detect and remove malicious software such as viruses, spyware, adware and ransomware. Malwarebytes is a direct competitor of Enigma and sells products aimed at detecting and removing malware and other potentially threatening programs on users’ computers. Enigma originally brought this action in the US District Court for the Southern District of New York, but the case was moved to the Northern District of California on a motion to transfer filed by Malwarebytes. The California court ruled that Enigma’s claims were barred by § 230 of the Communications Decency Act, a ruling that the Ninth Circuit reversed, holding that § 230 did not apply to “blocking and filtering decisions that [we]re driven by anticompetitive animus.” The Ninth Circuit remanded the case.

On remand, Enigma asserted four causes of action:

  1. False advertising in violation of the Lanham Act
  2. Violation of New York General Business Law (NYGBL) § 349, which prohibits deceptive and unlawful business practices
  3. Tortious interference with contractual relations
  4. Tortious interference with business relations.

On Malwarebytes’s motion to dismiss for failure to state a claim, the district court found that (for the Lanham Act claim) Enigma’s allegation that Malwarebytes’s designations were “just [nonactionable] subjective opinions” rather than “verifiably false.” On appeal, Enigma argued that designations of its products as malicious, threats and potentially unwanted programs were factually false and misrepresented the very purpose of the software.

To state a claim for false advertising under § 43(a) of the Lanham Act, Enigma had to plausibly allege the following:

  • Malwarebytes made a false statement of fact in a commercial advertisement.
  • The statement deceived or had the tendency to deceive a substantial segment of its audience.
  • The deception was material, in that it was likely to influence the purchasing decision.
  • The false statement entered interstate commerce.
  • Enigma was or was likely to be injured as a result.

To show falsity, Enigma had to allege that the statement was literally false, either on its face or by necessary implication, or that the statement was literally true but likely to mislead or confuse consumers.

The Ninth Circuit found that, taken as true at the motions stage, Enigma’s allegations were sufficient to state a Lanham Act claim because Malwarebytes’s designations employed terminology that was substantively meaningful and verifiable in the cybersecurity context. While terms such as “malicious” and “threatening” are adjectives subject to numerous interpretations, the Court found that in the context of software competitors, a [...]

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