Trademark and Unfair Competition Law
1. The Competitive Market System and the Right to Compete
a. Unfair Trade Practices Law and the Competitive Market System
i. The problems inherent to a free market economy, which encourages competition (because of its benefits), is that competitors may try to eliminate rivalry (price fixing, buyouts, etc.), and also overzealousness causing unfair competition by misappropriation, passing off, false advertising, or product disparagement.
1. Note: We want competition to be fair, but that may not be easy to define.
ii. The bottom-line with unfair competition laws is the purpose to protect the consumer.
b. The Right to Enter Markets and to Compete Fairly
i. Even though a new business entering the market will hurt competitors by taking their sales and customers, such harm is beneficial and the essence of competition.
ii. If one enters the market with lower prices and does something that benefits people (such as teaching children), it cannot be punished by the law. The Schoolmasters’ Case.
iii. Where one merely maliciously attempts to interfere with another’s occupation or means of livelihood, that conduct is actionable. Keeble v. Hickeringill.
iv. At common law, motive was immaterial. But when a man starts an opposition (banker-turned-barber), not for the sake of profit, but for the sole purpose of driving his competitor out of business (and not for any legitimate interest of his own), he is guilty of a wanton wrong and an actionable tort. Tuttle v Buck
1. Demonstrates the tension between good-faith competition and simulated competition.
2. Note: Cutting prices below cost with the purpose to drive others out of business (bad motive) may be actionable as an anti-trust violation.
3. Rule: Liability is determined by the business methods employed by the actor and not by the actor’s motivation.
c. Interference With Contractual Relationships and the Right to Compete
i. Intentional Inducement of Breach of Contract
1. Price v. Sorrell – Declined to adopt Restatement 2d of Torts § 766A, which required only performance to become more expensive or burdensome (breach not required). Instead, court required four elements for intentional interference with K:
a. Existence of a K
b. ∆’s knowledge of K relationship
c. Intentional and improper interference inducing or causing a breach of K
d. Resulting damages
e. Held, “an action for tortious interference with a K requires an actual breach, failure to perform, or termination of the K.”
f. Note: Other jx may accept § 766A, like CA, which accepts §766, (A), and (B)
2. Rule: One who without privilege to do so, intentionally causes a 3rd person to not to perform a K with another is liable to the other for the resulting harm.
3. Claiming “competition” is not an absolute shield from improper interference.
4. Terminable at will: Attorney-client Ks are terminable at will, which usually makes interference non-actionable – but not always – other factors must be considered.
5. Exam Tip: whenever you see (a triangular) 3 parties and a K, look out for the tort of interference with a K. Remember the key to the tort is improper means of competition.
ii. Intentional Interference with Prospective Contractual Relation
1. Doliner v. Brown – Brown picked off, or scooped, Doliner’s deal for himself, but committed no actionable tort.
a. Rule: A competitor may interfere with another’s K expectancy by picking off the deal for himself (however, fraud, bribery, etc. is still actionable).
b. Note: Competition is a privilege.
2. Negligent (non-intentional) interference with a K is not actionable (eg. car accident).
2. Acquiring Trademark Rights
a. Introduction – the use of another’s trademark is unfair competition because it steals the other’s good name, and it deceives the public. Trademarks are an indicator of product quality. Trademark rights exist under both state common law, and under the Federal Lanham Act 15 U.S.C. § 1051. Federal trademark registration is not mandatory to receive federal protection.
i. Note: the reason for the 2 systems (state and federal) is because of interstate commerce
b. Jurisdiction Over Trademark Suits
i. Almost all registered TM infringement suits are brought in federal court under §32 of the Lanham Act [15 U.S.C. § 1114].
ii. An infringement of an unregistered mark may be brought in Federal court under § 43(a) [15 U.S.C. § 1125(a)], which forbids use of a false designation of origin.
iii. Any TM owner may sue in state court. There is concurrent state and federal jurisdiction in federal TM cases. The trouble is in ascertaining state law.
iv. State or Federal Law: a π in federal ct may invoke either federal or state protections, or both. There are distinct federal and state rights. (International Order of Job’s Daughters v. Lindeburg & Co.)
1. Note: diversity jx requires use of state law, which could be a problem if there is no state law on point – which would cause the ct to analogize to federal law.
c. Obtaining and Protecting Trademarks at Common Law
i. Use and First in Time: Ownership, or “use”, of a TM accrues when goods bearing the mark are placed on the market (not when mark is conceived or merely advertised). Exclusive rights belong to the first in time to use the mark in connection with the goods. Secret, undisclosed internal shipments are inadequate to find “use” (internal use) – there must be a sale to the public to find use (open use). Mere adoption of a mark without bona fide use, in an attempt to reserve it for the future, will not create TM rights. (Blue Bell v. Farah)
1. Mark Affixed: To find use, TM law requires that the mark be affixed to the merchandise actually intended to bear the mark in commercial transactions.
ii. Registration vs. Intent to Use: Intent to use a mark, like a naked registration, establishes no rights at all. Registration alone establishes only a rebuttable presumption of use as of the filing date. (Zazu Designs v. L’Oreal)
1. Frequency of Sales: sporadic sales are not considered active use. Use must be extensive and continuous to be considered use in commerce.
2. Policy: we do not want to encourage ignorance as to what TMs exist, but we want to encourage research as to what TMs are in use.
d. Obtaining Trademark Rights by Federal Trademark Registration
1. Intent to Use: To get federal registration pre-1988, one had to use first, and then apply to register (use-based). The new way permits a pre-use application by any person who has a bona fide intention to use a TM in commerc
ubsequent to the filing of the ITU application. (Warnervision v. Empire of Carolina)
v. ITU Requires Proof: the absence of any documentary evidence on the part of an applicant regarding such intent is sufficient to prove that the applicant lacks a bona fide intention to use its mark in commerce as required by Section 1(b). An allegation of ITU is not a mere formality; one who files an ITU should be prepared to prove that such intent actually existed. (Commodore Electronics v. CBM)
vi. Foreign firms: are entitled to registration even if they have never made use of the mark anywhere in the world.
3. Problem Trademarks
a. Introduction – there are three general categories of marks that may become problematic: marks with truthful information, false information, or offensive marks. TM that are identical to, or closely resemble those which others have adopted must become unavailable to subsequent merchants. Protection from problem TM comes at 3 levels: denial of registration by the PTO, held invalid by the Federal cts, or other laws like free speech, fraud, etc.
b. Factually Informative Marks
i. Introduction: Four categories of terms that get different levels of protection due to their different distinctiveness are:
1. generic (refers to the genus of which the particular product is a species),
2. descriptive (conveys an immediate idea of the qualities, or characteristics of the goods),
3. suggestive (requires imagination, thought, and perception to reach a conclusion as to the nature of the goods – e.g. Chicken of the Sea), and
4. arbitrary / fanciful (words invented solely for their use as trademarks – e.g. Dogpound Clothing, XEROX, respectively).
a. Protection Levels: A generic mark will never receive protection (e.g. SAFARI is generic); a descriptive mark will only be protected if it has a secondary meaning, identifying the source or manufacturer. Suggestive, arbitrary, and fanciful marks require no proof of secondary meaning in order to be protected.(Abercrombie & Fitch v. Hunting World).
b. Note: in practice arbitrary and fanciful are two separate categories – so a total of 5.
ii. Generic Terms: when a term becomes commonly known by the public, or generic, it can not be protected as a trademark – it becomes public property. The only duty is to reasonably distinguish one’s product from another’s. (Kellogg v. National Biscuit).Note: If there’s only one producer of a product, a consumer survey showing recognition of the producer of that mark (as there is only one correct answer) does not in itself prove secondary meaning.
1. Possible Recapture of Generic Names: it is possible, but difficult, to recapture a generic name by having constant and exclusive use of a name. (Singer v. Briley).