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It is not surprising that large companies that dominate the world of commerce can take advantage of market dominance in fights over brand protection. A series of recent court decisions have quietly multiplied the difficulties small companies face in these David and Goliath struggles. Internet startups, already battling so many odds, have been especially hard hit. In this climate, courts are increasingly likely to rule that the startups’ trademark use is too small to be recognized. Those with recognizable rights may find themselves unable to meet the requirements of any applicable federal doctrine, with the result that large entities can encroach freely. [FOOTNOTE 1] The difficulty facing small trademark plaintiffs is not simply the burden of bearing litigation costs, although that burden may be prohibitive in trademark cases, which are often complex and generally require costly experts and surveys. Small companies face serious substantive challenges, beginning with the threshold claim to protectable trademark rights. Part of the difficulty is intrinsic to trademark law — trademark rights are based on the use of a mark to brand goods or services in the marketplace. [FOOTNOTE 2]Because trademark rights grow from use in commerce, a larger commercial presence generally leads to greater rights. Large companies can use their resources to launch brands with large-scale advertising, promotion, and sales. In that way, they can quickly build public recognition and the corresponding value and “goodwill” in a mark. The result is a brand that is considered to be stronger, and entitled to wider protection. [FOOTNOTE 3]In contrast, small-scale enterprises generally lack the resources to build such broad brand recognition. Mindful of these difficulties, the traditional rule recognized at least a small scope of trademark rights based on the prior and continuous use of a mark, even without a large volume of sales or advertising. [FOOTNOTE 4]In Lucent Information Management, Inc. v. Lucent Technologies, Inc., the 3rd U.S. Circuit Court of Appeals rejected this rule, holding that significant market penetration is necessary before any rights are recognized at all. [FOOTNOTE 5]As a result, an Internet startup that had made a significant sale and invested in months of publicity had no rights against a company that had merely filed a trademark application based on its intent to use the mark. Under the 3rd Circuit rule, startups and other small companies find themselves vulnerable unless they have the know-how and funds to file trademark applications, or have sufficient sales and advertising to create a market impact. Even if a small enterprise can assert recognizable rights, its troubles are not over. HISTORICAL BARRIERS Due to disparities in marketplace strength, it is difficult for a small company to prevail as a plaintiff bringing traditional infringement or unfair competition claims against a large company. [FOOTNOTE 6]The traditional test for both claims is “likelihood of confusion,” analyzed in the 2nd Circuit under the famous eight-factor Polaroid test. [FOOTNOTE 7]The small plaintiff’s troubles are immediate, as the very first factor — one of the most important — is the strength of the plaintiff’s mark. [FOOTNOTE 8]“Strength” includes not only the inherent strength of the mark itself, but also its “strength” in the marketplace, which is judged by considerations such as the volume of sales and advertising expenditures. [FOOTNOTE 9]A small company, which likely will have trouble showing this kind of strength, faces the Polaroidtest at a disadvantage. It may be even more important that a smaller company will likely have difficulty proving bad faith. For purposes of this factor, “bad faith” means the intent to pass off another’s product as your own. [FOOTNOTE 10]Rarely, if ever, will a large, well-known defendant wish the public to think that its goods come from a relatively unknown plaintiff. Thus, smaller plaintiffs generally cannot prove bad faith. It is possible to prove infringement without proof of bad faith, but such failure will be likely to cripple monetary recovery. A plaintiff can seek monetary recovery in the form of the defendant’s profits — but only if it can prove bad faith. [FOOTNOTE 11]So as a practical matter, there will be no award of profits to the small plaintiff, which cannot prove bad faith. Nor will there be any award of attorneys’ fees, which also hinge on a showing of bad faith. [FOOTNOTE 12]A small company cannot afford to bring an expensive infringement action under those circumstances, unless it is willing to take the risk that it will be able to force a favorable settlement based on the threat of injunctive relief. ‘REVERSE CONFUSION’ The alternative of “reverse confusion” developed to mitigate these difficulties. The doctrine removed the unrealistic requirement of proof that the larger company was attempting to pass its goods off as those of the smaller. It recognized bad faith where a large company takes a small company’s mark in reckless disregard of the harm caused. It also recognized that harm, which occurs where the larger reputation swamps the smaller one, and consumers believe that the plaintiff is associated with the defendant. The doctrine appeared promising at first, but recent decisions have not encouraged such claims. The seminal case, in 1976, was Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., where the U.S. District Court in Colorado ruled for the plaintiff on its state unfair competition claim, finding that “[w]hat Goodyear did was to determine that the plaintiff was an insignificant competitor. … Goodyear then proceeded with an intentional and deliberate infringement of the plaintiff’s trademark [which] is difficult to characterize … more favorab[ly] than as a wanton and reckless disregard of the plaintiff’s rights.” [FOOTNOTE 13]The plaintiff received a notoriously large monetary award. [FOOTNOTE 14] The reverse confusion doctrine was extended to federal infringement and unfair competition claims, and was adopted by the 2nd Circuit in the 1980s, with some initial success. [FOOTNOTE 15]Courts in the 2nd Circuit recognized the difficulties faced by small companies in showing the strength of their marks, and mitigated those difficulties by applying a modified Polaroid test, such that only a “minimal showing of secondary meaning is required in a reverse confusion case.” [FOOTNOTE 16]The doctrine provided some measure of relief, with profits being awarded in at least one Southern District case, where the court chastised the defendant for giving “short shrift to plaintiff’s claim out of arrogance and confidence that he would not mount any significant legal attack.” [FOOTNOTE 17] Recently, however, 2nd Circuit courts appear to be less sympathetic to reverse confusion. The trend is to disregard the characteristic “reckless” intent of reverse confusion, and instead to recite the same intent requirement as that for traditional confusion. Just last year in ImOn, Inc. v. ImaginOn, Inc., the Southern District preliminarily found no reverse confusion where there was no proof of actual reverse confusion, reasoning that knowing disregard of the Internet startup plaintiff’s mark was not bad faith, as the startup “had no reputation or goodwill for defendant to capitalize on.” [FOOTNOTE 18] Indeed, some courts have gone so far as to find that by appropriating a small plaintiff’s mark, the defendant actually bestowed a benefit. [FOOTNOTE 19]This trend effectively bars any finding of bad faith in a federal reverse confusion case, with a corresponding bar to profits awards and attorney fee awards — obviously discouraging such claims. In light of these difficulties with infringement and unfair competition claims, some smaller-scale plaintiffs have turned to the doctrine of dilution. DILUTION CLAIMS Marks with the strongest presence in the marketplace — famous marks — have their own special protection under the doctrine of dilution, under not only state, but also the federal dilution law, which went into effect in 1996. [FOOTNOTE 20]The 3rd and 7th Circuits have explicitly extended the doctrine to protect smaller-scale plaintiffs whose marks are famous only in their own limited market niches. [FOOTNOTE 21]This doctrine can be a potent weapon, as it protects a famous mark against dilution of its distinctive quality, even where no consumer confusion is likely. Recently, however, in TCPIP Holding Co. v. Haar Communications, Inc., the 2nd Circuit held that the federal dilution statute requires a mark to possess “a substantial degree of fame” throughout this country. [FOOTNOTE 22]At issue now is the scope of this ruling. It was articulated in the context of a descriptive mark, and there may be an effort to restrict it to that context. [FOOTNOTE 23] Moreover, there are two branches to the dilution doctrine: (1) “blurring,” which is the erosion of a mark due to another’s use of that mark outside the plaintiff’s field; and (2) “tarnishment,” which is an unsavory use of the mark that harms the plaintiff’s reputation, including within its field. [FOOTNOTE 24]Only blurring, not tarnishment, was at issue in TCPIP. The differences between blurring and tarnishment are important. It is one thing to require a wide scope of fame where a plaintiff reaches outside its field to stop another’s activities, but quite another to demand the same widespread fame where a plaintiff seeks to stop activities that threaten to destroy its reputation within the very field where it has built its fame. The logic of TCPIP does not apply in the context of tarnishment. Before TCPIP, the U.S. District Court for the Southern District of New York recognized fame in the accounting niche under both the blurring and tarnishment branches of dilution, in New York State Society of CPAs v. Eric Louis Assocs., Inc. — the question is whether the courts will continue to find this case persuasive for tarnishment. [FOOTNOTE 25]If not, marks that are only famous within a niche will be fair prey for tarnishment. Courts are rightfully reluctant to encourage pirates who may assert dubious trademark claims to prey on large companies. The other side of the balance, however, is to provide effective relief for small companies with legitimate marks when large companies recklessly disregard their rights. Rose Auslander is counsel to Carter, Ledyard & Milburnin New York. ::::FOOTNOTES:::: FN115 U.S.C. �1051 et. seq. FN2 The Trademark Cases, 100 U.S. 82, 93-94 (1879). FN3 ImOn, Inc. v. ImaginOn, Inc., 90 F. Supp. 2d 345, 351 (S.D.N.Y. 2000). FN4 See, e.g., Fieldcrest Mills, Inc. v. Couri, 220 F. Supp. 929, 931 (S.D.N.Y. 1963). FN5186 F.3d 311 (3d Cir. 1999) (rejecting reverse confusion claim). FN6The owner of an unregistered trademark may assert unfair competition under 15 U.S.C. �1125, while the owner of a registered mark may assert that claim as well as infringement under 15 U.S.C. �1114. FN7 Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cir.), cert. denied, 368 U.S. 820 (1961). FN8 Mobil Oil Corp. v. Pegasus Petroleum Corp., 818 F.2d 254, 258 (2d Cir. 1987). FN9 Bristol-Myers Squibb Co. v. McNeil-P.P.C., Inc., 973 F.2d 1033, 1041 (2d Cir. 1992). FN10 Lang v. Retirement Living Publishing Co., 949 F.2d 576, 583 (2d Cir. 1991). FN11 George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1540 (2d Cir.), cert. denied, 506 U.S. 991 (1992). FN12 Int’l Star Class Yacht Racing Ass’n v. Tommy Hilfiger U.S.A., Inc., 80 F.3d 749, 753 (2d Cir. 1996). FN13408 F. Supp. 1219, 1233 (D. Colo. 1976), aff’d as modified, 561 F.2d 1365 (10th Cir. 1977). FN14 Id. FN15 See, e.g., Banff, Ltd. v. Federated Dep’t Stores, Inc., 841 F.2d 486, 490 (2d Cir. 1987). FN16 Elizabeth Taylor Cosmetics Co. v. Annick Goutal S.A.R.L., 673 F. Supp. 1238, 1248 (S.D.N.Y. 1987); see also Commerce Nat’l Ins. Servs., Inc. v. Commerce Ins.Agency, Inc., 214 F.3d 432, 444 (3d Cir. 2000) (ruling that it is the “strength of the larger, junior user’s mark … [that] results in reverse confusion”). FN17 Stuart v. Collins, 489 F. Supp. 827, 832 (S.D.N.Y. 1980). FN18 ImOn, Inc., 90 F. Supp.2d at 354. FN19 See, e.g., DeClemente v. Columbia Pictures Indus., Inc., 860 F. Supp. 30, 49 (E.D.N.Y. 1994). FN2015 U.S.C. �1125(c). FN21 See Times Mirror Magazine, Inc. v. Las Vegas SportsNews, L.L.C., 212 F.3d 157, 164 (3d Cir. 2000), cert. denied, 121 S. Ct. 760 (2001); Syndicate Sales, Inc. v. Hampshire Paper Corp., 192 F.3d 633 (7th Cir. 1999). FN22 TCPIP Holding Co. v. Haar Comm. Inc., 244 F.3d 88, 99 (2d Cir. 2001). FN23 93. FN24 95. FN25 New York State Society of CPAs v. Eric Louis Assocs., Inc., 79 F. Supp.2d 331, 344, 346 (S.D.N.Y. 1999).

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