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People passing by the Shell gas station at the corner of San Francisco’s Divisadero and Oak streets may not have noticed that another, cheaper brand of gasoline is being sold alongside the Shell pumps. But Shell Oil Co. sure did. Outraged that Canadian American Oil Co. Inc. is selling a competing product under its canopy, the oil giant filed suit, claiming the alternative gasoline infringes its trademark. Dubbed “Touchless,” like the station’s adjacent car wash, the brand currently costs 12 cents a gallon less than Shell’s. The licensee is using the Shell brand “to attract customers and switch them to his brand, ” said Shell attorney D. Peter Harvey, of Harvey Siskind Jacobs. “ Someone driving down the street sees the Shell sign and pulls in. If they saw “Touchless” by itself they would never pull in.” The case has caught the attention of attorneys who say it’s an unusual dispute that could have ramifications for trademark owners and franchisees. Shell lost its initial bid to shut the Touchless pumps off. A San Francisco federal magistrate judge ruled in May that while Shell’s arguments have merit, its request for a preliminary injunction to prohibit the station from selling the Touchless gasoline was too broad. “The real concern,” Judge Elizabeth Laporte wrote, “is not so much the use of the Touchless mark, which is entirely dissimilar to the Shell mark and could help differentiate the two products, but rather the use of the Shell mark in close proximity to the promotion and sale of the Touchless product. “In that sense, Shell’s claim is more akin to infringement by misbranding or unauthorized use of the protected mark by its competitor on its rival product,” she said. “Yet, Canadian is authorized to use Shell’s marks at its station.” Laporte offered to grant a more narrowly tailored preliminary injunction — such as ordering that the Touchless signs be moved away from the Shell sign — but Shell rejected the offer. The case, Shell Trademark Management v. Canadian American Oil, 02-1365, is scheduled to go to trial Dec. 2. Canadian has operated the station since 1963. Until last year Canadian operated as a Shell dealer, selling only Shell gasoline products. But in 2001 Canadian bought the land and improvements at the station and entered into a retail sales agreement with Shell. During the sale of the gas station, Shell contracted to have the underground storage tank removed, at which time Canadian installed two of its own tanks, one of which was for Touchless gasoline. Canadian’s attorney Jonathan Bass, a partner at Coblentz, Patch, Duffy & Bass, said the Touchless gas comes from four local refineries. Bass agreed the case is unique. “Typically, trademark and trade dress dilution cases arise when a company appears to be presenting itself confusingly as selling the goods of another company,” Bass said. “Touchless is prominently identified as not being a Shell product.” Shell obviously doesn’t think that disclaimer is adequate. Harvey said he would rather not discuss the reasons he declined Laporte’s offer for a modified order. But the judge said Shell had argued that courts disfavor disclaimers as a remedy for trademark infringement, including dilution. IP attorney Neil Smith, a partner at Howard, Rice, Nemerovski, Canady, Falk & Rabkin, also questioned the use of a disclaimer, which he said doesn’t resolve the issue of initial confusion. “Most trial lawyers don’t like disclaimers,” he said. “People don’t read them.” But even if Shell can make a case for infringement, trademark attorneys expressed surprise that Shell’s agreement with Canadian didn’t prohibit the sale of competing gasoline. “I would think it would be a condition of the license that the dealer doesn’t offer another type of gas,” said Robert Phillips, the head of the trademark practice group at Howrey Simon Arnold & White. Mark Radcliffe, a partner at Gray Cary Ware & Freidenrich said franchise agreements include a lot of protections for the franchisee. “Shell may be trying to get around restrictions in a franchise agreement through a trademark suit,” he said. Elisabeth Eisner, an IP partner at Gray Cary’s San Diego office, added that California law prohibits a franchisor from terminating an agreement without “good cause.” “A question might be whether requiring a franchisee to only sell Shell gasoline at a Shell station is a ‘reasonable requirement’ in a franchise agreement,” Eisner said. “If it isn’t, Shell would not have good cause to terminate the franchisee.”

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