Unfair Competition – Page 3 – Attorney Evan Brown

October 13, 2010 Contracts, Unfair Competition

Blog post violated nonsolicitation clause in Amway agreement

Amway Global v. Woodward, 2010 WL 3927661 (E.D.Mich. September 30, 2010)

Amway Global went after some of its former distributors in arbitration for, among other things, violating the “Rules of Conduct” which serve as an agreement as to how the distributors (formally known as Independent Business Owners or “IBOs”) operate. Amway claimed that the IBOs violated the Rules of Conduct by soliciting others to leave Amway and join competing enterprises.

The arbitrator found in Amway’s favor, and Amway filed a motion with the court to confirm the award. The court granted the motion.

One of the factual questions was whether one of the IBOs violated the rules against solicitation by blogging about his decision to leave Amway and join another company. One of his posts said “[i]f you knew what I knew, you would do what I do.”

The IBOs argued that this statement did not constitute actionable solicitation because the communication was passive and untargeted, and because there was no evidence that anyone responded to the solicitation by leaving Amway.

The court rejected these arguments. As to the “passive and untargeted” argument, the court observed that:

[C]ommon sense dictates that it is the substance of the message conveyed, and not the medium through which it is transmitted, that determines whether a communication qualifies as a solicitation. The [statement] is readily characterized as an invitation for the reader to follow his lead and join [Amway’s competitor], and this is true despite the diffuse and uncertain readership of the site.

As to the argument based on the fact that no one responded, the court found that the express language of the nonsolicitation clause which prohibited “encourag[ing], solicit[ing], or otherwise attempt[ing] to recruit or persuade any other IBO to compete with” Amway did not turn on the success of those prohibited efforts.

November 17, 2008 Trademarks, Unfair Competition

Results of Internet searches helpful in earthworm trademark case

Cascade Mfg. Sales, Inc. v. Providnet Co. Trust, 2008 WL 4889716 (W.D. Wash. November 12, 2008)

Cascade Manufacturing makes and sells composting bins in which earthworms “enhance and accelerate the composting process.” Cascade owns a federal trademark registration for WORM FACTORY. It sued its competitor Providnet Co. for trademark infringement over Providnet’s use of the mark GUSANITO WORM FACTORY. Cascade moved for a preliminary injunction against Providnet’s use of its “worm factory” mark. The court granted the motion.

One of Providnet’s arguments against the injunction was that “worm factory” is a generic term for the types of products being sold under the respective marks. To refute this contention, Cascade introduced evidence of Internet searches supporting its claim that the products at issue are referred to as “worm bins,” and that “worm factory” refers to Cascade’s particular product. The court found this evidence to be instructive.

Earthworm picture courtesy Flickr user Rick Harris under this Creative Commons license. Redistributed here under the same license.

August 19, 2008 Unfair Competition

Pop-ups don’t amount to unfair competition in Utah case

Nor do they give rise to tortious interference.

Overstock.com, Inc. v. SmartBargains, Inc., — P.3d —-, 2008 WL 3835094 (Utah August 19, 2008)

In 2004, Overstock.com sued its competitor SmartBargains in Utah state court for violations of the state’s anti-spyware statute [Utah Code sections 13-40-101 et seq.], unfair competition and tortious interference with prospective business relations. Overstock accused SmartBargains’ of using a technology to cause SmartBargains pop-up ads to appear when one visited Overstock.com. The lower court granted summary judgment in favor of SmartBargains, holding the anti-spyware statute unconstitutional, and finding that Overstock had not presented a genuine issue of material fact on its unfair competition and tortious interference claims.

Overstock sought review of the lower court’s decision on the unfair competition and tortious interference claims with the Utah Supreme Court. On appeal, the court affirmed the grant of summary judgment.

The lower court had looked to the various WhenU cases, which deal with pop-up advertising to determine there was no triable issue as to unfair competition. (1-800 Contacts, Inc. v. WhenU.com, Inc., 414 F.3d 400 (2d Cir.2005), Wells Fargo v. WhenU.com, Inc., 293 F.Supp.2d 734 (E.D.Mich.2003), and U-Haul Int’l, Inc. v. WhenU.com, Inc., 279 F.Supp.2d 723 (E.D.Va.2003)) But the Supreme Court found the cases to be of limited value, given that they interpreted federal statutory laws, not state common law.

The court declined to adopt a “per se rule holding that all pop-ups do not violate Utah unfair competition law.” Nonetheless, the court found that Overstock did not demonstrate specific facts beyond the pleadings showing that the pop-ups were deceptive, infringed a trademark or passed off SmartBargains’ goods as those of Overstock. After all, the pop-ups were labeled with SmartBargains’ logo and appeared in a separate window. Without something compelling like survey evidence, the court concluded there was no genuine issue for trial.

As for the tortious interference claim, the court similarly held that Overstock had not shown any evidence of improper purpose (competition was fully legitimate end) or improper means on the part of SmartBargains in causing the pop-ups to appear. Although the case doesn’t expressly say so, the dismissal of this claim was probably collateral damage to the unconstitutionality of the anti-spyware statute. Among the things included as “improper means” under Utah tortious interference law is violation of a statute. With no statue left to violate, no so-called improper means could subsist.

December 19, 2005 Cybersquatting, Trademarks, Unfair Competition

Mall owner uses Section 43(a) of Lanham Act to successfully challenge domain name registrations

A few days before the public groundbreaking ceremony for the shopping mall that would be known as Provo Towne Centre, Plaintiff Rasmussen, unaffiliated with the mall, registered the domain name provotownecentre.com. Claiming an intent to start an online shopping mall, he also registered the domain names provotownecentre.biz and provotownecentre.net.

In an arbitration proceeding brought by the owner of the Provo Towne Center mall before the World Intellectual Property Organization (“WIPO”) pursuant to the Uniform Domain Name Dispute Resolution Policy, Rasmussen was found to have registered the domain names in bad faith. As an “apparent appeal” of the WIPO decision, Rasmussen filed suit in a Utah federal court against the mall owner, General Growth Properties, Inc.

General Growth filed several counterclaims against Rasmussen, alleging, among other things, violation of Section 43(a) of the Lanham Act, 15 U.S.C. §1125(a). It then moved for summary judgment on that claim. (It is interesting to note that although the case had at its root the use of a domain name, the opinion makes no mention of the Anticybersquatting Consumer Protection Act, another portion of the Lanham Act specifically drafted to address a cybersquatting case like this one.)

The court granted General Growth’s motion for summary judgment, and ordered the domain names transferred.

In its opinion, the court considered two elements to find that no genuine issue of material fact remained in regard to the alleged violation of Section 43(a). First, the court found that although General Growth’s mark “Provo Towne Centre” was merely descriptive of the services that General Growth provided, there was “exhaustive, unrebutted evidence” to show the term had acquired secondary meaning. Thus, it was protectable as a trademark.

Secondly, the court considered whether the use of the domain name would create a likelihood of confusion with General Growth’s “Provo Towne Centre” mark. It found that confusion would likely occur. The court determined that the marks were virtually identical, and that the bad faith intent found by the WIPO panel had been confirmed in the record before the court. It found the similarities between the parties’ “use and manner of marketing the services” was “problematic,” comparing Rasmussen’s intended online shopping mall with General Growth’s establishment of a successful site promoting the Provo Towne Centre mall. The court also found that the lack of sophistication in the affected consumers and the strength of the Provo Towne Centre mark weighed in favor of a finding of likelihood of confusion.

Accordingly, because General Growth had a protectable mark, and because Rasmussen’s use of the domain name would likely cause confusion, the court held that no reasonable jury would find in Rasmussen’s favor under Section 43(a).

Rasmussen v. General Growth Properties, Inc., 2005 WL 3334752 (D. Utah, December 7, 2005).

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May 24, 2005 Copyright, Unfair Competition

Dastar case applied to dismiss suit against web developer

The U.S. District Court for the District of Maryland has dismissed a copyright infringement and Lanham Act suit against a web developer for using in her online portfolio work done for a previous employer. The court held that it was without subject matter jurisdiction to hear the case where the plaintiff had not obtained copyright registrations over the works in issue, and that Section 43(a) of the Lanham Act could not apply to cover an alleged misappropriation of the “idea, concept or communication” embodied in the works at issue.

On January 5, 2005, Robin Euler left her job as a senior graphic and web designer for Mays & Associates (“Mays”), a “Maryland based, full service web and print design, marketing and communications company.” She then set up shop on her own using the name Red Robin Design [www.redrobindesign.com]. On her new company’s website, Euler placed a portfolio of her work, which included websites and print advertisements she had designed while working for Mays.

On February 11, 2005, Mays filed applications with the U.S. Copyright Office, seeking to register its copyrights in the websites and brochures Euler was using in her portfolio. Three days later, Mays filed suit in federal court in Maryland, alleging copyright infringement, unfair competition under Section 43(a) of the Lanham Act (15 U.S.C. § 1125(a)), and various state law claims. Euler moved to dismiss on the basis of lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted. The court granted Euler’s motion and dismissed the case.

Euler’s motion was based on two principal arguments: (1) that the court was without subject matter jurisdiction over the copyright claim, as Mays had not yet received registrations at the time of suit, and (2) that Mays’s cause of action under Section 43(a) of the Lanham Act was preempted by copyright law as called for in the U.S. Supreme Court case of Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 123 S.Ct. 2041 (2003).

In ruling in favor of Euler’s motion on the subject matter jurisdiction issue, the court held that Section 411 of the Copyright Act (17 U.S.C. § 411) requires a plaintiff to have actually received copyright registrations for the works at issue before filing suit. The court looked to the “ordinary, contemporary, and common meaning” of the words in Section 411(a) to determine that Congress intended to require “something more than application for a copyright prior to filing suit.” Because Mays had only applied for copyright protection and had not yet received registrations, the court was without subject matter jurisdiction.

On the Section 43(a) issue, the court held that Euler’s use on the Red Robin site of work she had done while employed by Mays could not constitute a false designation of origin. The court noted that under Dastar, Section 43(a) does not cover “any idea, concept, or communication” embodied in goods (and presumably services) offered for sale. Any misappropriation or other wrongdoing in this context would be covered by copyright law.

Mays & Associates Inc. v. Euler, — F.Supp.2d —, 2005 WL 1172326 (D.Md. May 18, 2005).

March 1, 2005 Trade Secrets, Unfair Competition

Misappropriation of web development services not unfair competition

In Atari, Inc. v. Games, Inc., arising from a dispute over an agreement to license games for online use, the U.S. District Court for the Southern District of New York dismissed defendant’s counterclaim for unfair competition, holding that such a claim could not stand where (1) alleged misappropriation was merely of services and not of knowledge, and (2) counterclaimant had not shown it was the exclusive owner of rights allegedly infringed.

In early 2004, the parties entered into an agreement whereby Games would acquire the domain name Games.com, the website located there, and an exclusive right to provide online versions of certain games such as Scrabble. The parties structured the transaction to occur over a period of time, culminating in a final payment to be made by Games, at which time Games would acquire the exclusive license to the website and online versions of the games.

Before the exclusive license was to be turned over to Games, Atari was to continue developing the Games.com site, and was to incorporate advertising on the site to raise revenue. Atari was slow in implementing the advertising, and Games assisted in implementing the advertising before it was to acquire the exclusive license.

Soon before the date the final payment was due, Games learned that there was another online version of Scrabble available, which would violate the exclusivity of its license. For various reasons, the parties ended up in litigation, asserting claims and counterclaims against one another.

Among the counterclaims that Games brought forth was one for unfair competition. The plaintiffs moved to dismiss, and the court granted plaintiffs’ motion.

As one aspect of its unfair competition claim, Games asserted that Atari had misappropriated the “labor and know-how” of Games employees who had figured out how to place advertising on the Games.com website during the period before the site was to be transferred. The court noted that “under New York law, ‘the gravamen of a claim of unfair competition is the bad faith misappropriation of a commercial advantage belonging to another by infringement or dilution of a trademark or trade name or by exploitation of proprietary information or trade secrets.'” The court held that Atari’s alleged misappropriation of “labor and know-how” in implementing the advertising did not meet the gravamen of an unfair competition claim because Games did not allege that it had employed any skill that was proprietary to it, or that could not have been provided by many other companies. The court stated “[t]he alleged misappropriation is therefore of Games’s services, not knowledge, and this will not support an unfair competition claim.”

The other aspect of Games’s unfair competition claim was that the presence of the other versions of the games online infringed rights exclusively held by Games. The court rejected this claim, however, after an examination of the agreement revealed that Games never held such exclusive rights. The grant of such exclusive rights was contingent on the final payment, which admittedly never was made.

Atari, Inc., v. Games, Inc., 2005 WL 447503 (S.D.N.Y., February 24, 2005).