Trademark Travesty of the Month–SMJ Group v. 417 Lafayette Restaurant

By Eric Goldman

SMJ Group, Inc. v. 417 Lafayette Restaurant LLC, 2006 WL 1881768 (S.D.N.Y July 6, 2006)

I’ve read so many horrible trademark decisions that I barely notice the garden-variety judicial screw-up. But this case is so exceptional and outrageous that it made my jaw drop.

The Facts

The plaintiff is a restaurateur. The defendant is a non-profit organization that promotes restaurant workers’ rights. The defendant created a pamphlet that it distributed in front of the plaintiff’s restaurants. On the front, the pamphlet displayed the plaintiff’s logos and the words “SPECIAL FOR YOU.” Inside the pamphlet, the left side said “DO YOU REALLY WANT TO EAT HERE?” and the right side read:

Workers from this restaurant company have sued the company in Federal Court for misappropriated tips and unpaid overtime hours worked. More than 50 current and former workers from the restaurant company approached the Restaurant Opportunities Center of New York, complaining of misappropriated tips, unpaid overtime wages, racial and gender discrimination, sexual harassment, harsh working conditions in the restaurant, and retaliation for speaking up for their rights. SUPPORT THE WORKERS IN THEIR STRUGGLE FOR DECENT WORKING CONDITIONS! FOR MORE INFORMATION, PLEASE CALL ROC-NY (THE RESTAURANT OPPORTUNITIES CENTER OF NEW YORK) AT 212-343-1771.

The back read:

The Restaurant Opportunities Center of New York (ROC-NY) is a non-profit organization that seeks improved working conditions for restaurant workers citywide. ROC-NY assists restaurant workers seeking legal redress against employers who violate their employment rights. ROC-NY seeks to provide customers and the public with information about the litigation in this restaurant through these handbills, not to picket or interfere with deliveries. ROC-NY is not a labor organization and does not seek to represent the workers or be recognized as a collective bargaining agent of the workers at this restaurant.

You can see a copy of the leaflet as the exhibit to this affadavit.

So, we have a classic griper situation. The griper wants to communicate information to interested consumers to help them make informed marketplace decisions. Rather than set up a gripe website that would reach a small fraction of the restaurants’ consumers, the griper stands in front of the targeted businesses and hands relevant literature directly to potential consumers. Sure, the griper could have avoided using the plaintiff’s logos on the brochure (or, for that matter, any reference to the restaurants by name). Nevertheless, there’s no mistaking the leaflet’s griping purpose, and I believe the marketplace mechanism depends on the robust flow of this unflattering information.

To squelch the griper, the plaintiff sues for trademark infringement and dilution. But the defendant engaged in non-commercial griping, so this seems like an easy case for the defense, right? Read on…

Trademark Infringement

Use in Commerce

The court takes its first wrong turn by equating trademark “use in commerce” with the scope of Congress’ commerce clause powers. First, this is just a misreading of the Lanham Act but one that, unfortunately, has built a decent pedigree of similarly misguided precedent. See Uli Widmaier’s deconstruction of this issue. Second, there is the lurking question of whether non-chain restaurants really engage in interstate commerce (I’m reminded of the old Blue Note Internet jurisdiction case of the mid-1990s).

Third, how did the dissemination of griping literature meet the inappropriately broad definition of trademark use in commerce? Here, the court’s opinion is just bizarre–it concludes that distributing griping leaflets is the defendant’s “service”:

Plaintiffs’ marks are clearly displayed on the front of the pamphlets distributed by defendants, and the distribution of those educational leaflets is a service under the Lanham Act. Accordingly, defendants’ use of plaintiffs’ marks is in connection with services as defined by the Act.

This can’t be right. Otherwise, tautologically, every griper is engaged in the “service” of griping. As a result, this court’s illogic would mean that every griper uses the target’s trademark in commerce when the griper references the targeted trademark as part of its griping literature.

Likelihood of Confusion

Even though the court muffs the “use in commerce” analysis, there’s no way that the court can find a likelihood of consumer confusion…right?

Both parties agreed that, because of the logo on the front, readers initially will think that the leaflet was associated with the target restaurant. Both parties also agreed that all confusion is dispelled immediately when the reader opens the leaflet. As a result, the court bypasses the traditional multi-factor test because it says “the parties essentially agree that there is confusion.” Instead, the court turns to the initial interest confusion doctrine to evaluate the legal significance of that initial confusion.

Superficially, this is a logical jump. The only “harm” here is the momentary confusion where the reader tries to figure out determine the “special” associated with the logo. Presumably, the reader may think that there’s a coupon or other special savings inside, and in that sense the consumer has been “duped.” On the other hand, the court could (and, I believe, should) look at the leaflet in total—evaluating the leaflet piecemeal is like considering only the first five seconds of a 30 second broadcast commercial.

In any case, once the court applies to the initial interest confusion doctrine, the defendant’s chances of success went down substantially, The IIC doctrine is very pro-plaintiff. First, it finds consumers were harmed without any rigorous evidence that consumers were affected in any way. Second, the doctrine lacks a single well-accepted definition, so it’s easy for plaintiffs to find favorable definitions and hard for defendants to combat an amorphous doctrine.

Trying to avoid the application of the pro-plaintiff doctrine, the defendant argues that IIC requires competitive diversion, citing to the Lamparello case. However, the court says that IIC isn’t so limited, saying that there is no textual support to limit the Lanham Act’s application to activities that have a commercial advantage.

This conclusion is flawed on multiple grounds. First, it’s ironic that the court concludes there is no textual requirement of commercial advantage, given that IIC doesn’t have any textual basis in the statute itself. Second, the Lanham Act does have textual requirements for commercial advantage–it’s in the “use in commerce” analysis that the court flubbed earlier (a point completely understood by the Lamparello court). Third, the multi-factor LOC test makes the commercial activity requirement clear (see the Bally Fitness v. Faber case to see what happens when a court tries to fit a non-commercial actor into the multi-factor test), but the court conveniently bypassed that test.

Finally, the court rejects the defense argument that they were not diverting customers. Instead, the court says:

defendants are redirecting customers to their goods and services [which the court defined as “the distribution of leaflets to educate the public about plaintiffs’ employment practices”]. That redirection occurs as a result of confusion, and therefore defendants’ use of plaintiffs’ marks causes confusion under the Lanham Act.

With such a broad and misguided definition of “use in commerce,” many online gripers tautologically commit initial interest confusion when they use domain names or keyword metatags with the plaintiff’s trademark. In that respect, this case undoes a lot of progress in griper trademark law made through cases like Lamparello and Bosley.

The First Amendment

There is no blanket First Amendment defense to trademark infringement, so these defenses often fail—as it did here. The court says simply: “defendants use plaintiffs’ marks as a source identifier, and therefore defendants’ use is not protected by the First Amendment.”

Dilution

The court rejects the dilution argument for a variety of reasons, including the lack of requisite fame and evidence of actual dilution. Ironically, the court also cites the defendant’s lack of “commercial use in commerce,” saying “plaintiffs present no evidence that defendants’ use of the marks is commercial. Indeed, while plaintiffs argue that defendants’ use satisfies the Lanham Act’s “in commerce” and “goods and services” requirements, their briefing is void of any mention of § 1125(c)’s special “commercial use” requirement.” The fact that the court distinguishes the dilution “commercial use in commerce” standard from the trademark infringement “use in commerce” standard shows how easy it is for courts to go astray!

The Injunction

By contorting the law, the court concludes that the plaintiff has shown a likelihood of success on the trademark infringement claim. Normally, an injunction would follow as a matter of course. Yet, the court has one more contortion left–it concludes that this is the exceptional case where an injunction doesn’t issue even though the plaintiff established a likelihood of success.

The court correctly notes that there’s a presumption in favor of injunctions, but that injunctions aren’t automatic (note the parallels to the MercExchange v. eBay Supreme Court case in the patent context). Here, the court says that the typical rationales supporting an injunction do not apply:

* because the defendant didn’t gripe for profit, profit disgorgement calculations will not be speculative (there weren’t any profits)

* there is no risk that consumers will have lingering confusion from the leaflet

* “defendants’ use of plaintiffs’ marks is unlikely to cause plaintiffs to lose any sales due to defendants’ infringement”–the message in the leaflet might cost sales, but the confusion that causes consumers to pick up the leaflet won’t. As the court explains, this distinguishes the typical IIC case, where the unfair “foot in the door” advantage diverts consumers.

* on top of the foregoing, an injunction here would act as a prior restraint on speech (which would be germane to the First Amendment argument that the court summarily rejected earlier)

I’ve tried to do the best I can to summarize the court’s reasoning about the injunction, but you have to read the whole thing yourself. In discussing the injunction, the court makes a variety of cogent arguments why this is not the typical case of initial interest confusion and why any harm to the plaintiff isn’t appropriately actionable under the Lanham Act. However, the court only marshals up this cogency when discussing the injunction, when it would have been far more germane to the plaintiff’s prima facie case. Why the court did this Jekyll-and-Hyde routine– contorting the law against the defendant on the substantive merits, only to fully grasp the sociopolitical consequences of the case when evaluating the injunction–remains a mystery.

Even though the court eventually recognizes that the defendant’s conduct doesn’t fit the typical trademark infringement standards, the court’s final outcome is bizarre. The defendant technically won this case by avoiding the preliminary injunction, but because the court determined that the plaintiff has a substantial likelihood of winning the trademark infringement claim, the defendant potentially could be liable for damages due to the infringement. It may be that the court won’t award damages in any event (the injunction discussion suggests that the court doesn’t think any damages occurred). However, if the court really wanted to stiff the plaintiff, there would have been far easier ways to rule for the defendant.

Conclusion

This case reinforces that the Lanham Act requires two immediate fixes. First, the statute’s multiple definitions of “use in commerce” needs to be harmonized/fixed to make it clear that defendants actually must be engaged in commercial activity. Second, the abominable initial interest confusion doctrine needs to be eliminated. It adds nothing to trademark infringement analysis, it confuses too many judges, and it allows judges to reach wacky results like this one.

Here, between the court’s multiple errors and the socially beneficial speech jeopardized by the ruling, I rank this case as one of the five worst initial interest confusion cases of all time. As a result, I plan to contact defense counsel to see if further proceedings are likely and if I can marshal any helpful resources in those proceedings. If you’re interested in being part of that effort, please email me (egoldman@gmail.com).

UPDATE: On Aug. 30, there was a follow-on ruling where the court dealt with various motions to dismiss. The court granted the motion to dismiss the TM dilution and deceptive business practices claims but denied the motion with respect to the TM infringement, injurious falsehood, unfair competition and tortious interference claims.

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