By Jessica C. Engler, CIPP/US

Whether you keep up with the Kardashians or you are just a casual Instagram user, you have probably been exposed to social media influencer posts. Due to social media’s increased marketing importance, companies will offer free products, money or other compensation to social media “influencers”, i.e. users that boast at least 2,000 or more genuine followers. “Macroinfluencers” with millions of followers can often command $10,000 or more for a single product endorsement on Instagram. Influencers have been used by industries including hotels and travel services, fitness, cosmetics, clothing and accessories, food and beverage, restaurants, dietary supplements, and a litany of other consumer products and services. Similar to celebrity brand ambassadors, these influencers provide “peer” recommendations to their followers with the intent of directing the followers to purchase the endorsed products and services. These posts are often successful and have led to increased profits for many brands.

In addition to or in lieu of traditional social media influencers, companies are also looking to their own employees to serve as online brand ambassadors, participate in ad campaigns, and to share content on social media about the company. Since the advertising budget for “employee influencers” is relatively low, many companies are implementing employee advocacy programs and incentivizing employees to be spokesmen for the company in their own circles. Certain commentators have listed employee advocacy as one of the social media strategies to watch in 2019.[1]

This young, alternative form of advertising and endorsement has caught the attention of federal agencies. Starting in March 2017, the Federal Trade Commission began notifying companies using compensated influencers that the relationship between the company and the influencer needed to be made clear in a disclosure. The FTC’s Endorsement Guidelines state that if there is a “material connection” between an endorser and an advertiser (i.e., a connection that might affect the weight or credibility that a customer would give the endorsement), then that connection must be clearly and conspicuously disclosed.[2]  The FTC has stated that these guidelines apply to social media, and both marketers and endorsers are required to comply.[3] In April 2017, the FTC sent letters to almost 100 celebrities, athletes and other influencers, as well as the marketers of the brands endorsed, regarding the disclosure obligations.[4] Since that time, the FTC also settled its first formal complaint against social media influencers—gaming influencers Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell.  These men were charged with failing to properly disclose that: (1) they owned the online gambling company that they were promoting; and (2) they paid other well-known online gaming influencers to promote the platform without disclosing the financial relationship.[5] Despite the additional FTC “educational notifications” to influencers[6] and complaints to the FTC by watchdog groups,[7] some marketing commentators claim that the majority of influencer posts are still not compliant.[8]

Most recently, the Securities and Exchange Commission entered the influencer realm when it charged boxer Floyd Mayweather Jr. and music producer DJ Khaled.  Mayweather and Khaled were promoting investing in Centra Tech, Inc.’s initial cryptocurrency offerings (ICO) on social media without disclosing that they had been paid for the promotions.[9] The SEC had previously warned that cryptocurrency sold in ICOs may be securities and that those who offer and sell securities in the U.S. must comply with federal securities laws— including disclosure of payment for promotional statements.[10] The SEC has since settled with Khaled and Mayweather, requiring them to return the $350,000 they collectively received from Centra Tech (who is currently under SEC investigation for fraud).[11] Mayweather also agreed to pay a $300,000 fine to the SEC, abstain from promoting other investments for three years, and to cooperate with the SEC’s investigation. Khaled also agreed to a $100,000 fine to the SEC and to abstain from similar promotions for two years.

The FTC’s continued letters and notifications shed light on the agencies’ interest in helping influencers and brands to be more transparent about their relationships. These educational letters are often the first step in an FTC crackdown, so influencers and brands would be well advised to ensure their posts are compliant. As businesses set their marketing plans for 2019, now would be the time to ensure that any arrangements with influencers or employee advocates are appropriately detailed. While the FTC regulations (or SEC for financial products) provide more specific guidance, the below items offer some general tips and considerations.

  1. Confirm whether social media posts need to include FTC disclosures. The FTC requires a clear and conspicuous disclosure if there is a “material connection” between an influencer and brand that might materially affect the credibility of the endorsement (meaning, where the connection is not reasonably expected by the audience).[12] Material connections can include, but are not limited to, a business or family relationship, employment relationship, monetary payments, or free products.

Disclosure is not required when the material connection between the endorser and the marketer is expected. For example, if a doctor was featured in a television advertisement claiming that an anti-snoring product is, in his opinion, the best he has ever seen, a viewer would reasonably expect the doctor to be compensated for appearing in the ad and a disclosure would not need to be made. However, a viewer may be unlikely to expect that the doctor is an owner in the company or that the doctor received a percentage of the product sales, so the advertisement should clearly and conspicuously disclose such a connection.[13]

The time when the incentive is promised is also a factor. If a restaurant asks its patrons to post pictures and honest reviews of its food on Instagram, and the patrons have no reason to expect compensation or benefit from the restaurant before making the post, then the restaurant’s later decision to send the posters a free dessert coupon will likely not require a disclosure. However, if patrons were specifically informed that a social media post would result in being given the coupon or that their pictures and reviews may be used in the restaurant’s advertising, then those opportunities may be seen as having value and may need to be disclosed.

  1. The disclosure must be clear. Disclosures must be clear enough that an ordinary reader understands the relationship between the poster and the brand. The FTC has cautioned against vague references like “Thank you [Brand Name]”, “#ambassador”, “#[Product]_Rocks”, and similar language that shows just an appreciation of the product/company. Instead, the FTC encourages clear statements like “[Brand] gave me this product to try”, “Thanks [Company] for the free product”, “Sponsored”, “Promotion” or “Paid ad”. For platforms like Twitter that limit the number of characters you can use, the FTC recommends starting the tweet with “Ad:” or “#ad.”
  1. The disclosure must be conspicuous. The FTC advises that the disclosure should be: (1) close to the claims to which they relate; (2) in a font that is easy to read; (3) in a font shade that stands out against the background; (4) for video ads, on the screen long enough to be noticed, read, and understood; and (5) for audio disclosures, read at a cadence that is easy for consumers to follow and in words the listener will understand.

Certain platforms like Instagram limit the amount of text on photostreams when viewed on a smartphone, so longer descriptions are truncated with only the first few lines viewed unless the user clicks “more”. The FTC requires that the disclosure be presented without having to click “more”. It is not sufficient for an influencer to make a general disclosure on the influencer’s profile page or through links to a separate disclosure page; rather, a disclosure must appear on each endorsement post. Similarly, the FTC cautions that the disclosure should not be buried in a long string of hashtags.

In response to the FTC’s enforcement, platforms like YouTube and Instagram have added a feature where posts can be tagged as “paid”. While these can be helpful tools, they are not foolproof.  For example, the paid tag could be sufficient when only one product is pictured in an Instagram post. But if the sponsored product appears with other products—some compensated and others not compensated—then additional disclosures may need to be made. The brand and influencer need to carefully evaluate whether the tags are sufficient or if additional statements need to be made, as it is the brand or influencer that will be responsible for the failure to properly disclose—not the platform.

  1. The endorsement must be true. This requirement is true of all advertising. An influencer cannot provide a review of a service or product that the influencer has not personally used. The influencer also cannot post that the sampled product or service is amazing and #newfavorite when the influencer hated it and would never use it again. A brand looking to use influencers should not require the influencer to make a positive post if the influencer did not have a positive experience.
  1. Monitor the influencer. Even if the influencer claims they follow legal requirements, the brand or company is still responsible for ensuring that the influencer is true to their word. Brands should regularly monitor or review the influencer’s post(s) to ensure that the posting is compliant, as the brand can still be responsible for the failure to disclose.

These above tips provide some initial considerations to brands that are using influencers and the influencers make the posts. Any written agreement between the brand and influencers should include obligations to comply with FTC guidelines. Companies that are considering an employee advocacy program would be well advised to ensure that their employee social media policies carefully detail the requirements for employee endorsements online. Consultation with an attorney to prepare these agreements or social media policies or to review proposed influencer posts are a good step towards avoiding unwanted regulatory attention.

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[1] See Lilach Bullock, “5 Social Media Strategies That Will Grow Your Business in 2019”, Forbes (Dec. 20, 2018) (available at https://www.forbes.com/sites/lilachbullock/2018/12/20/5-social-media-strategies-that-will-grow-your-business-in-2019/). See also Ryan Erskine, “The Key to Increasing Your Brand’s Reach by 561%? Your Employees.”, Forbes (Jun. 30, 2018) (available at https://www.forbes.com/sites/ryanerskine/2018/06/30/the-key-to-increasing-your-brands-reach-by-561-your-employees/#3331b89429bb); Steve Cocheo, “Employee Advocacy in Banking: Aligning Culture & Content in Social Media Channels”, The Financial Brand (Nov. 15, 2018) (available at https://thefinancialbrand.com/76838/social-media-employee-trust-consumer-banking-postbeyond/).

[2] 16 C.F.R. § 255; “The FTC’s Endorsement Guides: What People Are Asking”, Federal Trade Commission (Sept. 2017) (available at https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-endorsement-guides-what-people-are-asking).

[3] “FTC Staff Reminds Influencers and Brands to Clearly Disclose Relationship”, Federal Trade Commission (Apr. 19, 2017) (available at https://www.ftc.gov/news-events/press-releases/2017/04/ftc-staff-reminds-influencers-brands-clearly-disclose). One survey done in May 2017 showed that at least 90% of celebrity influencer posts were not compliant with the FTC guidelines. “93% of Top Celebrity Social Media Endorsements Violate FTC Guidelines”, Mediakix (May 31, 2017) (available at http://mediakix.com/2017/05/celebrity-social-media-endorsements-violate-ftc-instagram/#gs.SHytKyU).

[4] Lesley Fair, “Influencers, are you #materialconnection #disclosures #clearandconspicuous?”, Federal Trade Commission (Apr. 19, 2017) (available at https://www.ftc.gov/news-events/blogs/business-blog/2017/04/influencers-are-your-materialconnection-disclosures).

[5] “CSGO Lotto Owners Settle FTC’s First-Ever Complaint Against Individual Social Media Influencers”, Federal Trade Commission (Sept. 7, 2017) (available at https://www.ftc.gov/news-events/press-releases/2017/09/csgo-lotto-owners-settle-ftcs-first-ever-complaint-against).

[6] Id.; see also Sam Sabin, “DeGeneres, Minaj Among Celebrities Whose Social Posts Drew FTC Interest in Past Year”, Morning Consult (Oct. 5, 2018) (available at https://morningconsult.com/2018/10/05/degeneres-minaj-among-celebrities-whose-social-posts-drew-ftc-interest-in-past-year/).

[7] See, e.g., “TINA.org Files FTC Complaint Against Diageo for Deceptive Influencer Marketing of Ciroc”, Truth in Advertising, Inc. (Dec. 11, 2018) (available at https://www.truthinadvertising.org/ciroc-press-release/).

[8] See Sam Sabin, “A Year After Major Actions, FTC’s Influencer Marketing Guidelines Still Overlooked”, Morning Consult (Oct. 4, 2018) (available at https://morningconsult.com/2018/10/04/a-year-later-ftcs-influencer-marketing-guidelines-still-largely-ignored/).

[9] Ahiza Garcia, “DJ Khaled, Floyd Mayweather Jr. charged with promoting cryptocurrency without disclosing they were paid”, CNN Business (Nov. 30, 2018) (available at https://www.cnn.com/2018/11/29/tech/dj-khaled-floyd-mayweather-coin-crypto-sec/index.html). Part of the increased scrutiny by the SEC is likely due to the SEC’s criminal charges of fraud against Centra Tech, which allege that Centra Tech “sold investors on false promises of new technologies and partnerships with legitimate businesses.” Frances Coppola, “SEC Fines Floyd Mayweather and DJ Khaled for Illegally Promoting a Fraudulent ICO”, Forbes (Nov. 29, 2018) (available at https://www.forbes.com/sites/francescoppola/2018/11/29/floyd-mayweather-and-dj-khaled-were-paid-to-promote-a-fraudulent-ico/#9c4b6c14665e).

[10] “Two Celebrities Charged with Unlawfully Touting Coin Offerings”, U.S. Securities and Exchange Commission (Nov. 29, 2018) (available at https://www.sec.gov/news/press-release/2018-268).

[11] Nathaniel Popper, “Floyd Mayweather and DJ Khaled Are Fined in I.C.O. Crackdown”, The New York Times (Nov. 29, 2018) (available at https://www.nytimes.com/2018/11/29/technology/floyd-mayweather-dj-khaled-sec-fine-initial-coin-offering.html).

[12] 16 C.F.R. § 255.5.

[13] 16 C.F.R. § 255.5.

By James R. Sonny Chastain, Jr.

The Federal Circuit in Lyons v. American College of Veterinarian Sports Medicine, 859 F. 3d 1023 (Fed. Cir. 2017) addressed trademark ownership, distinguishing between an idea, concept, mere preparation to use and actual use.   Between 1999 and 2001 Sheila Lyons and other veterinarians formed an organizing committee and began using the mark “The American College of Veterinary Sports Medicine and Rehabilitation” as the name of its veterinary specialist organization.   In 2002, Lyons participated in drafting a letter of intent and working with the organization to create a petition to seek accreditation.  She drafted by-laws which she presented to the organizing committee.   Thereafter, she was dismissed from the organizing committee for reasons not at issue.

After her dismissal, Lyons sought registration of the mark for “veterinary education services.”  She obtained the registration on the Supplemental Register of the U.S. Patent and Trademark Office claiming she used it in commerce.   Thereafter, the organization was granted provisional recognition as “The American College of Veterinary Sports Medicine & Rehabilitation” as a Colorado non-profit organization.

The College petitioned to cancel Lyons’ registration on the grounds of priority of use and likelihood of confusion.  The Trademark Trial and Appeal Board (“TTAB”) concluded Lyons did not own the mark and that the application for registration was void ab initio. The Federal Circuit affirmed the decision of the TTAB stating that “the lion’s share of the evidence supports the Board’s decision”.  It noted that ownership of a mark is predicated on priority of use in commerce.  The Court noted that to meet the use requirement for a service mark, an applicant must use the mark in advertising or sale of a service and show that the service was rendered in interstate commerce. In considering the evidence, the Court agreed with the TTAB that the objectively manifested intent of the parties was the mark would be used to name the veterinary specialist organization which is what transpired.  Additionally, the relevant public associated the mark with the College and not Lyons because the College certified the veterinarians.   Finally, the public looked to the College to stand behind the quality of education associated with the mark.  The Court found that the mere preparation and publication of future plans did not constitute use.  While Lyons initiated efforts to form the organization and her involvement with it may have been the reason the mark was adopted, it was the College that used the mark.

By Tara M. Madison

Dunkin’ Donuts recently announced that it will be officially dropping “Donuts” from its name to more align its brand with its expanded menu offerings and changing store experience to appeal to a younger generation. Although its signature pastry will still be offered (otherwise America would be left wondering what in the world it would be dunkin’), Dunkin’ will be beverage focused in 2019.  Dunkin’ has already felt the backlash of this decision from loyal fans who have taken to social media in protest.  Not to be discouraged, Dunkin’ is forging ahead with the rebrand undoubtedly counting on the “America Runs on Dunkin’” tagline to help see them through the transition to simply Dunkin’.  Only time will tell if the drive to modernize was worth the risk of potentially alienating core customers who have developed a strong association with the iconic original brand.  Regardless, this scenario provides an excellent example of the value and goodwill that can be achieved by investing in a strong brand.

by Tara M. Madison

It’s Girl Scout Cookie Time!  The arrival of those industrious young women and the delicious products they peddle is always a welcome time of year at our home.  We have been waiting for a year to get our Samoas fix.  This year we scoured the product list, but no Samoas.  Our astute Girl Scout representative noticed our dismay and quickly steered us toward the Caramel deLites, which she assured us was a worthy alternative.  The Caramel deLites looked like Samoas, were packaged like a Samoas, but just were not called Samoas.  What gives? As a trademark attorney and a Girl Scout cookie aficionado, I had to know more.

Upon further research, which admittedly has not been confirmed by the Girl Scouts (or any other parties involved for that matter), it appears that the two names for the same Girl Scout cookie boils down to a good old fashioned trademark claim.  The Girl Scouts contract with independently owned bakeries to bake their cookies each year.  The original Samoas baker, Murray Bakery Products, Inc. d/b/a/ Little Brownie Bakers, apparently coined the name Samoas and/or was the first to start using it in commerce to identify the cookies they produced for the Girl Scouts.

A sometimes little known fact about trademarks is that one can acquire what are referred to as common law trademark rights simply by using a distinctive word or phrase in commerce as a source identifier for a particular good or service.  But, Little Brownie Bakers did even better than that.  It obtained a federal trademark registration for Samoas in 1986.  Thus, the Little Brownie Bakers became the exclusive owner of Samoas to identify cookies throughout the United States.  Well played, Little Brownie Bakers, well played.

As the market for Girl Scout cookies expanded over the years, the Girl Scouts have had to commission the assistance of additional bakeries.  The other bakeries, however, cannot use the Samoas trademark unless the trademark owner grants them the right, which apparently has not happened.  And, in fairness, Interbake Foods, LLC, the bakery that produces Caramel deLites may not want the name, since it too has a federal trademark registration for the Caramel deLites brand cookie.

Unconfirmed internet research suggests that each independent bakery that bakes for the Girl Scouts uses their own recipe, so the Samoas brand cookie really is not the same cookie as the Caramel deLites brand cookie. Whether you get the Samoas or the Caramel deLites seems to depend on where your particular Girl Scout Troop’s cookies are sourced, which I understand can change from year to year.  The old adage, “you get what you get and don’t throw a fit,” comes to mind.

In case you are worried about the future of other Girl Scout cookie favorites, rest assured that the Girl Scouts filed and obtained their own federal trademark registrations for Thin Mints, Trefoils, and Girl Scout S’mores, so all is not lost!

In fairness to all the hard working Girl Scout bakeries, I must admit that we thoroughly enjoyed the two boxes of Caramel deLites we purchased.  But, nostalgia did leave us longing for the original…  It’s a good lesson to all you users of distinctive words and phrases out there…  Do what you can to stake your claim to the brand name associated with the good or service you provide.  Little Brownie Bakers took action to protect its intangible asset by filing a federal trademark application.  What likely seemed like a small investment in an inconsequential asset was sold to Kellogg North America Company in 2003.  A trademark success story to be sure.  So, in terms of “what’s in a name” for Little Brownie Bakers or it successors, I would suggest a whole heck of a lot.

By Tara M. Madison

For over 70 years, the Lanham Trademark Act has banned the federal registration of any trademark comprised of “immoral, deceptive, or scandalous matter” or matter which may “disparage. . . or bring [persons, institutions, beliefs or national symbols] into contempt or disrepute.”  Over the years, the application of the U.S. Patent and Trademark Office’s (“PTO”) discretion in this regard has resulted in the refusal to register marks like KHORAN (wine) and BUBBY TRAP (brassieres), while others such as BUDDA BEACHWEAR (clothing), BADASS (musical instruments), and BIG PECKER BRAND (t-shirts) have been permitted.  This increasing tolerance of edgy trademarks is undoubtedly due, at least in part, to a change in cultural sensitivities over time.

Two recent rulings by the United States Supreme Court and the Federal Circuit Court in 2017 have deemed the Lanham Act’s bars on disparaging and scandalous trademarks to be a violation of the First Amendment freedom of speech.  In Matal v. Tam[1], the United States Supreme Court unanimously struck down the prohibition on disparaging trademarks. At issue in Tam was registration of “THE SLANTS” as a trademark for an Asian rock band.  The PTO had previously refused to register the mark on grounds that it disparaged persons of Asian descent.  The Supreme Court struck down the disparagement clause, holding that trademarks were private speech, not government speech and that speech may not be banned simply because it may offend.  Because the Supreme Court addressed only the disparagement bar in Tam, the Lanham Act’s prohibition against federal registration of immoral and scandalous trademarks remained in force . . . until the Federal Circuit rendered its opinion in In Re: Brunetti[2] several months later.

At issue in Brunetti was the “FUCT” brand for clothing.  Finding the FUCT trademark to be the phonetic equivalent of the “F word,” the PTO denied registration of “FUCT” as a scandalous mark.  Following the reasoning previously applied by the Supreme Court in Tam, the Federal Circuit also struck down the Lanham Act’s restrictions on “immoral and scandalous” trademarks as unconstitutional content discrimination.

It is expected that 2018 will bring a rash of applications for marks that may have been previously deemed disparaging, scandalous or immoral in the pre-Tam and Brunetti world.  One restriction appears to remain.  Under current trademark law, a federal trademark registration can be granted only in connection with goods and services lawfully regulated by commerce.  For now anyway, the “MAKE MARIJUANA GREAT AGAIN” trademark could not be federally registered as a brand of marijuana.

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[1] Matal v. Tam, 137 S.Ct. 1744 (2017).

[2] In Re: Brunetti, 877 F.3d 1330 (Fed Cir.2017).

By Sonny Chastain

In its recent campaign, Bud Light recognizes true friends of the Crown by raising a cold adult malted beverage and chanting Dilly Dilly.  The marketing slogan was created apparently coming out of nonsense and fun.  In its campaign, Bud Light seems to want people to celebrate with a lighthearted toast of Dilly Dilly and escape the Pit of Misery.

On December 1, Modest Brewing Company in Minneapolis introduced Dilly Dilly Mosaic IIPA into the market place.  Instead of the typical “stop it or else” demand letter, Bud Light turned an infringement situation into a marketing opportunity.  Bud Light sent an actor into the Modest Brewery dressed in medieval garb to read a pronouncement from the Crown.   The Town Crier proceeded to read from a scroll, requesting Modest’s latest brew be put on a limited edition run.  The Town Crier stated that the Crown was flattered by the loyal tribute, but noted that Dilly Dilly is a motto of the Crown and disobedience would be met with additional scrolls, formal warning, and a private tour of the Pit of Misery.  As a peace offering, the Town Crier also offered two employees a free trip to the Super Bowl which is being held in Minneapolis.

The unusual cease and desist demand is achieving rave reviews on social media.   Instead of dilly dallying around in the typical strong-arm legal maneuvering, Bud Light raised a Dilly Dilly to the Modest Brewing Company.  In a creative manner, Bud Light made its point of protecting its trademark from further infringement, while generating some laughs and likely some goodwill among consumers. So, to Bud Light, Dilly Dilly!

By Sonny Chastain

General Mills filed an application to register the color yellow appearing as the uniform background on a box of Cheerios.   It contended that consumers have come to identify the color yellow specifically with Cheerios, when used in connection with the goods.  It submitted survey evidence and expert reports to support the claim of acquired distinctiveness.  However, the trademark examiner concluded that General Mills failed to prove acquired distinctiveness and that the mark fails to function as a mark.  An appeal was submitted to the Trademark Trial and Appeal Board (“TTAB”).

General Mills argued that the purchasing public recognizes the color yellow on a package of toroidal (ring or doughnut-shaped) oat-based breakfast cereal as an indicator that it is the source of the cereal.  The record showed that General Mills has sold Cheerios since 1945.  In the decade prior to 2015, General Mills spent over $1 billion in marketing yellow-box Cheerios with sales exceeding $4 billion.  However, the question was not whether consumers recognized the term Cheerios as a source indicator but whether the color yellow identifies origin.

The TTAB agreed with the examiner’s conclusion citing lack of exclusive use of the color yellow.  The Board noted that the examiner pointed to 23 cereal products that offered packaging in a similar color.  Several of the products are even offered by companies which are recognized as General Mills’ biggest competitors:  Kellogg, Post, and Quaker.  Some of General Mills’ survey subjects showed their awareness of several of the products, especially Honeycomb and Corn Pops.  Additional cereal boxes cited included Joe’s O’s, Honey O’s, Tasteeos, Honey Bunches of Oats, Crispix, and Life.  The Board concluded that General Mills is not alone in offering oat-based cereals or even toroidal shaped, oat-based cereal in a yellow package.  Thus, customers are unlikely to perceive yellow packaging as an indicator of a unique source.  While the color may be attractive and eye-catching ornamentation, it alone did not connect to a potential source.   The Board noted that while customers are familiar with the yellow color of the Cheerio’s box, the color yellow is only one aspect of the complex trade dress that includes many other features that perform as a distinguishing and source-indicating function.   It was not persuaded that customers perceive the proposed mark, the color yellow alone, as indicating the source these goods.  The Board found the yellow background did not acquire distinctiveness and does not function as a trademark.

The case teaches that it is important to recognize what mark or components thereof function to identify a source. A question to ponder is, with what features do consumers identify to connect a particular good or service with a source of origin? General Mills took an aggressive view of the source identifying capability of this color which the Board concluded was not correct.  It is possible that if additional features had been included in connection with the overall trade dress, that registration may have been possible.

Pixelated TM sign made from cubes, mosaic pattern

By Lauren Rucinski

The Supreme Court ruled Monday that a provision of federal trademark law banning offensive trademarks from federal registration is unconstitutional. Matal v. Tam, No. 15-1293 (U.S. June 19, 2017). The case concerned a dance rock band’s application for a federal trademark registration of the band’s name, “The Slants.” “Slants” is a derogatory term for persons of Asian descent. However, members of the band are Asian-Americans and the band believes that by taking that slur as the name of their group, they will help to “reclaim” the term and drain its denigrating force. However, the U.S. Patent and Trademark Office (“PTO”) denied the band name’s federal trademark application because the trademark was offensive.[1]

The provision of federal trademark law at issue is the “disparagement clause” and states that a trademark may be denied for federal registration on the basis that it may “disparage . . . or bring . . . into contemp[t] or disrepute” any “persons, living or dead.” 15 USC §1052(a). In applying the provision to a given trademark, an examiner at the PTO considers the likely meaning of the matter and whether that meaning may be disparaging to a “substantial composite” of the referenced group. The fact that an applicant may be a member of that group or has good intentions underlying its use of a term does not obviate the fact that a substantial composite of the referenced group would find the term objectionable.[2] Relying on this provision and analysis, the Trademark Examiner rejected the band’s federal trademark registration. The band appealed to the Examiner and PTO appeals board and eventually to the US Federal Circuit Court of Appeals. In re Tam, 808 F.3d 1321 (Fed. Cir. 2015). The Federal Circuit’s decision was a hodgepodge of reasoning, but ultimately found that the disparagement clause was unconstitutional. On appeal, the Supreme Court affirmed.

A unanimous court of eight of the Justices agreed that the disparagement clause violates the free speech clause of the First Amendment because it engages in viewpoint-based discrimination.[3] Viewpoint discrimination occurs when the government has singled out a subset of messages for disfavor based on the views expressed. The Court found that the disparagement provision engages in viewpoint-based discrimination because it would allow “happy-talk” or marks that promote positivity while discouraging disparaging or derogatory marks. Matal v. Tam, No. 15-1293 at 25. The Court went on to reiterate that “[g]iving offense” is a viewpoint and that the “public expression of ideas may not be prohibited merely because the ideas are themselves offensive to some of their hearers.” Id. at 23 (citing Street v New York, 394 U.S. 576 (1969)).

Notably, the Court could not agree on whether trademarks are commercial speech. Commercial speech is subject to a relaxed standard of review. See Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980). However, all Justices agreed that regardless of whether trademarks are commercial speech, the viewpoint-based discrimination necessarily invokes a heightened standard, and in any case, the disparagement provision could not pass the relaxed standard. See Justice Kennedy’s Concurring Opinion in which Justices Ginsburg, Sotomayor, and Kagan joined.

The Court also held that although the PTO is an arm of the federal government, trademarks are private, not government speech. The Court opined that the “federal government does not dream up these marks and it does not edit the marks submitted for registration.”[4] Id. at 14. Therefore, the notion that the content of a registered mark is government speech is farfetched. The Court also pointed out troublesome, practical implications of labeling a trademark as government speech. For instance, other systems of government registration could easily be characterized in the same way, namely copyright. Id. at 18.

Monday’s decision is a boost to the First Amendment and could signify broader implications. It is significant because the Court directly addressed a constitutional, First Amendment question. The case was especially watched by others seeking to protect a brand deemed offensive by the PTO such as the Washington Redskins NFL team. It is also significant because although the PTO’s ability to deny a mark based on offensiveness may be diminished if not revoked, the extent of the First Amendment’s reach into trademark law is left unanswered.

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[1] Trademark law is not strictly federal law. A federally unregistered trademark may be enforced under state common law, or if it has been registered in a state, under that state’s registration system. Louisiana’s trademark law contains similar language to the federal law shot down in this case: “A mark by which the goods or services of any applicant for registration may be distinguished from the goods or services of others shall not be registered if it: (2) Consists of or comprises matter which may disparage or falsely suggest a connection with persons, living or dead, educational institutions, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.” La. R.S. § 51:212.

[2] See the Trademark Manual of Examining Procedure at https://tmep.uspto.gov/RDMS/TMEP/current.

[3] Justice Gorsuch did not participate in the decision of the case.

[4] The Court further qualified that were trademarks to be considered government speech, the government would in fact be “saying many unseemly things, “expressing contradictory views,” and “unashamedly endorsing a vast array of commercial products.” Id. at 15 (citing marks such as “make.believe” (Sony), “Think different” (Apple), “Just do it” (Nike) and “Have it Your way” (Burger King)).

edtx

By Lauren Rucinski

On May 22, the Supreme Court tightened the reigns on where a patent infringement case with a corporate defendant can be filed, uprooting nearly three decades of common practice. TC Heartland LLC v. Kraft Food Brands Grp. LLC, No. 16-341 (May 22, 2017).

The specific statute for patent infringement venue states that a defendant may be sued in a judicial district (1) where the defendant resides or (2) where the defendant has committed acts of infringement and has a regular place of business.[1] Sixty years ago, the Supreme Court interpreted the patent venue statute to require that a domestic corporation only be sued in its state of incorporation. In Fourco Glass Co. v.Transmirra Products Corp., 353 U. S. 222, 226 (1957).  However, subsequent changes to venue rules in the 1990’s opened the door for a corporation to be sued anywhere it has sufficient contact. This change fostered forum shopping, allowing patent holders to seek out and develop patent friendly locations.

In TC Heartland, a corporate-defendant incorporated under the laws of Indiana was sued for allegedly infringing products in a Delaware district court. The Indiana corporation moved to transfer venue to the district court in Indiana. The Indiana corporation argued that under the patent infringement venue statute and the Supreme Court’s hold in Fourco, venue in Delaware was improper. The Delaware district court rejected the corporation’s argument and the Federal Circuit denied the petition for a writ of mandamus. The Supreme Court overruled the Federal Circuit, holding instead that the patent venue statute alone should control venue in patent infringement proceeding and that it is not to be supplemented by the general venue statute. The decision marks a drastic change from prior practices. Before the decision, the options for venue against a domestic corporation for patent infringement were quite numerous. For example, if a corporation ships an alleged infringing product to a state, that used to satisfy the venue requirements to file suit in that jurisdiction. The broad interpretation of venue allowed plaintiffs to cherry pick where the suite is filed. This is no more evident than the patent infringement “rocket docket” in the Eastern District of Texas.[2]  This Court, which is situated in the small town of Marshall, Texas, population c. 24,000, handles more patent lawsuits than federal district courts in San Francisco, Chicago, and New York. Marshall has often been referred to as the U.S. “patent litigation capital.” A combination of speedy infringement trials created by a series of local rules and allegedly plaintiff-friendly juries lead many plaintiffs to file patent infringement suites in this small, seemingly random Texas town.

The TC Heartland effectively nixes the “patent litigation capital” title in Marshall. The definition of a corporate residence is limited to the jurisdiction of incorporation and the general venue statute does not expand jurisdiction under the patent venue statute.

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[1] 28 USC 1400(b).

[2] For a New York Times article on Marshall and the patent infringement cases it hears, see http://www.nytimes.com/2006/09/24/business/24ward.html.

 

patent

By Lauren J. Rucinski

Generally, an invention is not patent eligible if it has become publicly known. If the patent is subject to a sale or offer for sale prior to the critical date, it has become “publicly known” and thus no longer eligible for patenting. This obstacle to a patented invention is known as the “on-sale bar” and is found in 35 U.S.C. 102. The statutory language to the “on-sale bar” is similar for patents governed by the pre-American Invents Act (“AIA”) version of 35 U.S.C. 102 and those governed by the AIA version. However, the AIA version include the phrase “or otherwise available to the public.” This lead to arguments that “secret sales,” or those in which the public had no knowledge of the invention, were not triggers for the on-sale bar. In an opinion issued on May 1, the Federal Court dismissed this type of argument, holding instead that the definition of “on sale” in the AIA version was not altered by the additional phrase. Helsinn Healthcare v. Teva Pharmaceuticals USA, No. 2016-1284 (Fed. Cir. May 1, 2017).

Helsinn Healthcare (“Helsinn”) was the owner of four drug patents which treated chemotherapy-induced nausea. Three of the four fall under pre-AIA rules and a fourth under AIA rules. Helsinn brought suit against Teva Pharmaceuticals (“Teva”) alleging that the filing of Teva’s Abbreviated New Drug Application (“ANDA”) constituted infringement of various claims of its four patents. In its defense, Teva argued that the drugs disclosed in the four patents were in fact on sale more than a year before the filing date of the patents. Id.at 4. Teva cited a deal between MGI Pharma, Inc. (“MGI”) and Helsinn which included a License Agreement and Supply and Purchase Agreement (“the agreements”). These agreements were effective almost two years before Helsinn filed its application for any of its four patents. The agreements were announced in a joint press release and in SEC filings. However, Helsinn argued that the agreements did not meet the requirements of the on-sale bar because despite the sale’s existence being available to the public, the agreements did not disclose the actual invention to the public, i.e. the dosage levels.

Because three of Helsinn’s patents fall under pre-AIA rules, the court first analyzed the pre-AIA on-sale bar’s definition of “on sale.” The court applied general contract law to find that the agreements between Helsinn and MGI were in fact a commercial sale and therefore enough to trigger the on-sale bar. Id. at 12-17.

Next, the court analyzed the AIA definition of “on sale” applicable to Helsinn’s fourth patent. Helsinn argued that the AIA changed the law by excluding “secret sales” from the on-sale bar provision through the addition of the “otherwise available to the public” phrase. Id. at 19. Because the details of the invention were not disclosed in the agreements made available to the public, the AIA on-sale bar should not apply. The court declined to make such a sweeping change to the on-sale bar holding instead that:

although confidentiality weighs against the application of the on-sale bar . . . that fact alone is not determinate. . . . [A]n invention is made available to the public when there is a commercial offer or contract to sell a product embodying the invention and that sale is made public. Our cases explicitly rejected a requirement that the details of the invention be disclosed in the terms of the sale.

Id. at 18, 23. The court went on to find that the invention in the fourth patent, like the invention in first three patents, was on sale more than a year before the filing date under the AIA version of section 102. Therefore, both the pre-AIA and AIA on-sale bars applied.

Finally, the court overruled the district court’s finding that the invention was not “reduced to practice” and therefore not ready for patenting. In order to trigger the on-sale bar for both pre-AIA and AIA governed inventions, the invention must also be “ready for patenting.” An invention is considered “ready for patenting” if it, for example, is reduced to practice. In this case, the court held that overwhelming evidence, including the results of studies performed by Helsinn and declarations of the inventors, established that the invention was reduced to practice and ready for patenting when the offer to sale was made by Hellsinn. Id.at 35.

The court refused to decide whether a “truly secret” sale, one without public knowledge of its existence, still triggered the on-sale bar and instead tied its holding to the facts at hand. Here, the existence of the sale was made known through the public press release and in SEC filings. However, the court’s unwillingness to diminish the scope of the on-sale bar is at least an indication that it may consider any sale, even secret sales, a trigger for the on-sale bar.