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Trademark Bullying

Trademark owners have a right and an obligation to actively protect their trademarks from misuse. Failure to do so may result in consequences such as consumers being confused as to the source of the goods or services, harm to the trademark owner’s reputation, lost sales, and, eventually, loss of the trademark rights altogether. There is a fine line, however, between actively protecting one’s trademark and bullying other businesses into dropping their trademark because the two marks are vaguely similar.

What is trademark bullying, and what can be done about it?

“Trademark bullying” is generally understood to refer to big companies using trademark law as a weapon to drive competitors out of business. The theory is that some companies abuse their trademark rights to crush competitors even though there wouldn’t be any consumer confusion between the two entities’ marks. Bigger companies know that many smaller competitors cannot afford to litigate in order to defend their rights, and bank on the fact that small companies will end up abandoning their trademarks or cease their operations instead of going to court.

In 2010, Congress passed the Trademark Technical and Conforming Amendment Act (I’m sure you heard about this, it was a hot news topic…right?), which contained a provision addressing the bullying issue. It mandated the Department of Commerce commission a study to examine whether small businesses were being harmed by tactics such as trademark bullying.  The study received and reviewed comments from trademark owners, practitioners, and others on aggressive litigation tactics, as well as a survey conducted by the American Bar Association’s Intellectual Property Law Section. The study’s results were released in April 2011 (link to PDF), and the report concluded that “it is unclear whether small businesses are disproportionately harmed by enforcement tactics that are based on an unreasonable interpretation of the scope of an owner’s rights.”  The study’s results were disappointing for most people who were hoping for trademark litigation reform. Eric Goldman, a respected commentator in this area, had particularly harsh words about the study.

What are the Consequences of Trademark Bullying?

Despite the outcome of this study, there are things both sides can do to protect themselves from needless litigation (or being penalized for bringing needless litigation). Businesses looking to police their trademarks should know that if they are overzealous in their policing and/or are trying to unfairly and unreasonably attack their competition, the litigation may be dismissed and the trademark owner may have to pay the opposing party’s attorney’s fees. A business may have to pay attorney’s fees if:

  • The business owner brought a suit in bad faith or asserted fraudulent claims;
  • The lawsuit was “oppressive;”
  • The lawsuit lacked foundation; or
  • The lawsuit was based on economic coercion or groundless arguments.

Recently, in Nightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC, the court held that attorney’s fees in trademark suits would be awarded if the losing party was the trademark owner bringing the lawsuit and had committed abuse of process. This party’s claim had to be objectively unreasonable – meaning, a claim that a rational litigant would pursue only because it would impose disproportionate costs on his opponent.

Rule 11 of the Federal Rules of Civil Procedure provides an opportunity for small businesses to fight back against businesses that may be bullying them. Sanctions, on top of the attorney’s fees, may be imposed on a trademark owner found to have violated the Rule; for example, if the claim was brought for an improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation.

The Law Still Generally Favors the Aggressive Trademark Owner

Despite all this, the threshold for trademark owners proving infringement remains quite low, a state of affairs which tends to favor the more aggressive trademark owners. In most cases, proof of actual confusion is not required – the trademark owners only needs to show that there is a likelihood of confusion. Claims can also be brought against companies affiliated with or sponsoring the allegedly infringing company’s trademark. For example, a cell phone carrier endorsing a phone that infringes on a trademark could be considered an infringer as well. To determine if likelihood of confusion exists, “the least sophisticated potential purchaser” is taken into consideration. Taking these factors as a whole, one can see how it can be relatively easy for a court to hold that one mark is an infringement of the other.

What Business Can Do to Protect Themselves Against Bullying

  • Conduct a thorough search of any similar trademarks before settling on a brand name, business name, or logo.
  • Familiarize yourself with the basics of trademark law, so that you can recognize (and thwart) any bullying attempts.
  • Don’t back down right away; sometimes showing a desire to refute a claim may make a bully more likely to abandon the enforcement action.
  • Offer to use alternative dispute resolution services, such as mediation or arbitration, which can reduce the costs of defending one’s trademark use.
  • Whenever possible, make sure your mark is registered with the United States Patent and Trademark Office before investing a lot of money into marketing and manufacturing.
  • Be aware of the concept of “social shaming .” By using social and traditional media and alerting the public about the bullying, bullies are quick to either abandon their claims or settle much faster in order to avoid negative publicity. Of course, this approach can easily backfire, so it requires a great deal of thought and a sophisticated understanding of media and public relations.
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