Prepare answers to the following cases from this week’s reading.
- Case 7.3: Dilution of a Trade Mark on page 139
Case 7.3 Dilution of a Trademark: V Secret Catalogue, Inc. and Victoria’s Secret Stores, Inc. v. Moseley
605 F.3d 382, Web 2010 U.S. App. Lexis 10150 (2010) United States Court of Appeals for the Sixth Circuit
“The phrase ‘likely to cause dilution’ used in the new statute significantly changes the meaning of the law from ‘causes actual harm’ under the preexisting law.”
—Merritt, Circuit Judge
Victoria’s Secret is a successful worldwide retailer of women’s lingerie, clothing, and beauty products that owns the famous trademark “Victoria’s Secret.” A small store in Elizabethtown, Kentucky, owned and operated by Victor and Cathy Moseley, used the business names “Victor’s Secret” and “Victor’s Little Secret.” The store sold adult videos, novelties, sex toys, and racy lingerie. Victoria’s Secret sued the Moseleys, alleging a violation of the Federal Trademark Dilution Act of 1995. The case eventually was decided by the U.S. Supreme Court in favor of the Moseleys, when the Court found that there was no showing of actual dilution by the junior marks, as required by the statute. Congress overturned the Supreme Court’s decision by enacting the Trademark Dilution Revision Act of 2006, which requires the easier showing of a likelihood of dilution by the senior mark. On remand, the U.S. District Court applied the new likelihood of confusion test, found a presumption of tarnishment of the Victoria’s Secret mark that the Moseleys failed to rebut, and held against the Moseleys. The Moseleys appealed to the U.S. Court of Appeals.
Is there tarnishment of the Victoria’s Secret senior mark by the Moseleys’ use of the junior marks Victor’s Secret and Victor’s Little Secret?
Language of the Court
- The phrase “likely to cause dilution” used in the new statute significantly changes the meaning of the law from “causes actual harm” under the preexisting law. The burden of proof problem should now be interpreted to create a kind of rebuttable presumption, or at least a very strong inference, that a new mark used to sell sex-related products is likely to tarnish a famous mark if there is a clear semantic association between the two.In the present case, the Moseleys have had two opportunities in the District Court to offer evidence that there is no real probability of tarnishment and have not done so. Without evidence to the contrary or a persuasive defensive theory that rebuts the presumption, the defendants have given us no basis to reverse the judgment of the District Court.
The U.S. Court of Appeals affirmed the U.S. District Court’s judgment in favor of Victoria’s Secret.
Critical Legal Thinking
Do you think that Congress often uses its “veto power” over the U.S. Supreme Court’s interpretation of a federal statute by enacting another statute to change the result of a Supreme Court’s decision?
Do you think the Moseleys were trading off of Victoria’s Secret famous name? Do you think that the Moseleys had a legitimate claim to their business names because the husband’s name was Victor?
Did the change in the Trademark Dilution Revision Act of 2006 favor famous trademark holders?
- Case 23.7: Holder in Due Course on pages 390–391
Case 23.7 Holder in Due Course Royal Insurance Company Ltd. (Royal) issued a draft in the amount of $12,000 payable through the Morgan Guaranty Trust Company (Morgan Guaranty). The draft was made payable to Gary E. Terrell in settlement of a claim in an insurance policy for fire damage to premises located in Kansas City, Missouri. Subsequently, the attorney for Mr. and Mrs. Louis Wexler notified Royal that Terrell’s clients had an insurable interest in the damaged property. As a result, Royal immediately stopped payment on the draft. On the same day, the draft was indorsed by Gary E. Terrell and deposited in his account at the UAW-CIO Local #31 Federal Credit Union (Credit Union). Over the next two days, Terrell withdrew $9,000 from this account. Immediately upon receiving the draft, Credit Union indorsed it and forwarded it to Morgan Guaranty for payment. The draft was returned to Credit Union with the notation “Payment Stopped.” When Royal refused to pay Credit Union the amount of the draft, Credit Union sued. The basis of the lawsuit was whether Credit Union was a holder in due course. Who wins? UAW-CIO Local #31 Federal Credit Union v. Royal Insurance Company, Ltd.,594 S.W.2d 276, Web 1980 Mo. Lexis 446 (Supreme Court of Missouri)
Your responses should be well-rounded and analytical, and should not just provide a conclusion or an opinion without explaining the reason for the choice.
For full credit, you need to use the material from the week’s lectures, text, and/or discussions when responding to the questions. It is important that you incorporate the question into your response (i.e., restate the question in your introduction) and explain the legal principle(s) or concept(s) from the text that underlies your judgment.
For each question you should provide at least one reference in APA format (in-text citations and references as described in detail in the Syllabus). Each answer should be double spaced in 12-point font, and your response to each question should be between 300 and 1,000 words in length.
Submit this assignment as a single Word document covering both cases.
Note: Please be sure you refer to the numbers that appear on the printed pages in your electronic readings, not the numbers that appear with the navigation icons.
Week 6 Lectures:
Intellectual property is a broad term describing property resulting from the creative process. Intellectual property includes inventions, artistic works (art, music, dance, literature, drama, software, etc.), marks, names and symbols used to identify products (trademarks) and services (service marks), and secret information by businesses that create an advantage over competitors (trade secrets). Congress grants protection to these types of property to promote the progress of science and the useful arts by securing for limited times to authors and inventors for the exclusive right to their respective writings and discoveries, as stated in Article I, Section 8 of the U.S. Constitution.
Consider the humble peanut butter sandwich. You will need a jar of peanut butter, let’s say Skippy. Though in marketing terms, Skippy is a brand, in intellectual property terms, it is atrademark. Trademarks apply to products, and Skippy peanut butter is certainly a product. But, Skippy is also the name of a business, a line of peanut butter products, so it is also a trade name. Though the ingredients in Skippy peanut butter are listed on the side of the jar, a requirement of the Food and Drug Administration, the actual formula for Skippy peanut butter is a trade secret. Many recipes are trade secrets. The design of the label on the jar of Skippy peanut butter is designed to catch your eye in the grocery store, and is distinctive to that brand. This is what we call in intellectual property speak, trade dress. The instructions on the label of the jar have a copyright in favor of Skippy, because the instructions constitute a literary work, though not as long or dramatic as say, War and Peace or Gone with the Wind. The design of the original machine for making peanut butter was issued a patent in 1903, a patent that has long since expired, placing the machine into the public domain, which allows anyone to use it. Additional patents have been obtained over the years, including one for the making of shelf-stable peanut butter (extending peanut butter’s shelf life), and most recently for vacuum packaging peanut butter. In a nutshell, a jar of peanut butter demonstrates the range of intellectual property law. Now, let’s look at some of the technical requirements for these rights to be enforceable.
A trademark must be distinctive, that is, it must enable consumers to identify the manufacturer of the goods easily and differentiate competing products. There are several standards for determining whether a mark is sufficiently distinctive. The most distinctive mark is a strong mark, one that isfanciful – an invented word such as Reebok; or arbitrary – words that have no literal connection to the product, such as Arm and Hammer detergent, or suggestive – words suggesting something about the product but not describing it, such as Friskies cat food. A mark that is descriptive of the product, a geographic term, or a person’s name is not sufficiently distinctive, unless it has acquired a secondary meaning in the minds of consumers, who associate the term with a particular product. Examples include London Fog raincoats, Northern paper towels, and Campbell’s soup. Generic terms are not distinctive and cannot be trademarked, even if they have acquired a secondary meaning associated with a particular product or service. For example, a federal court ruled that AOL’s You Have Mailslogan was not entitled to trademark protection even though it was strongly identified with AOL’s e-mail, because both the phrase and the individual words were generic. Sometimes, brands eventually become generic, such as with aspirin, which used to be a brand name but is now used widely in a generic sense.
The federal trademark protection law, the Lanham Act, protects manufacturers from losing business to rival companies that use confusingly similar trademarks. For example, no one may use the Skippy trademark or something that sounds confusingly similar to it (Skip, etc.) to sell peanut butter. Moreover, no one may use the Skippy trademark to sell other food products, such as jelly or cereal, because of the strong likelihood that consumers would assume the peanut butter maker is also the maker of that other food product. Only the owners of the Skippy mark may use it or license someone else to use it to sell food products. The Lanham Act also protects distinctive or famous trademarks from dilution (unauthorized use) regardless of the likelihood of confusion or whether a competitor uses the mark on competing or related goods or services.
The Skippy trademark is protected as a strong mark, one that is fanciful. To prevent trademark dilution, the Skippy trademark could not be adopted for use in selling women’s shoes, even though women’s shoes don’t compete with peanut butter (completely different markets) and consumers might not confuse the peanut butter maker with the shoe maker (thinking that the peanut butter maker also makes the shoes).
The Lanham Act allows for registration of a trademark, which gives nationwide notice that the trademark belongs exclusively to the individual or business registering it. Whenever the trademark is copied to a substantial degree or is used by someone else, whether intentionally or not, the trademark has been infringed, and the owner may sue the infringer. Registering a trademark is not essential to suing for trademark infringement, but it furnishes proof of when the trademark was first used.
In cyberspace, trademarks are often referred to as cybermarks. These include domain names (Internet addresses) that incorporate trademarks (Mcdonalds.com, Coke.com, etc.), which are now protected by federal law from the practice of cybersquatting, the registering of trademarked words or phrases as websites by those who do not own the trademark. Cybermarks also include meta tags, key words used by search engines to locate websites. Federal law also prohibits using someone else’s trademarked words in a meta tag in order to direct traffic to your website. If I operate a website that sells books, I might want to use Amazon in my meta tag, so that Internet users typing in Amazon would receive search results that included my website. But Amazon is a trademark associated with a competing website that sells books. Therefore, in this case, my attempt to direct traffic to my website using Amazon’s name in meta tags would constitute trademark infringement.
A patent may be granted for inventions, designs, and processes (including business processes) that are genuine, novel, useful, and non-obvious. An application must be submitted to the U.S. Patent and Trademark Office, and the person applying must be the first person to invent the product, design, or process, not merely the first person who applies for a patent on that item. Mathematical formulas and equations are not patentable, but computer operating systems are patentable. Patent infringement occurs when someone uses or sells a patented invention design or process without the patent owner’s permission, even though the owner of that patent has not yet marketed the patented invention, design, or process.
An automaker designs a hybrid automobile engine that will operate on a combination of a battery and fuel made from switch grass. The automaker obtains a patent for the engine design, but has not yet sold a car incorporating that design. A competing automaker may not use the patented design during the period of its patent protection (14 years for design patents) without the patent holder’s permission.
A copyright is a property right that attaches to literary and artistic works. These include everything from books and written articles, menus, ad copy and instructions on product packaging, music, plays, films and videos, artworks, architectural plans, pantomime, choreography, and computer software. To be entitled to protection, the work must be fixed in a durable medium. A song that’s been written down or recorded and choreography that’s been videotaped are protected. A song or dance that’s been performed live but has never been written down or recorded is not copyrightable. Ideas, basic facts, and mathematical calculations are not copyrightable. The titles of books, films, music CDs, plays, etc., are also not copyrightable. Compilations of facts (maps, almanacs, phone directories, etc.) are copyrightable. A copyright need not be registered with the government. Most authors give notice of their copyright in a work by publishing it with a C-designation, which is no longer required for copyright to exist.
Copyright infringement exists when a substantial part of a copyrighted work is copied without the copyright owner’s permission. When applied to the Internet, the courts have held that loading a copyrighted file or program into a computer’s random access memory (RAM) without owning the software or having a license to use it constitutes copyright infringement. File sharing of copyrighted music via the Internet, without the permission of the copyright owner, is also infringement, as the courts ruled in the Napster case, discussed in your reading. How many examples of copyright infringement can you conjure, knowing that file sharing violates copyright laws? What should be considered fair use for the property?
The federal copyright law contains a major exception to copyright infringement liability. This is known as the fair use exception. Individuals and organizations may reproduce copyrighted material without paying the owner a royalty or obtaining the owner’s permission if the reproduction is for criticism, commentary, news reporting, teaching, scholarship, or research if the use is for non-profit educational purposes (as opposed to commercial use), if only a small portion of the work is used, and if the use does not have an adverse effect on the potential market or value of the copyrighted work.
Berne is writing a research paper for a course. He quotes one paragraph from a 250-page authoritative text on the subject and properly cites his source. Berne’s use of the textbook is fair use, and does not constitute copyright infringement.
Berne is taking a course in Marketing. He doesn’t want to buy the textbook. Instead, a friend downloads his copy of the electronic version of the text on to a CD, and Berne installs it on his hard drive. Alternatively, Berne manually copies the pages from a hard copy of the text at the public library. In either case, Berne is not entitled to the fair use exception. Though he’s using the text for educational purposes, he’s using the entire text, which has an adverse effect on the author and publisher’s market, something a marketing student should understand. If Berne had simply borrowed the text from the library or purchased a used textbook, he would not have engaged in copyright infringement because no copy of the book had been made.
A trade secret must be a secret to the outside world, though certainly at least some people within an organization will know the content of the plans, list, recipe, or practice. The research and development work done by many businesses is a trade secret, as are some customer lists, marketing techniques, production methods, and anything else that is valuable to a competitor. An idea may be a trade secret. Trade secrets are not registered with any government office. An employee who knows an employer’s trade secret and discloses it to others may be sued for misappropriation of the trade secret. Someone who discovers someone else’s trade secret by improper means is also liable for misappropriation of the trade secret. However, it is not illegal to reverse engineer a product and copy the design. For example, mass-market retailers often purchase a dress made by a famous fashion designer, disassemble it, analyze the fabric, and thereby develop a mass-market dress design. As long as the mass marketers do not use the designer’s trademark, if any, there is no infringement. Have you ever bought something that was a knock-off? Did you consider the original designer’s interests or did you feel that it was fair game to be reproduced in a substantially similar form for resale?
Torts and Crimes in the Online Environment
Torts committed via the Internet are referred to as cyber torts, though they are often based on the traditional common law torts. One common online tort is defamation, the wrongful damaging of a person’s reputation. If I post a false and derogatory statement of fact about someone in a chat room or on an online forum, I am publishing that statement to someone other than the person being defamed. As a result, I can be sued for libel (written defamation). However, the Federal Communications Decency Act gives immunity to Internet service providers (ISPs) for defamatory statements posted by their customers. The courts have extended this immunity to auction websites, such as eBay.
On an ISP bulletin board that serves as a forum to complain about the cable TV industry, Marta posts an entry that falsely states that the CEO of a certain cable company embezzled funds from the company. This statement is defamatory, and Marta may be sued for libel. As per the Communications Decency Act, however, the ISP that hosts the forum is immune from liability.
The common law of torts recognizes interference with someone else’s personal property as the tort of trespass to chattels. When someone sends bulk, unsolicited e-mail, known as spam, it takes up space on a network’s bandwidth, burdens ISPs, and clutters the inboxes of the e-mail’s recipients. Courts have ruled that when the volume of spam sent causes actual interference with the recipient’s computer system, the recipient may sue the sender for trespass to chattels. Congress enacted the CAN SPAM Act to prohibit the sending of commercial e-mails. However, the CAN SPAM Act has had little impact on spammers, due to the practical difficulty of enforcing the act and the fact that it does not apply to e-mail sent from outside the United States. Several states have enacted separate laws that prohibit false and deceptive e-mails. How many spam e-mails do you get a day? Have any ever been sent from your account? What does this make you think about Internet security and the privacy of your personal account and information?
Parah, a marketer of diet pills, obtains an e-mail list and sends unsolicited e-mail ads for diet pills to millions of e-mail addresses. Parah has violated the CAN SPAM Act. If the e-mails contain false and deceptive statements about the efficacy of the diet pills, they also violate state anti-spam laws in those states where the e-mails were sent or received. If Parah’s mass e-mailing cripples the network of a weight-loss support group to whom a particularly large number of e-mails were sent, the owner of that network may sue Parah for trespass to chattels.
The term cyber crime describes abuses of computers and Internet access to commit crimes. Many financial crimes, including fraud, embezzlement, and theft of trade secrets, occur through electronic transactions. One form of cyber theft is identity theft, the theft of forms of identification (such as name, date of birth, social security number) for the purpose of accessing the victim’s financial accounts or opening credit in the victim’s name. With contact and identification information readily available online, with direct links to data brokers, who sell personal information about others, the incidents of identity theft have multiplied exponentially, creating potential liability for both the sources of personal data, when security is breached, to the brokers of data, who sell it to others. The relative ease of obtaining e-mail addresses and the popularity of Internet chat rooms have contributed to a rise in the crime of cyberstalking, the harassment of another person with electronic messages.
Individuals who hack into the computer systems of organizations in order to disrupt those systems, such as by infecting them with a virus or worm are also committing crimes, including violation of the Computer Fraud and Abuse Act (CFAA, pronounced “See-fuh”). CFAA also makes it a felony to obtain unauthorized online access to financial, medical, or legal records. The Electronic Fund Transfer Act (EFTA) makes it a crime to obtain unauthorized access to an electronic fund transfer system, such as the systems used by banks to allow customers to withdraw cash from an ATM or pay bills online.
Removing Legal Barriers to E-commerce
While the laws described above address the downside of easy information access, other laws seek to remove legal barriers that limit the growth of e-commerce. The Uniform Electronic Transactions Act (UETA), adopted by most states, and the federal E-SIGN Act serve two important functions.
- UETA gives the same legal effect to electronic documents (records) and signatures (e-signatures) as that given to paper documents and ink signatures.
- The E-SIGN Act makes an e-signature as valid as a paper signature as a matter of federal law, guaranteeing that e-signatures are legally recognized even in states that have not adopted UETA.
Now that you know a bit about where we are headed this week, click on the objectives section to get started. I’ll see you soon in the discussions!
Negotiable Instruments and E-commerce
Negotiable instruments can be used as a substitute for money especially in electronic transactions. They can also be instruments of credit. In order to qualify, it must be in writing, signed by the maker, include an unconditional promise to pay for a fixed amount of money, is payable on demand and cannot require anything in addition to payment.
Elizabeth Warren was an early and articulate advocate of consumer protection in the financial market.
In an article she wrote in 2007, she said “It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house. But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street—and the mortgage won’t even carry a disclosure of that fact to the homeowner. Why?” she asked, “are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?”
In 2010, the passage of the Consumer Protection portion of the Dodd-Frank Act looked to remedy that situation. The Act addressed subprime mortgages, predatory lending, dizzying credit card rate increases into high double digits, and bank fees mounting to the hundreds of dollars on $5.00 overdrafts.
Prior law had afforded consumers some protection, but mostly in the way of requiring meaningful disclosure of credit terms. More recent legislation, such as the CARD Act, have substantially extended consumer protection.