What should you do when someone accuses you of “trademark infringement,” often in a certified letter written by a lawyer? This article contains some suggestions on how to handle the situation.
What is Trademark Infringement?
Trademark infringement occurs when consumers are likely to believe mistakenly that the defendant’s goods originate with, are sponsored by or are licensed by the plaintiff. The first step in this analysis is that the plaintiff must have a right that arose before any rights of the defendant. Then a jury must consider some factors to determine whether consumer confusion is likely: the strength of the plaintiff’s mark, the similarity of the goods, the similarity of the marks, evidence of actual confusion, the channels of trade, type of goods and degree of purchaser care, defendant’s intent and the likelihood of expanding product lines. It is a very subjective test.
A successful plaintiff may recover damages measured by its out-of-pocket losses, or in some cases, the infringer’s profits. It may also obtain a court order requiring the infringer to stop using the mark. Attorneys’ fees are only available if the case is “exceptional,” which has historically meant that the infringement was intentional.
Infringement is not an “intent” tort—that is, a defendant is liable even if they did not know about the other mark. Likewise, the marks and the goods do not need to be identical (only “similar”). All alcohol beverages are generally considered to be “similar.”
A trademark owner can ask a court to issue an order stopping use of the mark while the lawsuit is being litigated. These are very difficult to obtain, so in most cases a defendant can continue using the mark until the dispute is resolved.
Things You Need to Do Right Away
Generally speaking, you should do three things immediately after receiving a demand letter.
First, you should step back from the anger and disbelief and have an honest discussion about whether the mark is worth fighting for. Is it a “must have,” a “nice to have” or a “meh”? If it is a house brand, it will likely be a “must-have.” If the demand letter complains about a slogan, it will likely be a “meh.”
The next thing you should do is consult with an experienced trademark lawyer. This is a specialized area of law, and while you may love your general business lawyer, he or she is unlikely to have the expertise to counsel you on the nuances involved in analyzing and responding to the claim. Providing that initial viewpoint on the case should not be very time-consuming for an experienced lawyer, especially one who is familiar with the alcohol beverage business.
The final thing you should do is consult your insurance broker to see if trademark infringement claims are covered by your CGL policy. Most policies excuse infringement claims, but some do not. Knowing that the carrier is paying for defense costs provides some peace of mind as well as additional options for responding to the demand letter. While insurance carriers prefer to use their standard defense counsel, because this is a highly specialized area most will accept the client’s preferred trademark lawyer (although they may ask the lawyer to work for a lower rate).
What Are Your Options for Responding to a Demand Letter?
The purpose of a demand letter is to alert the recipient to the existence of a marketplace issue.
The tone of demand letters ranges from friendly to threatening. And while they almost all say “stop now,” that could be a “hard” or “soft” demand for a variety of reasons. One benefit to using an experienced trademark lawyer is that he or she will be able to identify the weaknesses in the sender’s argument and articulate that in a response. This allows you to develop settlement leverage, which is critically important to resolving these disputes out of court.
Your lawyer typically will suggest one of five approaches to the demand letter: ignore it, call the owner of the trademark and try to work out a business deal, reply to the letter, sue under the Declaratory Judgment Act or petition the Patent and Trademark Office to cancel the other party’s registration(s). The recommended approach will depend on the circumstances, the lawyer’s assessment of the case, your assessment of how badly you want to keep using the mark and how much you are willing to spend.
Sometimes your lawyer might recommend that you simply ignore the letter, for example, if the claim is silly. The lawyer might also recommend ignoring the letter if the sender is in a remote geographic area and he or she believes that a lawsuit is unlikely. A serious-minded trademark owner is likely to follow up if there is no response, however, and that will force you to respond in some way.
In some cases, it may be helpful simply to call the person on whose behalf the letter was sent. (You should never communicate with the lawyer who sent it.) Sometimes this results in a resolution, oftentimes not. But a sincere conversation can facilitate eventual resolution of the dispute. In such a conversation, it is important that you do not appear to be weak or concerned about the demand letter. You should have a positive tone focused on trying to work out a mutually agreeable business resolution. This can be particularly useful if the sender of the letter is a small, family-owned company. It is unlikely to be useful if the sender is one of the major distilleries. (Although the author knows of one situation where the sender of the letter was a large spirits company, and the recipient was a craft distiller whose owner knew the CEO of the sender. She called him and that resolved the problem.)
The typical way to respond is for your lawyer to write a letter explaining why there is no likelihood of confusion and the concerns are unwarranted. There are many different ways to write such a letter and many possible arguments to be made. The tone of a response can range from friendly to strident, depending on the circumstances. The letter might also suggest some ways of resolving the dispute other than those demanded initially.
A fourth way to respond is to file a federal lawsuit in your “home court” under the Declaratory Judgment Act. This lawsuit asks the court to resolve the controversy and decide whether there is likelihood of confusion as claimed in the demand letter. This is a hardball response, but if you want to continue using the mark and litigation appears to be inevitable, it is always preferable to sue in your home court. In some cases, a quick complaint can call the sender’s bluff and facilitate settlement.
Finally, if the other party has a federal trademark registration, and your lawyer believes that there are grounds to cancel it (for example, that you were using the mark first), you might file a cancellation petition with the Patent and Trademark Office. This is a lower-cost approach than a federal court lawsuit and can also create settlement leverage.
There is no “one size fits all” approach to crafting a response. You should work with your lawyer to understand the options and then decide on the one that is the most appropriate for your situation.
What Are Your Settlement Options?
The vast majority of trademark disputes settle, and there are many different ways to settle them. Sometimes all that is needed is a small change to the label. Others can involve things such as a phase out of use, a license or consent (with or without a royalty), geographic limitations on use, an agreement not to apply for a federal trademark registration, an agreement not to challenge each other’s marks, price point and trade channel limitations, reimbursement of attorneys’ fees and the like. The author settled one case where the defendant agreed to provide a case of their premium table wine to the trademark owner each year (although it is unknown whether their lawyer got 30% of the bottles). The key to settlement is to be creative and try to find a “win-win” business resolution.
As an example, a small distillery in South Dakota received a demand letter from a spirits company in California who had a registration for an arguably similar mark. The initial letter was very strident; the response was equally sharp. But after the lawyers got the posturing out of the way, they began discussing settlement. The California company was concerned about the legal implications of a federal registration for a similar mark for spirits and it did not want the other company to sell its spirits in California. So the parties agreed that the South Dakota distillery would withdraw its trademark application and confine its sales to certain states (excluding California), and the California company reimbursed it for the costs of filing the trademark application. This was a win-win: the California company got what it wanted and the South Dakota company had no intention of selling in California anyway.
What Is the Worst-Case Scenario?
The worst-case scenario is that you become a defendant in an infringement lawsuit. This will inevitably take up more of your time than you would like. It can also be expensive. The only bright spot is that most federal courts require a court-supervised mediation early in the case. This provides an opportunity for the parties to discuss settlement in a controlled situation and frequently results in a settlement.
How Do I Prevent This?
There is no way to prevent a trademark infringement claim. Claims can arise out of the blue, even when your lawyer has done due diligence.
The risk can be reduced by having a trademark lawyer conduct a trademark search before you adopt a mark. This can be as simple as a knock-out search, where the lawyer searches the Patent and Trademark Office database, the TTB COLA database and perhaps the internet. The lawyer can then provide you with a risk assessment.
Being accused of trademark infringement can be emotional, time-consuming, expensive and aggravating. But you should take heart in the fact that most of these claims settle. Working with a good trademark lawyer can maximize the likelihood of making that happen sooner rather than later.