September 2017

News & Press

Supreme Court: Lanham Act’s Disparagement Clause Violates First Amendment

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

In June 2017, the United States Supreme Court affirmed the Federal Circuit’s ruling that the disparagement clause of the Lanham Act prohibiting federal trademark registration for marks that disparage persons, living or dead, was facially invalid under the First Amendment protection of speech. With the exception of Justice Gorsuch who recused himself as he was not on the Court at the time of oral argument, all eight other justices joined the holding.

A. Background

Simon Shiao Tam, the front man of the rock band The Slants, applied in 2011 to register the name of his band with the United States Patent and Trademark Office (“USPTO”). An USPTO examining attorney denied Tam’s application on the grounds that the band name violated the Lanham Act’s prohibition against registration of trademarks that may “disparage…or bring…into contemp[t] or disrepute” any “persons, living or dead.” 15 U.S.C.A. § 1052(a). Tam and his bandmates, all Asian men, had chosen the band name to “reclaim” the term “slants,” which is sometimes used as a derogatory term referring to the eye shape of people of East Asian descent. Tam appealed the examining attorney’s decision to the USPTO Trademark Trial and Appeal Board (“TTAB”), which affirmed the application’s refusal on the ground that the mark THE SLANTS disparaged people of Asian heritage. A Federal Circuit panel initially affirmed the refusal, but on rehearing en banc, vacated and remanded the decision on the ground that the disparagement clause was likely unconstitutional, and even if valid, the mark did not qualify as disparaging to justify refusal of registration. Our previous detailed discussion of the Federal Circuit decision can be seen here. The Supreme Court granted certiorari before further proceedings occurred in the TTAB.

B. The Supreme Court Opinion

The Supreme Court first rejected Tam’s argument that the disparagement clause applies only to natural or juristic persons, rather than a racial or ethnic group of people, as refuted by the clause’s use of the word “persons.” The standard of review under the clause asks whether the mark would be found disparaging by a “substantial” percentage of the affected group, or in other words, disparaging of many “persons.” If Congress had wanted to limit the clause’s application to individuals, the Court reasoned, it could have used the phrase “particular living individual” as it did in neighboring Section 1052(c). Moreover, Tam’s narrow reading contradicts the wide breadth of the clause, which also applies to “institutions” and “beliefs.”

Nevertheless, the Supreme Court ruled for Tam by entirely striking down the disparagement clause as facially unconstitutional. According to the Court, the clause violated First Amendment protections against government censorship of private speech that impermissibly discriminates based on the speech’s viewpoint. The Court first rejected the Petitioner’s argument that the TTAB’s review of trademark applications need not be viewpoint neutral because trademark registrations are government speech, similar to personalized license plates, which the government can refuse based on viewpoint because license plates are closely associated with government speech and activity. The Court found that trademark registrations are not government speech because the government does not “dream up the trademarks registered,” cannot remove registrations unless a private party initiates cancellation proceedings, and would be “babbling prodigiously and incoherently” if trademarks were government speech. A finding that government speech includes trademark registrations would be “a huge and dangerous extension” of the doctrine that could extend to government denial of copyright registrations based on the viewpoints expressed in the applicants’ works.

In the alternative, the government argued that the USPTO can refuse to register disparaging trademarks because registration is akin to a government subsidy, or that the USPTO’s trademark registers are limited public forums available through a government program. The Court found government subsidy cases inapposite because the USPTO does not pay money to applicants, but rather requires them to pay fees, and government spending to operate the USPTO does not constitute a subsidy. Cases regarding limited public forums were more relevant, but these cases also forbade viewpoint discrimination. Since “giving offense” is a viewpoint, the disparagement clause facially discriminated based on viewpoint.

After holding that trademark registrations were private, rather than government speech, the Court considered Petitioner’s argument that the disparagement prohibition met the standard for government regulation of commercial speech, which requires that the restriction be “narrowly tailored” to serve “a substantial interest.” The Court refrained from determining whether trademarks qualified as commercial speech by holding that the disparagement clause was invalid even under the more lenient standard for regulating such speech. The Court dismissed the first government interest offered by Petitioner—preventing speech that offends—as implicating “the heart” of First Amendment protection. The Court recognized a substantial interest in Petitioner’s second ground—protecting the orderly flow of commerce from disruption caused by trademarks that support invidious discrimination—but found that the clause was not narrowly tailored to the interest because it bars trademarks that disparage “any person, group, or institution.” Such broad language justifies the refusal of innocuous marks such as “DOWN WITH RACISTS,” and “goes much further than is necessary to serve the interest asserted.”

C. Implications of the Supreme Court Decision

Other prohibitions in Section 1052(a), such as the bar to deceptive marks, survives the Court’s ruling striking down the disparagement clause. The USPTO has taken the position that this decision does not affect its review of “scandalous matter” under Section 1052(a), which is currently the subject of the action In re Brunetti, No. 15-1109 (refusal of application for the mark FUCT), before the Federal Circuit. However, the Federal Circuit will likely hold that the scandalous matter prohibition is also unconstitutional viewpoint discrimination under the Supreme Court’s rationale in Matal v. Tam. This decision could have even farther-reaching implications within trademark law. The doctrine of dilution—and in particular, tarnishment—involves the TTAB making judgment calls about whether one mark harms the reputation of another mark, much like the disparagement clause required the USPTO to assess a mark’s offensiveness to particular people or groups. Trademark owners should watch future cases, like In re Brunetti, to see if Matal v. Tam is the beginning of a sea change curtailing the USPTO’s powers to refuse and cancel registrations.


Federal Circuit Court of Appeals: Amazon Not Liable For Third-Party Sellers’ Alleged Infringement

Milo & Gabby LLC v., Inc., Case No. 2016-1290 (Fed. Cir. May 23, 2017)

The Court of Appeals for the Federal Circuit recently affirmed a district court’s decision that, Inc. (“Amazon”) was not liable for patent, copyright, and trademark infringement based on third-party sales of pillowcases on Amazon’s website.

Plaintiff Milo & Gabby LLC (“Milo & Gabby”) designs and sells a line of “Cozy Companion” pillowcases, which includes pillowcases that turn a child’s pillow into a stuffed animal. Milo & Gabby owns five design patents for its pillowcases as well as copyrights for its pillowcases and certain marketing materials. Milo & Gabby discovered that ten third-party sellers were selling knockoff Cozy Companion pillowcases on Amazon’s website. One of the sellers was using the Fulfillment by Amazon service. A seller who utilizes Fulfillment by Amazon sends its products to an Amazon fulfillment center, where Amazon stores the product until a customer buys it, at which time Amazon pulls the product, packages it, and ships it to the customer. The third-party seller, however, retains full ownership over the products stored by Amazon.

Milo & Gabby filed a complaint against Amazon for design patent infringement, copyright infringement, trademark infringement, and false designation of origin. The district court granted Amazon’s motion for summary judgment on Milo & Gabby’s copyright infringement and Lanham Act claims, but denied Amazon’s motion as to the design patent infringement claim. Amazon had argued that it never sold nor offered to sell the products within the meaning of the Patent Act, but Milo & Gabby argued that Amazon was liable for direct design patent infringement because it “offered to sell” the products. The district court found that there remained a factual question on Gabby & Milo’s “offer to sell” theory. After a jury trial on the underlying factual questions, the district court concluded that Amazon had not “offered to sell” the products at issue. Milo & Gabby appealed to the Federal Circuit.

The Federal Circuit addressed each of Milo & Gabby’s claims in turn. First, as to the design patent infringement claim, although Milo & Gabby had presented an “offer to sell” theory to the district court, its sole argument on appeal was that Amazon was a seller of the products at issue. The Federal Court found that Milo & Gabby had abandoned a “seller” theory of liability at summary judgment when it focused exclusively on its “offer to sell” theory. Because Milo & Gabby did not argue on appeal that Amazon was liable under the “offer to sell” theory, which the jury and court had considered at trial, the Federal Circuit affirmed the district court’s judgment in favor of Amazon on the design patent infringement claim.

The Federal Circuit then addressed Milo & Gabby’s copyright infringement claim. Milo & Gabby argued that the district court erred in granting summary judgment to Amazon because Amazon was both a “seller” and “distributor” of the accused products. The Federal Circuit first addressed whether Amazon was a seller under the Copyright Act. Milo & Gabby argued that the district court erroneously focused on the fact that Amazon never took title to the products sold on its website. According to Milo & Gabby, there were “numerous circumstances” in which a party is a seller of a product without taking legal title to the product. The Federal Circuit, however, disagreed and found that, with some exceptions that were not applicable here, the absence of passage of title was significant in determining whether a sale had occurred. Here, Amazon did not take title to the goods at issue, including those goods that were serviced through its Amazon Fulfillment service, and therefore Amazon was not a seller of the goods. As for whether Amazon was a distributor, Milo & Gabby argued that the Fulfillment by Amazon service violated Milo & Gabby’s exclusive right to distribute copies of the copyrighted work by “sale or other transfer of ownership” under Section 106(3) of the Copyright Act, 17 U.S.C. § 106(3) (emphasis added). Milo & Gabby argued that Amazon’s actions constituted “other transfer of ownership” and that such transfers need not include the passage of title. The Federal Circuit noted that Milo & Gabby devoted one sentence in its opening brief to “other transfer of ownership,” and did not attempt to give meaning to this phrase in either its opening or reply briefs. Therefore, the Federal Circuit considered this argument waived.

Finally, the Federal Circuit addressed Amazon’s Lanham Act claims. The district court had dismissed Milo & Gabby’s Lanham Act claims because, in response to Amazon’s summary judgment motion, Milo & Gabby had asserted a claim of “palming off” for the first time, and therefore Amazon had not received fair notice of Milo & Gabby’s claim under Rule 8 of the Federal Rules of Civil Procedure. On appeal, Milo & Gabby argued that its complaint contained sufficient factual matter to put Amazon on notice of a “palming off” claim, but the Federal Circuit disagreed. While the complaint alleged a false designation of origin claim, the Court explained that a false designation of origin claim was far broader than a “palming off” claim. Therefore, the Federal Circuit affirmed the district court’s dismissal of Milo & Gabby’s Lanham Act claims.
While the Federal Circuit’s decision was a significant victory for Amazon, especially with regard to the Amazon Fulfillment service, we note that claims regarding patent or copyright contributory or joint infringement or induced infringement were not before the Federal Circuit. Moreover, the Court’s decision also cautions counsel to take steps to preserve all arguments for appeal.


Internet: Advantages Of Word Mark Registrations For Monitoring On Amazon And Facebook

Amazon is quickly becoming a key retail platform for nearly all brand owners. Similarly, Facebook ads are often a critical part of any online advertising campaign and Facebook’s Marketplace is quickly gaining in importance. However, as many brand owners can attest, it can be hard to monitor who is selling branded merchandise improperly or misusing trademarks or copyrighted content at these sites.

Amazon recently re-launched its Brand Registry to address these concerns and help brand owners police counterfeits and unauthorized uses of their marks and copyrighted content at the site. Benefits of the Brand Registry include increased control over how the owner’s goods appear at the Amazon website, including product titles, descriptions, and images. Once a brand owner has signed up for the Brand Registry, Amazon provides text and image search tools to help the owner identify and remove infringing and counterfeit listings. Complaints filed through the Brand Registry should also lead to permanent suspension of unauthorized seller accounts more quickly.

Facebook has introduced its Commerce & Ads IP Tool to assist brand owners in monitoring the Facebook Marketplace and use of their trademarks in Facebook ads. Registered users of Facebook’s tool are able to search Facebook across all ads and Marketplace listings, not just those that might appear in their own feed or local area, to identify unauthorized, infringing, and counterfeit uses of their registered trademarks and other intellectual property.

However, both platforms have a major limitation – not only do they restrict participation to brand owners with registered trademark rights, ignoring common law protections that may exist, but both Amazon and Facebook only allow brand owners to sign up with their monitoring platforms if they possess a “standard character” or “word mark” trademark registration. Neither Brand Registry nor Facebook’s Commerce & Ads IP Tool accept registrations for stylized marks, even those that include a word or phrase that is separately registered as a standard-character mark.

For brand owners without registered rights in standard-character marks, Amazon and Facebook will continue to accept complaints, but response times are typically slower and brand owners will lack access to the additional search and monitoring tools offered to registered users of the Brand Registry or Commerce & Ads IP Tool.

Given these limitations, any owners who have not yet secured a standard-character registration of their trademarks but wish to take advantage of the enhanced enforcement tools now offered by both Facebook and Amazon should consider filing trademark applications for their word marks.

More information on Amazon’s Brand Registry can be accessed here and to Facebook’s Commerce & Ads IP Tool can be seen here.