Monday, May 2, 2011

Whitewash: Commerce Department Issues Trifling Report On Trademark Bullying

Borat Says:  Government Report is Niiice!
To whitewash is "a metaphor meaning to gloss over or cover up vices, crimes or scandals or to exonerate by means of a perfunctory investigation or through biased presentation of data. It is especially used in the context of corporations, governments or other organizations."

Last year Congress passed a law ordering the Commerce Department to do a study and report back on the phenomenon of trademark bullying, which is the use of abusive litigation tactics, or the threat of the same, to harass competitors or other small businesses through frivolous trademark infringement claims.  The USPTO described a trademark bully as  "a trademark owner that uses its trademark rights to harass and intimidate another business beyond what the law might be reasonably interpreted to allow."  This law was inspired by Senator Patrick Leahy of Vermont after the infamous Rock Art Brewery fiasco.  Rock Art is a Vermont mom and pop brewery that was using the term "Vermonster" to promote its product.  A cease and desist letter was sent to Rock Art by Monster Energy demanding that they stop using Vermonster, frivolously claiming that "Vermonster" beer was likely to confuse customers of Monster Energy drinks.  Rock Art did not back down, using the demand as an opportunity to shame Monster Energy and gain positive publicity for itself.  In sponsoring the law on the Trademark bullying study, Senator Leahy explained the problem. "When a corporation exaggerates the scope of its rights far beyond a reasonable interpretation in an attempt to bully a small business out of the market that is wrong."  The law required policy suggestions from the report among other things.  

I represent both trademark owners and those accused of infringing.  A trademark owner has every right to protect its brand.  However, trademark owners should be penalized for frivolous litigation designed to overprotect a brand, or to simply try to put a small and practically defenseless company out of business.   Justice requires a system that balances fairly the rights of the trademark owner with the rights of the accused such that it is not cost prohibitive to defend oneself no matter whether anything wrong has been done. 

One of the questions a mark or brand owner has to ask is when to take action and when to let things slide.  It appears that many lawyers deceive themselves into thinking that scorched earth enforcement is the only way to go.  Conveniently, that is very lucrative for the lawyers, and it also justifies the existence of the in-house lawyer to an extent, although for them budgets determine where the IP enforcement resources go.  Ethical companies need to know where to draw the line based on common sense and good counsel. 

One of my favorite legal quotes is from Elihu Root, a famous Wall Street lawyer a hundred years ago or so. He said "About half of a decent lawyer's practice is telling prospective clients that they are damn fools and should stop."  Sadly, not many Elihu Roots seem to be around any more.  But what Root said is true for both sides.  If the trademark owner is going over the line and bullying, they need to assess the scenario with common sense and let it slide.  If the upstart is infringing they should stop and remake their brand, if possible.  There are companies out there, however, that do not operate based on an ethical compass. For them, what is right is what they can get away with, not what is fair and reasonable. Because nefarious intent is not dispositive of trademark infringement claims, however, good lawyers working for a determined bully can make life very difficult for a defendant that has done nothing wrong and is not harming the mark owner one iota. 

What was published Friday is a perfect example of a total waste of taxpayer money, and truly offered nothing of substance to anyone.  One thing that surprised me is that when the USPTO published a survey and invited folks to respond about bullying, only thirteen lawyers filled out the form, yours truly included.  Overall, there were 79 responses.  This is disappointing, but underscores how poorly the survey was disseminated and advertised to the stakeholders in the marketplace.  Otherwise, based on the items listed in the report, the investigation apparently consisted of having a meeting that few attended, reading some articles, and avoiding reality entirely. 

The report spends much of its 28 pages basically writing a legal memo to Congress as a primer on trademark law.  They could have just sent them a link to Wikipedia and saved us all some money.  Whatever.  Then, when it gets down to analyzing the paltry data that it studied, it essentially says it cannot conclude anything because not enough people filled out the survey.  Basically, it says that no problem can be ascertained from available information.  That is patently ridiculous based on reviewing simply the data the AIPLA puts out.  That data makes it clear that the number of trademark infringement cases has steadily risen and that the cost of defending or prosecuting these claims is $700,000 as of 2007 and rising over 20% per year. 

What was really funny was that the report concluded that existing controls on abusive litigation exist in federal law to adequately protect small businesses from being bullied out of existence.  Everyone involved in this flawed system knows this is totally false.  First, the report states that the sanctions available under Rule 11 provide remedies for trademark bullying victims.  Under Rule 11, eventually, after expensive litigation, a party might convince a judge to sanction a bully's lawyer for filing a frivolous lawsuit.  Rule 11 awards are extremely rare, kind of like sightings of Bigfoot.  Second, the report mentions the Lanham Act's statutory award for attorneys' fees in "exceptional cases."  Again, judges are rarely willing to award fees in these cases, and for true victims of trademark bullies, they cannot afford to pay for a lawyer to fight that fight through the time in which a judge makes a decision.  

Unless there is insurance to pay for the defense costs of the innocent victim of trademark bullying, the small business targeted by bullies has little choice but to change its brand or go out of business.  From personal experience I can say that it is virtually impossible for a small, growing company to obtain the capital necessary to grow with a lawsuit like this hanging over their heads, even with an opinion of noninfringement from competent counsel.  Banks will not loan money to the company embroiled in a lawsuit like this, and equity investors will not bet their capital on such a company either.  From a finance perspective, the trademark bully can paint a scarlet letter on the defendant merely by filing a complaint and launching the expensive process of litigation.  These cases can take upwards of two years to complete, and by that time the defendant has exhausted all of its funding, financing has run dry, and the trademark bully has achieved its competitive goal regardless of the question of infringement. 

The recommendations made by the report made me laugh out loud.  Basically, they suggest that lawyers do pro bono work defending small business from trademark bullies.   Yeah, that's it, we will ask lawyers to solve the problem by working for free.  Everyone put down your Habitat for Humanity paint brushes and come to the office Saturday so we can defend a trademark lawsuit for free.   I can see all of the IP Atticus Finches running to sign up for this duty.  Since the average trademark case costs $700,000 to defend all the way to the end, that suggestion is feckless and offensive.  Sure, it is one thing to do a free response to a cease and desist letter, it is another thing to bust your gut and try a case for nothing.  Otherwise, the report suggests more education for small business owners about intellectual property.  Lack of knowledge is not the problem for small business owners.  Lack of common sense protection against trademark bullies in the forms of faster and cheaper disposition of frivolous cases is the problem. 

Here are the recommendations: 

1. Engage the private sector about providing free or low-cost legal advice to small businesses via pro bono programs and intellectual property rights clinics;

2. Engage the private sector about offering continuing legal education programs focused on trademark policing measures and tactics;

3. Enhance Federal agency educational outreach programs by identifying resources that enable small businesses to further their understanding of trademark rights, enforcement measures, and available resources for protecting and enforcing trademarks.

As you can see, there is nothing innovative or productive that came out of this exercise.  Nothing is going to change to stop the real trademark bullies except judges getting rid of cases and charging the bullies for the defense costs of the bullied.  This kind of change in the legal system rarely occurs from within, it usually requires significant legislative and executive influence.  The only question I have now is how much this frolic cost the American taxpayers.  Whatever that amount was, it was too much.  


  1. Bullying is a problem in the UK and the European Union, too, but is less to do with litigation, more to do with overwide protection and spurious oppositions. I have blogged about this in the light of the Department of Commerce Report (see I have also added a new definition to my Dictionary of Intellectual Property blog (

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