You just got a call from one of your top customers, Rinky Dinky Donut Company. Rinky Dinky asks you to produce a large number of donut boxes and bags for its coffee beans. Instead of putting the usual Rinky Dinky name and logo on the boxes, you are instructed to use the name and logo of Dunkin’ Donuts, and are provided with the required graphics and text. You assume Rinky Dinky is working on a collaboration with Dunkin’ Donuts, but fail to verify this. What you don’t know is that Rinky Dinky has no authorization to use Dunkin’ Donuts’ name or logo. You have now officially walked into an intellectual property minefield that could cost your company dearly. In fact, liability for trademark infringement is not limited to those who actually sell products with misappropriated trademarks. Liability can extend to middlemen who merely supply the products and companies that facilitate the infringement. And, damages (or amounts offenders may be liable to pay to intellectual property owners) can be hefty. Being forewarned about these concepts is being forearmed.
What is Intellectual Property?
Intellectual property consists of mental creations such as inventions, literary works, artistic works, names, symbols, designs and images that are used in commerce. There are four types of intellectual property: patents, copyrights, individuals’ publicity/privacy rights and trademarks.
Patents. A patent is the grant of a property right to an inventor, which gives the inventor a figurative monopoly on the invention for a certain number of years. Others are excluded from making, using, offering for sale or selling the invention in the United States or importing the invention to the United States for 20 years.
Copyrights. A copyright is a form of protection granted to authors of original works of authorship, including computer software, literary works, music and artistic works. The copyright holder has an exclusive right to reproduce the copyrighted works. A copyright protects the form of expression; it does not protect the subject matter of the writing. Examples of copyrights include novels, artwork, computer software and information on websites.
Right of Publicity. Individuals have rights to control commercial use of their names and identity, otherwise known as the right of publicity. This right protects members of the public from unauthorized use of their names or likenesses. Use of another’s name or likeness (e.g., a photograph), without permission, for commercial purposes, is subject to liability. The right of publicity extends to both celebrities and non-celebrities.
Trademarks. A trademark is a name, word, symbol or design, used with goods or services, to identify the source of a product or service. Marks associated with products are called trademarks, while marks associated with services are called service marks. However, both types of marks may generally be referred to as trademarks.
Another type of trademark is called “trade dress.” Trade dress is the overall image or impression of a product (i.e., the “look” and/or “feel” of a product), and/or the way in which the product is packaged and presented to consumers. Examples of trade dress include the shape of beverage bottles, such as the Coca-Cola “curved and ribbed” bottle and the packaging of a product, such as Crayola Crayons’ green and yellow cardboard packaging. Trade dress—often referred to as a trademark—is afforded the same type of intellectual property protection as a trademark.
What is Trademark Infringement?
In the simplest of terms, trademark infringement is when another’s trademark is used in commerce without permission. Counterfeiting or using a counterfeit mark is another type of infringement.
False advertising and false designation of origin also are related to trademark infringement. For false designation of origin, it is impermissible to use in commerce any word, name, symbol or similar item, which is likely to cause confusion or to deceive as to the affiliation or association with another, or as to the origin, sponsorship or approval of another’s goods or services. An example of this concept is using the Dunkin’ Donuts name on Rinky Dinky’s coffee and donuts. This conveys the message to Rinky Dinky’s customers that Dunkin’ Donuts’ sponsors, approve or endorse Rinky Dinky’s products.
For false advertising, it is impermissible to use any word, name, symbol or the like in commercial advertising or promotion that misrepresents the nature, characteristics, qualities or geographic origin of another’s goods or services. For instance, it is false advertising when the notation “organic” is placed on a product that is not organic.
Contributory Infringement
Some may wonder how one can be liable for trademark infringement when he or she did not mislabel any product or deceive anyone. The answer lies in a legal doctrine called contributory infringement. This doctrine states a person or company may be liable if he, she or it supplies the ammunition that facilitates the infringement. Therefore, in the hypothetical above, the printer that provides the infringing packaging may be named as a defendant in Dunkin’ Donuts’ lawsuit against Rinky Dinky.
In determining liability of the printing company, the focus turns to the company’s knowledge. If someone induces another to infringe a trademark or if the printer continues to supply a product to someone it knows or has reason to know is engaging in trademark infringement, the printer may be responsible for the harm done. The key words here are “knows” or “has reason to know.” The knowledge element is met where, for example, a printer has been notified of the infringing uses and fails to take action to prevent such use. The knowledge element also can be met when a printer turns a blind eye to the infringement.
Hefty Trademark Infringement Damages
Why should you be concerned about contributory infringement? Because the monetary damages a trademark holder may recover can be significant. A trademark owner may recover the infringer’s profits, any actual damages the owner sustains (such as lost business where potential customers have been diverted to the infringer’s products rather than the trademark owner’s product) and costs of the action. This means you may be required to disgorge your profits from the sale to Dunkin’ Donuts.
To make matters worse, if the infringement at issue involves a counterfeit, a trademark owner may recover up to three times the infringer’s profits or the trademark holder’s damages—whichever is greater—plus attorneys’ fees incurred in the action. Thus, in this example, if your total profits from the Rinky Dinky transaction were $40,000, Dunkin’ Donuts may be entitled to damages in the amount of $120,000 ($40,000 X 3), plus the attorneys’ fees that Dunkin’ Donuts incurred in prosecuting the action. Alternatively, a trademark holder may elect to recover statutory damages, which can range from $500 to $1,000,000 per trademark infringed. The trademark owner has the right to make such an election prior to trial. Often, if actual damages or profits are difficult to prove or the counterfeiter’s financial records are suspect, trademark owners elect to recover statutory damages.
How to Avoid Being a Contributory Infringer
Because the potential liability for contributory trademark infringement can be significant, follow these steps to avoid or minimize liability.
• Do your due diligence. Make sure your sources are credible and reputable. And, verify that all third-party trademark use, including names and likenesses, has been authorized in writing from the trademark owner.
• Do not use trademarks that too closely resemble the mark of another.
• Maintain detailed records. Make sure you maintain files containing written authorizations for use of others’ trademarks. Keep these files until long after the statutes of limitations for potential claims have expired. Statutes of limitations for certain actions vary per state. Consult with a lawyer to determine how long records should be maintained.
• Develop and implement policies for your company against intellectual property infringement. The policies should include, among other things, provisions prohibiting use of others’ trademarks without written authorization.
• Obtain indemnification agreements from your sources. If you have a contract with your suppliers or customers, include a provision in the contract that provides for your indemnification if claims are asserted by third parties for intellectual property infringement. Remember, the indemnification is only as good as the source providing it.
• Put a solid commercial liability insurance policy in place that provides coverage for advertising injuries. Not all insurance policies provide coverage for trademark infringement claims. However, it is worth speaking with your insurance company to obtain a proper policy.
These steps certainly are not exhaustive, and there can never be a 100 percent guarantee against liability. Your safest bet is to be aware of the issues to help avoid potential pitfalls. PPR
Lisa A. Lori, Esq., is a partner in the litigation department at Klehr, Harrison, Harvey, Branzburg & Ellers, LLP. Lori represents clients in a full range of complex commercial litigation matters, including employment, intellectual property and general business torts. She also counsels clients on a variety of issues, including advertising, marketing, branding and regulatory compliance.
- People:
- Lisa A. Lori
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- United States