Questions Left Unanswered by Louboutin Case

The most highly anticipated case in the fashion world in 2012 was Christian Louboutin v. Yves Saint Laurent, in which footwear designer Christian Louboutin sued design house Yves Saint Laurent over footwear incorporating a red sole, claiming that it infringed Louboutin’s trademark registration covering a lacquered red sole on footwear.

An April ruling by the USPTO finally put an end to this case, the net impact of which may be more noteworthy not for the questions it answered but for the questions that it left open.

As part of its ruling, the US Court of Appeals for the Second Circuit ordered the USPTO to modify Louboutin’s trademark registration to narrow its scope. In April, the USPTO issued a corrected certificate of registration that revised the coverage from a “lacquered red sole of footwear” to a “red lacquered outsole on footwear that contrasts with the color of the adjoining (“upper”) portion of the shoe.” The revised scope of Louboutin’s trademark had the dual result of preserving Louboutin’s trademark rights while ensuring the shoes sold by Yves Saint Laurent did not infringe.

Therefore, the court’s decision left both Louboutin and Yves Saint Laurent claiming victory. For Louboutin, victory was achieved through the court’s recognition that its designs of a red lacquered outsole on footwear when such outsole contrasts with the upper portion of the shoe were deserving of trademark protection, protecting Louboutin’s brand. For Yves Saint Laurent, victory can be claimed because its shoes were not deemed to be infringing since such shoes were red all over.

Similarly, while the court recognized that a fashion house, just like companies in other industries, can obtain exclusive rights to use a single color, its holding may not apply to future plaintiffs seeking to establish exclusive rights in a color. Specifically, the court’s narrowing of Louboutin’s trademark eliminated the dispute but did not address the issue of whether Louboutin’s mark was aesthetically functional or whether there was any likelihood of confusion.

While the court’s decision can, on the one hand, be viewed as a victory for fashion designers since the ruling established that a single color can serve as a source identifier in the fashion industry, its holding was relatively fact-specific and does not provide any assurances to other third parties claiming exclusive rights in a single color.

Despite all the publicity and hype, Louboutin did not provide a road map for the next fashion designer who decides to become a plaintiff in a case involving claims of infringement in a single color mark. It will be interesting to see whether fashion designers are emboldened by the Louboutin holding. It may not be long before the issue of trademark protection for a fashion designer in a single color mark comes before the courts again.

Supreme Court Rules on Covenant Not to Sue

The US Supreme Court recently issued a decision in Already v. Nike which may have a large impact on how trademark owners handle enforcing their proprietary rights and how those accused of trademark infringement defend themselves.

In the summer of 2009, Nike filed a complaint against Already alleging that a line of shoes infringed Nike’s federal trademark registration covering the trade dress of its Air Force 1 shoe. Already responded by filing a counterclaim seeking a declaration from the court that Nike’s trademark registration was invalid. Following the counterclaim, Nike decided that the matter no longer warranted the time and expense associated with litigation and issued a unilateral covenant not to sue in an attempt to walk away from the matter. The covenant not to sue was broadly worded and promised that Nike would not make any trademark or unfair competition claims against Already or its affiliates based on any of Already’s existing footwear designs or any future designs that constituted a “colorable imitation” of Already’s current products.

Following the issuance of the covenant not to sue, Nike moved to dismiss its own claims with prejudice and to dismiss Already’s declaratory judgment counterclaim on the grounds that the covenant not to sue rendered the matter moot. The District Court dismissed the case, finding that the issuance of the covenant not to sue meant that there was no longer a justifiable controversy, a holding that was affirmed by the US Court of Appeals for the Second Circuit.

However, even though Nike had completely backed down, Already continued to want a determination that the trademark registration was invalid and appealed the case to the Supreme Court.

The Supreme Court agreed with the lower courts, holding that the counterclaim was moot since the language of the covenant not to sue eliminated any scenario under which Nike would assert such claims of infringement against Already.

The Supreme Court’s decision seems to support the ability of a trademark owner to avoid a declaratory judgment claim for invalidity and have both claims and counterclaims dismissed by unilaterally preparing and executing a broadly worded covenant not to sue.

The key component for the trademark owner is to ensure that the covenant eliminates any possibility of a future threat to the other party.

There are, however, several risks for a trademark owner to bear in mind when considering this strategy. Issuing a covenant not to sue may allow the party receiving such covenant a broader ability to use the trademark than the original use objected to by brand owner. Similarly, the covenant may potentially be deemed a naked license and result in the forfeiture or unenforceability of the trademark. Finally, there is a risk that the covenant may render the initial litigation abusive, creating liability for the accused party’s attorney’s fees. Moreover, while the issue of invalidity may no longer be heard by a court, it may not prevent the filing of a cancellation action before the Trademark Trial and Appeal Board. Accordingly, while a covenant not to sue would appear to provide a trademark owner with a convenient way out of litigation, consideration should be given to the risks and other possible consequences.

Anonymous Comments Allowed as Evidence of Confusion

The expansion of consumer review websites and social media has brought with it a broadened ability for individuals to express their thoughts and opinions while remaining anonymous. Anonymous online reviews are commonplace and it was only a matter of time before they worked their way into the court’s analysis of trademark infringement claims.

The test for trademark infringement is whether there exists a likelihood of confusion between two marks. Although this test does not require evidence of actual confusion, the existence of actual confusion is a factor that courts consider as part of their likelihood of confusion analysis. Indeed, many courts have held that there can be no more substantial proof of the likelihood of confusion than incidents of actual confusion in the marketplace. With this in mind, in February a US federal district judge relied on an anonymous posting on an online business review site as evidence in support of a finding of likelihood of confusion.

The owner of a chain of health clubs that operates under the mark YouFit filed a motion for preliminary injunction seeking to prevent a rival health club from using the name Fit U. In reaching its decision to issue the preliminary injunction the judge relied, in part, on an anonymous posting that was made on the website Yelp.com indicating that the reviewer was confused about the differences between the two clubs.

Yelp.com is a website that allows users to rate local businesses. Yelp.com does not require that users fully identify themselves when posting reviews and there is no process to verify that a user is, in fact, a real person.

In fact, some studies have estimated that as many as one third of online postings are fake.

Interestingly, the court did not address whether the online review at issue was real or that an actual person posted it. Nevertheless, the District Court decided to give weight to the Yelp.com posting as evidence of actual confusion.

The court also held that the online review did not constitute hearsay because it was not offered to prove the truth of the matter asserted in the review but only to demonstrate the reviewer’s confusion and the thenexisting state of mind of the reviewer.

The court did, however, acknowledge that the online review may not have been admissible evidence when considering whether to issue a permanent injunction but that consideration was appropriate given the character and objectives of the preliminary proceeding.

While it remains to be seen how the courts will treat the authenticity issue of online postings, this case demonstrates that courts are willing to consider such postings as part of the likelihood of confusion analysis. Therefore, when contemplating litigation asserting a claim of trademark infringement, trademark owners would be wise to keep records not only of instances of confusion which they hear directly from customers but also any examples of confusion that are posted on review sites such as Yelp.com and any other sites that allow for the posting of comments.