Thursday, March 29, 2012
Kurt's Blog Moves to WWW.IPBIZTECH.COM
I've moved to www.ipbiztech.com. See all the old posts and new posts at the new site.
Tuesday, January 31, 2012
They're Using My Trademark On Their Out-Of-State Website, Can I Sue Them In My State?
Trying to figure out whether a suit can be brought in one's home state can be a key factor in whether a company has the resources or the will to bring a case at all. Obtaining jurisdiction in one's home state can also often be a substantial factor influencing the outcome of the case and, especially, encouraging settlement from out-of-state parties who will have to pursue the case in another state. A recent New Jersey District Court reviewed the Third Circuit standards applied to address this issue.
In Piano Wellness, LLC v. Williams (D. N.J. Dec. 21, 2001), Plaintiff, Piano Wellness (located in New Jersey), alleged that Defendant, Williams adopted the KEYBOARDWELLNESS.COM trademark infringing Piano Wellness' registered trademarks PIANO WELLNESS SEMINAR and KEYBOARD WELLNESS SEMINAR as well as its common law marks PIANO WELLNESS and KEYBOARDWELLNESS. Williams, a citizen of Georgia, argued that the New Jersey court did not have jurisdiction over her since her website was "passive" in that it acted primarily as a bill board, she had no employees in New Jersey and never conducted business through the website in New Jersey. However, the owner of the Plaintiff and the Defendants had prior business dealings with each other in New Jersey that ended in 2008.
The Three-Prong Test. In determining whether a trademark owner can pursue an alleged infringer in the owner's home state, the courts must determine whether there is either "general" or "specific" jurisdiction over the alleged infringer. In analyzing this case, the Court quickly found that it did not have general jurisdiction since the Defendant's general contacts with the State of New Jersey had not been recent.
Figuring out whether specific jurisdiction exists is, however, a little more involved. In the Third Circuit, the courts apply a three part test as follows:
1. Whether the Defendant purposefully directed its activities at the State of New Jersey;
2. Whether the litigation arises out of or relates to at least one of those activities; and
3. If the answers to the first two questions are "yes," then whether the exercise of jurisdiction "comports with fair play and substantial justice."
Passive Website Not Enough. In this case, the Defendant's website was passive. No portion of it was interactive. While the website was, of course, accessible to New Jersey residents, the Defendant did not do anything to encourage New Jersey residents to visit the website and there was no evidence that any New Jersey residents had, in fact, visited the website. As the Court stated, the "mere operation of a passive website, which could be accessed worldwide, is not in itself sufficient to demonstrate that Defendant purposefully directed an act toward New Jersey." So based on the passive website alone, the first prong of the three part test would not have been satisfied.
Cease and Desist Letters Not Enough. However, the passive website alone was not the only contact that the Defendant had with New Jersey. According to the decision, the Defendant had allegedly sent threatening letters to the Plaintiff in New Jersey. Nonetheless, the Court found that there was no evidence that the subject matter of those letters related to the trademarks in this case. Moreover, the court found that the sending of a cease and desist letter is not, by itself, sufficient to obtain specific jurisdiction.
But in twist worth of a paperback novel, the Court found that there was sufficient basis for personal jurisdiction. The Court concluded that the Defendant's active involvement in business in New Jersey with the Plaintiff prior to 2008 was sufficient for specific jurisdiction even if it was insufficient for the purposes of exercising general jurisdiction.
Having satisfied the first prong of the test, the Court next considered whether the Defendant's pre-2008 activities related to the Plaintiff's claims in this case. According to the decision, the Defendant had started the KEYBOARDWELLNESS.COM business back in 2005 to engaged in a business similar to the joint business previously conducted by the Defendant and Plaintiff together. This was enough for the Court to conclude that the Plaintiff's claims were related to the prior activities of the Defendant which were directed at New Jersey.
Fair Play & Substantial Justice Factors. Finally, under the last prong of the test, the Court had to evaluate whether its exercise of jurisdiction over this case would "offend traditional notions of fair play and substantial justice."' The Court enumerated the following factors that are considered in evaluating this standard:
1. The burden on the Defendant;
2. The forum state's interest in adjudicating the dispute;
3. The Plaintiff's interest in obtaining the most efficient resolution of controversies;
4. The interstate judicial system's interest in obtaining the most efficient resolution of the controversy; and
5. The shared interest of the several States in "furthering fundamental substantive social policies."
Lets face it, for most people, this is not a standard that is easily understood or applied. This makes it not terribly helpful to business people trying to evaluate what to do when faced with a potential out-of-state infringer. How, for example, is a business person supposed to figure out whether it will "further fundamental substantive social policy" when deciding how to arrange his or her affairs? Fortunately, however, the standard is accompanied by a default rule that makes it a little easier to apply. That rule is this:
1. If minimum contacts are sufficient to otherwise justify jurisdiction (i.e., if the first two prongs of the three prong test are satisfied), then jurisdiction will be denied only in rare cases; and
2. It is the Defendant's burden to make a compelling case that the Court's exercise of jurisdiction would be unreasonable.
In this case, the Defendant was unable to overcome this burden and the Court found that it had specific jurisdiction over the Defendant. Thus, Williams, the Georgia resident would have to defend against the case in New Jersey.
Key Things to Remember. Some key things to remember from this case are:
1. The mere operation of a passive website accessible worldwide will not, in and of itself, subject the operator to jurisdiction in a state where the website is accessible;
2. The mere sending of cease and desist letters are also not enough to subject the sender to jurisdiction in the home state of the recipient.
In Piano Wellness, LLC v. Williams (D. N.J. Dec. 21, 2001), Plaintiff, Piano Wellness (located in New Jersey), alleged that Defendant, Williams adopted the KEYBOARDWELLNESS.COM trademark infringing Piano Wellness' registered trademarks PIANO WELLNESS SEMINAR and KEYBOARD WELLNESS SEMINAR as well as its common law marks PIANO WELLNESS and KEYBOARDWELLNESS. Williams, a citizen of Georgia, argued that the New Jersey court did not have jurisdiction over her since her website was "passive" in that it acted primarily as a bill board, she had no employees in New Jersey and never conducted business through the website in New Jersey. However, the owner of the Plaintiff and the Defendants had prior business dealings with each other in New Jersey that ended in 2008.
The Three-Prong Test. In determining whether a trademark owner can pursue an alleged infringer in the owner's home state, the courts must determine whether there is either "general" or "specific" jurisdiction over the alleged infringer. In analyzing this case, the Court quickly found that it did not have general jurisdiction since the Defendant's general contacts with the State of New Jersey had not been recent.
Figuring out whether specific jurisdiction exists is, however, a little more involved. In the Third Circuit, the courts apply a three part test as follows:
1. Whether the Defendant purposefully directed its activities at the State of New Jersey;
2. Whether the litigation arises out of or relates to at least one of those activities; and
3. If the answers to the first two questions are "yes," then whether the exercise of jurisdiction "comports with fair play and substantial justice."
Passive Website Not Enough. In this case, the Defendant's website was passive. No portion of it was interactive. While the website was, of course, accessible to New Jersey residents, the Defendant did not do anything to encourage New Jersey residents to visit the website and there was no evidence that any New Jersey residents had, in fact, visited the website. As the Court stated, the "mere operation of a passive website, which could be accessed worldwide, is not in itself sufficient to demonstrate that Defendant purposefully directed an act toward New Jersey." So based on the passive website alone, the first prong of the three part test would not have been satisfied.
Cease and Desist Letters Not Enough. However, the passive website alone was not the only contact that the Defendant had with New Jersey. According to the decision, the Defendant had allegedly sent threatening letters to the Plaintiff in New Jersey. Nonetheless, the Court found that there was no evidence that the subject matter of those letters related to the trademarks in this case. Moreover, the court found that the sending of a cease and desist letter is not, by itself, sufficient to obtain specific jurisdiction.
But in twist worth of a paperback novel, the Court found that there was sufficient basis for personal jurisdiction. The Court concluded that the Defendant's active involvement in business in New Jersey with the Plaintiff prior to 2008 was sufficient for specific jurisdiction even if it was insufficient for the purposes of exercising general jurisdiction.
Having satisfied the first prong of the test, the Court next considered whether the Defendant's pre-2008 activities related to the Plaintiff's claims in this case. According to the decision, the Defendant had started the KEYBOARDWELLNESS.COM business back in 2005 to engaged in a business similar to the joint business previously conducted by the Defendant and Plaintiff together. This was enough for the Court to conclude that the Plaintiff's claims were related to the prior activities of the Defendant which were directed at New Jersey.
Fair Play & Substantial Justice Factors. Finally, under the last prong of the test, the Court had to evaluate whether its exercise of jurisdiction over this case would "offend traditional notions of fair play and substantial justice."' The Court enumerated the following factors that are considered in evaluating this standard:
1. The burden on the Defendant;
2. The forum state's interest in adjudicating the dispute;
3. The Plaintiff's interest in obtaining the most efficient resolution of controversies;
4. The interstate judicial system's interest in obtaining the most efficient resolution of the controversy; and
5. The shared interest of the several States in "furthering fundamental substantive social policies."
Lets face it, for most people, this is not a standard that is easily understood or applied. This makes it not terribly helpful to business people trying to evaluate what to do when faced with a potential out-of-state infringer. How, for example, is a business person supposed to figure out whether it will "further fundamental substantive social policy" when deciding how to arrange his or her affairs? Fortunately, however, the standard is accompanied by a default rule that makes it a little easier to apply. That rule is this:
1. If minimum contacts are sufficient to otherwise justify jurisdiction (i.e., if the first two prongs of the three prong test are satisfied), then jurisdiction will be denied only in rare cases; and
2. It is the Defendant's burden to make a compelling case that the Court's exercise of jurisdiction would be unreasonable.
In this case, the Defendant was unable to overcome this burden and the Court found that it had specific jurisdiction over the Defendant. Thus, Williams, the Georgia resident would have to defend against the case in New Jersey.
Key Things to Remember. Some key things to remember from this case are:
1. The mere operation of a passive website accessible worldwide will not, in and of itself, subject the operator to jurisdiction in a state where the website is accessible;
2. The mere sending of cease and desist letters are also not enough to subject the sender to jurisdiction in the home state of the recipient.
Friday, January 20, 2012
Real Estate Development Dispute Over Copyright in Engineering Plans - State Court or Federal Court?
Who settles copyright disputes in ownership of real estate development engineering plans: State Court or Federal Court? A recent New Jersey District Court case recently answered this question. In Pennoni Associates, Inc. v. Medford Village East Associates, LLC (D.N.J. Dec. 20, 2011) the court was presented with this very issue.
Copyright ownership in engineering plans and architectural drawings are periodically key issues in real estate development disputes. This case involved the development of a 280 acre parcel. Medford Village East Associates, LLC (MVE) was the original property owner who agreed to sell the property to the town, who further agreed to sell portions to third parties. Pennoni Associates, Inc. (Pennoni) was retained by a party involved in the transaction to modify engineering plans. In a complex state court litigation involving many parties, both MVE and Pennoni asserted ownership claims in the plans.
Based on the conflicting claims of ownership, Pennoni tried to remove the case to Federal court, but its attempt was past the 30 day limit imposed by Federal law. Consequently, Pennoni then sought declaratory judgment in Federal court to determine who owned the copyright in the plans. The interesting part of this decision is the analysis of whether the Federal court could take the case in light of the pending state court action.
First, the court had to decide whether Pennoni's claim presented an independent basis for jurisdiction or whether jurisdiction was dependent on the nature of the state court action. Not surprisingly, the court found that Pennoni's claim was dependent on the state court action since the state court action was at the heart of Pennoni's request for declaratory judgment.
Second, the court analyzed whether the state court action involved a claim under federal law. When it comes to this point in the analysis in most declaratory judgment cases, courts usually have to speculate as to a hypothetical legal case that might be brought if the issue presented by the declaratory judgment action is not decided by the court. In this case however, there was already a pending state court action. Ironically, Pennoni's failed attempt to remove the case to Federal court provided the basis for the court to find that the case involved a claim under federal law. In other words, in previously ruling that the case could not be removed to Federal court, the court necessarily had concluded that there was a federal question that triggered the applicability of the time limits to remove the case under federal law.
Based on the first two steps in the analysis, the court found that it had subject matter jurisdiction, but the analysis did not stop there. The court noted that under the Declaratory Judgment Act its exercise of jurisdiction over such an action is discretionary. So, at the end of the day, the court directed the parties to file supplemental briefs explaining why they think the court should or should not exercise its discretion to take the case.
Anybody willing to post a prediction as to what whether the court will (or should) take the case?
Copyright ownership in engineering plans and architectural drawings are periodically key issues in real estate development disputes. This case involved the development of a 280 acre parcel. Medford Village East Associates, LLC (MVE) was the original property owner who agreed to sell the property to the town, who further agreed to sell portions to third parties. Pennoni Associates, Inc. (Pennoni) was retained by a party involved in the transaction to modify engineering plans. In a complex state court litigation involving many parties, both MVE and Pennoni asserted ownership claims in the plans.
Based on the conflicting claims of ownership, Pennoni tried to remove the case to Federal court, but its attempt was past the 30 day limit imposed by Federal law. Consequently, Pennoni then sought declaratory judgment in Federal court to determine who owned the copyright in the plans. The interesting part of this decision is the analysis of whether the Federal court could take the case in light of the pending state court action.
First, the court had to decide whether Pennoni's claim presented an independent basis for jurisdiction or whether jurisdiction was dependent on the nature of the state court action. Not surprisingly, the court found that Pennoni's claim was dependent on the state court action since the state court action was at the heart of Pennoni's request for declaratory judgment.
Second, the court analyzed whether the state court action involved a claim under federal law. When it comes to this point in the analysis in most declaratory judgment cases, courts usually have to speculate as to a hypothetical legal case that might be brought if the issue presented by the declaratory judgment action is not decided by the court. In this case however, there was already a pending state court action. Ironically, Pennoni's failed attempt to remove the case to Federal court provided the basis for the court to find that the case involved a claim under federal law. In other words, in previously ruling that the case could not be removed to Federal court, the court necessarily had concluded that there was a federal question that triggered the applicability of the time limits to remove the case under federal law.
Based on the first two steps in the analysis, the court found that it had subject matter jurisdiction, but the analysis did not stop there. The court noted that under the Declaratory Judgment Act its exercise of jurisdiction over such an action is discretionary. So, at the end of the day, the court directed the parties to file supplemental briefs explaining why they think the court should or should not exercise its discretion to take the case.
Anybody willing to post a prediction as to what whether the court will (or should) take the case?
Tuesday, January 17, 2012
Wikipedia to Blackout English Language Version Tomorrow
Yesterday, Wikipedia announced that it would blackout the English language version of its famous website for 24 hours in protest to pending anti-piracy legislation in both houses of Congress. The legislation is comprised of two pending bills. The House version is entitled the Stop Online Piracy Act while the Senate version is entitled the Protect IP Act.
Unfortunately, the Wikipedia press release was shy on details that might have promoted Wikipedia's cause. Specifically, it would have been nice if the press release included the reasons why Wikipedia objects to the pending legislation in its current form. In fairness, the press release did quote Wikimedia Foundation board member suggesting that Wikipedia's primary objections were based on concerns of censorship. The press release also provided a link to an article published by the Electronic Frontier Foundation criticizing the legislation.
Wikipedia's move is the latest in a swirl of controversy surrounding the legislation. Both bills have alleged corporate supporters (e.g., ABC, Revlon, NFL) and opponents (e.g., Yahoo!, eBay, American Express, Google) of substantial note. The White House has also joined in the action with a press release which appears to call for a balanced approach which would have the legislation focused on criminal activity of foreign-based websites. In a further nod to critics of the legislation, the White House statement went further to say that the legislation must be "transparent and designed to prevent overly broad private rights of action that could encourage unjustified litigation that could discourage startup businesses and innovative firms from growing."
Where this ends up is anybody's guess.
Unfortunately, the Wikipedia press release was shy on details that might have promoted Wikipedia's cause. Specifically, it would have been nice if the press release included the reasons why Wikipedia objects to the pending legislation in its current form. In fairness, the press release did quote Wikimedia Foundation board member suggesting that Wikipedia's primary objections were based on concerns of censorship. The press release also provided a link to an article published by the Electronic Frontier Foundation criticizing the legislation.
Wikipedia's move is the latest in a swirl of controversy surrounding the legislation. Both bills have alleged corporate supporters (e.g., ABC, Revlon, NFL) and opponents (e.g., Yahoo!, eBay, American Express, Google) of substantial note. The White House has also joined in the action with a press release which appears to call for a balanced approach which would have the legislation focused on criminal activity of foreign-based websites. In a further nod to critics of the legislation, the White House statement went further to say that the legislation must be "transparent and designed to prevent overly broad private rights of action that could encourage unjustified litigation that could discourage startup businesses and innovative firms from growing."
Where this ends up is anybody's guess.
Monday, January 9, 2012
New Years Solicitations - Creative Marketing or Deceptive Advertising?
With the start of the new year, it's time for trademark owners again to be on guard against solicitations and advertisements that may appear to be "official" or look like invoices. It is prudent to warn your bookkeeping departments to be alert to these types of solicitations and not mistake them for invoices. Please post a comment below if you have received solicitations that you found to be confusing.
I was recently contact by the recipient of two documents with respect to a trademark and asked whether or not these "invoices" should be paid. On closer inspection, neither document was an invoice and both were solicitations for services which, because of the format, the recipient mistook for invoices.
The first (seen below) solicits for payment of a "registration fee" for the service of publishing the registered trademark in the solicitors index.
This format was confusing to the recipient since it looked like an invoice rather than a more traditional form of direct mail advertising, such as a brochure, for example. After you get past the format and the solicitation for a "registration fee," the text of the document, however, expressly provides that the service offered is that of publication of the trademark in the solicitor's catalogue. The only indication of the value of this service is that it provides "a notice to others that your described trademark/servicemark is already taken." The risk here is that recipients who are not well versed in trademark registration or protection may be mislead to think that such a notice is somehow required and simply pay the invoice.
While the solicitation did not contain a phone number for the company, it did contain a URL for the company's website which expressly identifies itself as "a U.S. based privately owned trademark and patent firm." I suspect that changing the format and including this language on the mailing would help avoid confusion.
Another solicitation (seen below) received by the same recipient, was on its surface, quite a bit more confusing.
Does the use of the name "United States Trademark Registration Office" run afoul of this statute? Interestingly, the only case to address a similar issue found that the use of the name "United States Consumer Council" with an American eagle emblem violated the statute while the use of the same name without the emblem did not. In re Fleet, 95 B.R. 319 (E.D.Pa 1989).
The other confusing aspect of this solicitation is that it is appears to be an invoice. This is especially evident from the listing of the $375 fee as being "DUE NOW." However, at least this company offers a more potentially valuable service. Specifically, for the $375 fee, the company will register your trademark with US Customs and Boarder Protection (CBP), notify you when your goods are blocked and send reminders to you when its time to file maintenance and renewal filings with the USPTO. However, the CBP only charges $190 for the registration and is then obligated by regulation to provide the trademark owner with notice when goods are block. Moreover, in this case, the recipient's mark was a service mark so registration with the CBP was unlikely to have any meaningful value.
The moral of this story is to read all such material carefully before paying anything that appears as an invoice. In each of these cases, a careful reading of the material reveals that these are not from governmental agencies and not mandatory purchases.
I was recently contact by the recipient of two documents with respect to a trademark and asked whether or not these "invoices" should be paid. On closer inspection, neither document was an invoice and both were solicitations for services which, because of the format, the recipient mistook for invoices.
The first (seen below) solicits for payment of a "registration fee" for the service of publishing the registered trademark in the solicitors index.
While the solicitation did not contain a phone number for the company, it did contain a URL for the company's website which expressly identifies itself as "a U.S. based privately owned trademark and patent firm." I suspect that changing the format and including this language on the mailing would help avoid confusion.
Another solicitation (seen below) received by the same recipient, was on its surface, quite a bit more confusing.
In this case, the name of the organization, "United States Trademark Registration Office, Trademark Registration and Monitoring Division," lead the recipient to believe that this came from an official governmental agency. For the record, New Jersey law makes it unlawful to operate under a name that implies association with a state of federal governmental agency. See NJSA 56:8-2.1.
Does the use of the name "United States Trademark Registration Office" run afoul of this statute? Interestingly, the only case to address a similar issue found that the use of the name "United States Consumer Council" with an American eagle emblem violated the statute while the use of the same name without the emblem did not. In re Fleet, 95 B.R. 319 (E.D.Pa 1989).
The other confusing aspect of this solicitation is that it is appears to be an invoice. This is especially evident from the listing of the $375 fee as being "DUE NOW." However, at least this company offers a more potentially valuable service. Specifically, for the $375 fee, the company will register your trademark with US Customs and Boarder Protection (CBP), notify you when your goods are blocked and send reminders to you when its time to file maintenance and renewal filings with the USPTO. However, the CBP only charges $190 for the registration and is then obligated by regulation to provide the trademark owner with notice when goods are block. Moreover, in this case, the recipient's mark was a service mark so registration with the CBP was unlikely to have any meaningful value.
The moral of this story is to read all such material carefully before paying anything that appears as an invoice. In each of these cases, a careful reading of the material reveals that these are not from governmental agencies and not mandatory purchases.
Monday, June 13, 2011
In E-commerce, Size Doesn't Matter (but placement sure does)
Are "browse wrap" agreements enforceable? "Browse wrap" agreements are those website terms and conditions that purport to bind people that surf on the website. A recent New Jersey appellate court had the opportunity to rule on the enforceability of these purported contracts.
In Hoffman v. Supplements ToGo Management, LLC, the New Jersey appellate court was presented with an interesting situation. Briefly, Hoffman (a New Jersey resident) bought a bottle of "Erection MD" brand supplements allegedly advertised, among other things, to "enhance sex drive." He then sued Supplements ToGo and World Class Nutrition, LLC for false advertising in a class action suit. The defendants moved to dismiss the suit on the basis that their website included a forum selection clause requiring all litigation to take place in Nevada. The trial court found that the forum selection clause was sufficiently prominent on the defendant's website to be enforceable and dismissed the case. Hoffman appealed.
On appeal, the appellate court disagreed with the trial court and found that the defendant's website was structured so that buyers were not provided with reasonable notice of the forum selection clause. Now this is the part of this case that I find truly interesting. The trial court judge and the appellate judges looked at the same website (presumably) and came to different conclusions about whether a consumer would have adequate notice of the terms on the web page. So I decided to look at the World Class Nutrition (WCN) website myself.
Here is a snap-shot of WCN website using my default settings in Internet Explorer.
Here is a snap-shot of the WCN website using my default settings in Fire Fox.
In looking at these, you should be aware of a few things. First, they are no where near the size you would see in your browser. Second, they were taken recently and may have changed since the facts in the case. Third, I've highlighted the forum selection clause to make it more prominent.
In both snap-shots, however, look at the relative position of the scroll bar on the page. Note how far down on the page a user would have to scroll in order to see the forum selection clause. This is the issue that the court found to be important.
The appellate court thought that the fact that the term appeared "submerged" (i.e., at a place on the page that the user would have to scroll down in order to see it) made a key difference. In print media jargon, one might refer to this placement as being "below the fold." This placement, when combined with the fact that customers were capable of placing the item in their virtual shopping cart without having to scroll down to see the clause, made the clause unenforceable. The appellate court made a point of emphasizing that the size of the print was not, necessarily, an issue. The court discussed a 1999 case (Caspi v. Microsoft Network, LLC, 323 N.J. Super. 118) at length and specifically noted that, in that case, there was "nothing extraordinary about the size or placement of the forum selection clause text." Caspi, 323 N.J. Super. at 125. In Caspi, there was a click-wrap agreement that the user was required to scroll through and click "I Agree" in order to proceed with the transaction. The Caspi case stood for the proposition that for the forum selection clause to be enforceable, it had to be presented in a "fair and forthright fashion."
The "fair and forthright fashion" standard is all well and good. But as a practical manner, how does a website programmer apply it to ensure that the clause will have its intended goal? From Caspi, we know that a click wrap agreement should work. In the Hoffman case, there was no click wrap agreement. Once a buyer placed the item in their virtual shopping cart, the user was linked to another page which did not contain the disclaimer and this made all the difference.
The moral of this story for e-commerce vendors and website developers is first, use click wrap agreements. Second, if your not going to use a click wrap, make sure that at least your forum selection clause (and probably the rest of your terms) are not "submerged" (i.e., are presented above the fold) before a buyer can proceed with his/her purchase transaction.
In Hoffman v. Supplements ToGo Management, LLC, the New Jersey appellate court was presented with an interesting situation. Briefly, Hoffman (a New Jersey resident) bought a bottle of "Erection MD" brand supplements allegedly advertised, among other things, to "enhance sex drive." He then sued Supplements ToGo and World Class Nutrition, LLC for false advertising in a class action suit. The defendants moved to dismiss the suit on the basis that their website included a forum selection clause requiring all litigation to take place in Nevada. The trial court found that the forum selection clause was sufficiently prominent on the defendant's website to be enforceable and dismissed the case. Hoffman appealed.
On appeal, the appellate court disagreed with the trial court and found that the defendant's website was structured so that buyers were not provided with reasonable notice of the forum selection clause. Now this is the part of this case that I find truly interesting. The trial court judge and the appellate judges looked at the same website (presumably) and came to different conclusions about whether a consumer would have adequate notice of the terms on the web page. So I decided to look at the World Class Nutrition (WCN) website myself.
Here is a snap-shot of WCN website using my default settings in Internet Explorer.
Here is a snap-shot of the WCN website using my default settings in Fire Fox.
In looking at these, you should be aware of a few things. First, they are no where near the size you would see in your browser. Second, they were taken recently and may have changed since the facts in the case. Third, I've highlighted the forum selection clause to make it more prominent.
In both snap-shots, however, look at the relative position of the scroll bar on the page. Note how far down on the page a user would have to scroll in order to see the forum selection clause. This is the issue that the court found to be important.
The appellate court thought that the fact that the term appeared "submerged" (i.e., at a place on the page that the user would have to scroll down in order to see it) made a key difference. In print media jargon, one might refer to this placement as being "below the fold." This placement, when combined with the fact that customers were capable of placing the item in their virtual shopping cart without having to scroll down to see the clause, made the clause unenforceable. The appellate court made a point of emphasizing that the size of the print was not, necessarily, an issue. The court discussed a 1999 case (Caspi v. Microsoft Network, LLC, 323 N.J. Super. 118) at length and specifically noted that, in that case, there was "nothing extraordinary about the size or placement of the forum selection clause text." Caspi, 323 N.J. Super. at 125. In Caspi, there was a click-wrap agreement that the user was required to scroll through and click "I Agree" in order to proceed with the transaction. The Caspi case stood for the proposition that for the forum selection clause to be enforceable, it had to be presented in a "fair and forthright fashion."
The "fair and forthright fashion" standard is all well and good. But as a practical manner, how does a website programmer apply it to ensure that the clause will have its intended goal? From Caspi, we know that a click wrap agreement should work. In the Hoffman case, there was no click wrap agreement. Once a buyer placed the item in their virtual shopping cart, the user was linked to another page which did not contain the disclaimer and this made all the difference.
The moral of this story for e-commerce vendors and website developers is first, use click wrap agreements. Second, if your not going to use a click wrap, make sure that at least your forum selection clause (and probably the rest of your terms) are not "submerged" (i.e., are presented above the fold) before a buyer can proceed with his/her purchase transaction.
Monday, August 2, 2010
When Can You Go To Court Naked?
Apparently, if you are a trademark licensee it is okay to be naked in the Third Circuit Court of Appeals, but only if you've gone bankrupt. Not physically naked, but legally naked ... no problem. :-> I'm being sarcastic, of course, but I was rereading In re Exide, 607 F.3d 975 (June 1, 2010) the other day (yeah, I know, I should get out more) and I notice something that I hadn't before and thought I'd share it.
Exide was decided a couple of months ago and made a minor splash in the trademark licensing world for being one of a few cases to prevent a trademark licensor from rejecting a trademark license as an executory contract in a bankruptcy proceeding. In short, Exide Technologies sold its battery business to Enersys Delaware, Inc. back in 1991. As part of the deal, instead of selling the trademark, Exide granted a perpetual license to the trademark to Enersys. Here is what the trademark looks like:
In 2002, Exide went bankrupt. In the bankruptcy, Exide sought to reject the license as an executory contract to get the trademark back. In bankruptcy, a contract is considered "executory" (and therefore rejectable or "cancellable" by the debtor) if either party has substantial unperformed material obligations at the time the bankruptcy is filed. Exide argued that the license was executory because in contained three material unperformed obligations:
1) Use Restriction - Under the license, Enersys could not use the trademark outside the battery industry.
2) Quality Standards Requirements - Under the license, Enersys was apparently obligated to meet certain standards for battery products provided by Exide.
3) Indemnity & Further Assurances - Under the asset sale documents, Enersys had some indemnity obligations to Exide (which had expired in 1994) and had some "further assurances" obligations. "Further assurances" generally refers to savings clauses in a contract that, essentially requires the parties to do anything additional (that the parties may have overlooked or find out later that they need) in order to transfer the assets or otherwise complete the deal.
The court found that none of these were material and did not allow Exide to reject the license. But what got my attention was the quality standards requirement.
According to Enersys, under the license, Enersys was obligated to abide by the quality requirements set by Exide before the closing. Yet, no such standards were ever provided by Exide either before or after the closing and Exide never requested and Enersys never supplied samples. In its brief, Enersys argued that the this meant that Exide had waived the quality control requirement.
So here's the rub. Why didn't the court find that the license by Exide to Enersys was a naked license and deem the trademark abandoned? There is plenty of law on this point. The failure of a licensor to impose quality control requirements under a trademark license will result in a forfeiture of the trademark. Clearly, in this case, no such quality standards were actually imposed, either under the written agreement or in practice.
My guess is that the court did not deem the license "naked" and the trademark forfeited merely because that issue had not been presented by the litigants. Rather, the issue before the court was whether the license was executory, not whether it was naked. Nonetheless, with this ruling, it seems to me that Enersys could possibly cancel Exide's registration due to the naked license by asserting that Exide had thereby abandoned its rights in the mark altogether, not merely waived its quality control rights.
Although I'm sure its not that simple, and there are probably other facts, however, if I were Enersys, I'd be thinking about filing a cancellation action and a trademark application right about now.
Exide was decided a couple of months ago and made a minor splash in the trademark licensing world for being one of a few cases to prevent a trademark licensor from rejecting a trademark license as an executory contract in a bankruptcy proceeding. In short, Exide Technologies sold its battery business to Enersys Delaware, Inc. back in 1991. As part of the deal, instead of selling the trademark, Exide granted a perpetual license to the trademark to Enersys. Here is what the trademark looks like:
In 2002, Exide went bankrupt. In the bankruptcy, Exide sought to reject the license as an executory contract to get the trademark back. In bankruptcy, a contract is considered "executory" (and therefore rejectable or "cancellable" by the debtor) if either party has substantial unperformed material obligations at the time the bankruptcy is filed. Exide argued that the license was executory because in contained three material unperformed obligations:
1) Use Restriction - Under the license, Enersys could not use the trademark outside the battery industry.
2) Quality Standards Requirements - Under the license, Enersys was apparently obligated to meet certain standards for battery products provided by Exide.
3) Indemnity & Further Assurances - Under the asset sale documents, Enersys had some indemnity obligations to Exide (which had expired in 1994) and had some "further assurances" obligations. "Further assurances" generally refers to savings clauses in a contract that, essentially requires the parties to do anything additional (that the parties may have overlooked or find out later that they need) in order to transfer the assets or otherwise complete the deal.
The court found that none of these were material and did not allow Exide to reject the license. But what got my attention was the quality standards requirement.
According to Enersys, under the license, Enersys was obligated to abide by the quality requirements set by Exide before the closing. Yet, no such standards were ever provided by Exide either before or after the closing and Exide never requested and Enersys never supplied samples. In its brief, Enersys argued that the this meant that Exide had waived the quality control requirement.
So here's the rub. Why didn't the court find that the license by Exide to Enersys was a naked license and deem the trademark abandoned? There is plenty of law on this point. The failure of a licensor to impose quality control requirements under a trademark license will result in a forfeiture of the trademark. Clearly, in this case, no such quality standards were actually imposed, either under the written agreement or in practice.
My guess is that the court did not deem the license "naked" and the trademark forfeited merely because that issue had not been presented by the litigants. Rather, the issue before the court was whether the license was executory, not whether it was naked. Nonetheless, with this ruling, it seems to me that Enersys could possibly cancel Exide's registration due to the naked license by asserting that Exide had thereby abandoned its rights in the mark altogether, not merely waived its quality control rights.
Although I'm sure its not that simple, and there are probably other facts, however, if I were Enersys, I'd be thinking about filing a cancellation action and a trademark application right about now.
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