Trademarks

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Two manufacturers of large inflatable swan-shaped pool floats made a splash in a New York appeals court earlier this month.  The Second Circuit rejected a New York company’s attempt to claim exclusive trade dress rights to a swan-shaped pool float, calling the endeavor “impermissibly overbroad.”

In August 2016, Long Island based pool products enterprise, Swimline International Corp., filed a claim for trade dress infringement against Funboy LLC, a California based pool float manufacturer, in the United States District Court, Eastern District of New York.  Swimline (formerly known as International Leisure Products, Inc.) alleged that Funboy was selling “knock-offs” of Swimline’s inflatable swan pool float. (Both products are pictured below).  While Swimline acknowledged that it holds no registered trademark in its swan design, Swimline alleged its swan float’s trade dress was a protectable composite of various swan-themed elements, including the orange coloration of the swan toy’s beak and the conical shape of the swan toy’s tail.  Ultimately, the District Court dismissed Swimline’s claim in November 2017 after concluding that Swimline failed to adequately allege protectable trade dress in its pool toy.  On appeal this month, the Second District agreed and affirmed the District Court decision.

Swimline’s Swan Float                                          Funboy’s Swan Float

To successfully state a claim for trade dress infringement, the plaintiff bears the burden of establishing protectable trade dress rights under trademark law.  A trademark is a name, mark, figure or symbol that distinguishes the goods and services of one seller from another seller.  Trademarks function as source identifiers, which allow consumers to know where a product came from and avoid confusion.  Trademarks also function as a way for trademark owners to build a reputation and brand loyalty in the marketplace.  Trademarks can exist in things like words, designs, colors, sounds, product shapes (as claimed here), and even scents. What trademark law doesn’t allow, however, is a company to try and monopolize words or symbols or product shapes that competitors might need to conduct their own businesses. This is where Swimline’s claim went belly up.

In the Swimline case, the Second Circuit reasoned that the swan float was not protectable as trade dress for two reasons.  First, the swan float is generic – i.e., that it was a swan-shaped pool float shaped like a swan.  As the Second Circuit put it, trademark protection is “not intended to protect innovation by giving the innovator a monopoly over a useful product feature.”   The purpose of the trademark should be to identify the product’s source, and here, the court said the swan-shaped pool float represents the type of design choice that is “almost invariably” intended “to render the product itself more useful or more appealing” rather than to “identify the [product’s] source.”  Second, the court said that Swimline could not identify the elements and features that actually distinguished its trade dress.  Swimline “[appeared] to be seeking protection for a trade dress that would encompass any bird-shaped pool float with even a passing resemblance” to Swimline’s float, and trade dress rights should not be extended for the purpose of protecting “an idea, a concept, or a generalized type of appearance.”  Swimline’s use of subjective phrases to describe its trade dress like “a pleasing appearance” or “aesthetic proportion” left the Court to guess at what was actually claimed.  For those reasons, the court called Swimline’s claimed trade dress “impermissibly broad,” and affirmed dismissal of Swimline’s case.

When used correctly, trade dress can be a powerful tool to enable consumers to build special connections with products.  Trade dress is not to be used, however, as a way to monopolize on a product’s shape in an anti-competitive manner.  A protectable trade dress needs to be distinctive, non-generic, and definite enough to allow competitors, customers, and the courts to recognize it as a trademark.  So, in the end, although Funboy may have ruffled Swimline’s feathers by designing a similar swan float, Swimline did not have protectable trade dress rights to the swan float in the first place.

Hasbro, Inc. recently made headlines when it received a federal trademark registration for the scent of its Play-Doh product. While it isn’t impossible to register a trademark for a scent, it is rare, and it is a reminder of the many options business owners have to create connections with customers (and even make a big splash while doing it).

Scent trademarks – and other marks like tastes, colors, sounds, product designs, textures, and even moving images – are part of a larger family of marks often referred to as non-traditional trademarks. The USPTO has issued registrations on all kinds of non-traditional trademarks, including the scent of strawberry for toothbrushes, the “Nationwide is on your side” song for insurance agencies, the word “yummm” sung at the end of Red Robin restaurant commercials, and even a cherry scent for synthetic lubricants.

Registering a non-traditional trademark can help a business protect the exact ways it connects with its consumers. As businesses think more about these non-traditional marks, they may find more ways to set their goods and services apart from their competitors’. These marks can be powerful marketing tools in their own rights as well. For example, Hasbro has earned heaps of free press for its scent registration, and even markets the scent on its own as part of a perfume.

Part of the reason these kinds of trademark registrations are so rare is that they are difficult to get. The U.S. Supreme Court has made clear that features of a product are never inherently distinctive. As a result, trademark applicants seeking to protect non-traditional trademarks have a high hurdle to clear to show that the scent, taste, color, etc. has acquired distinctiveness and functions as a trademark. Is the purported mark a functional element of the product? Are there third parties using the same mark? Has the mark been used for a long time? Has the mark (not just the underlying product) been advertised by the business or reported on by the media? These are just some of the questions a business must ask about its purported non-traditional marks.

In the end, Hasbro was able to clear this hurdle and was granted a trademark registration for “a scent of a sweet, slightly musky, vanilla fragrance, with slight overtones of cherry, combined with the smell of a salted, wheat-based dough.” Will this registration redefine Hasbro or its Play-Doh product? Probably not. But non-traditional trademarks could help your business mold its marketing efforts into something special, and should be considered as part of any overall branding strategy.

One little-publicized part of the new tax law (Tax Cuts and Jobs Act of 2017) may negatively affect the value of some patents and other intellectual property.  It does so by changing the tax treatment of income from sales of “patents, models and secret formulas or processes” from capital gains to ordinary income.

Prior to the amendment of Tax Code Section 1221(a)(3), income from sales of (1) “patents, models and secret formulas or processes,” (2) held by the IP creator, (3) for more than one year, was taxed at the capital gains rate.  This resulted in lower tax than the ordinary income tax rate that applied to other types of IP, such as copyrights, literary, musical, and artistic compositions.  Congress has now taken this tax advantage away.

The change in the law affects those that sell or license IP in the “primary market” only —in other words, the original creators of the IP.  It generally does not affect those that have paid to own the IP, including the IP creators’ employers.

There still remains an exception under Tax Code Section 1235 providing for lower tax on sales and licensing of all rights to patents, secret formulas and trade names (but only these types of IP).  For other types of IP, adjustments in sale prices and license royalties will need to compensate for the higher tax under the new law.

Our tax and IP groups can help you assess the new law’s impact on these valuable assets.

The First Amendment and Trademarks: Protecting “The Thought We Hate”

Can the federal government refuse to register offensive trademarks?  The Supreme Court held yesterday that it cannot.  Although the case did not directly involve the “Washington Redskins” trademark registration, discussed in previous blog articles in this space, it effectively gave the Redskins a victory in their effort to reinstate their trademark registration against efforts to cancel their mark as disparaging.

The Lanham Act governs all federal registration of trademarks.  Since it was enacted in 1946, the Lanham Act has included the “Disparagement Clause,” which prohibits the registration of trademarks “which may disparage . . . persons, living or dead, institutions, beliefs or national symbols, or bring them into contempt, or disrepute.”  In Matal v. Tam, No. 15-1293 (2017), a case sure to have wide-ranging effects, the Supreme Court unanimously held the Disparagement Clause unconstitutional under the First Amendment.

The case involves Simon Tam, the lead singer of a band called “The Slants,” who sought federal registration of “THE SLANTS” trademark.  The band chose its name in an attempt to “reclaim” and “take ownership” of stereotypes about its members’ own Asian ethnicities.  The United States Patent & Trademark Office (“PTO”) rejected Tam’s request to register the mark under the Disparagement Clause, finding “there is . . . a substantial composite of persons who find the term in the applied-for mark offensive.”

The Supreme Court, however, held the rejection of Tam’s registration unconstitutionally discriminated against speech.  The Supreme Court resolved two key issues.  First, it found that trademarks are private speech; not government speech.  Second, the Court ruled that such viewpoint-based discrimination of trademarks is impermissible.

Trademarks are Private, Not Government, Speech

The First Amendment does not regulate government speech.  The general effect of this principle is that the government is not required to give equal time and representation to competing viewpoints when the government itself speaks – in contrast to government regulation of a private person’s speech, which must be viewpoint-neutral.  For example, the government is not required to mount a pro-smoking crusade to balance out its anti-smoking campaign.  In Tam, the PTO argued that the act of approving of a trademark was itself government speech and therefore was not within the reach of the First Amendment.

Justice Alito, writing on behalf of the entire Court, quickly shot down the PTO’s contention, ruling that trademarks are private, not government, speech.  The Court explained that the government does not “dream up” the marks a private party seeks to register: the PTO registers the mark under the Lanham Act based on objective criteria, regardless of the content of the mark.  If registering a trademark is government speech, the Court wrote, then the government is “babbling prodigiously and incoherently” while “expressing numerous contradictory views . . . [and] unashamedly endorsing a vast array of commercial products and services.”  To hold otherwise would disqualify any speech subject to government registration from First Amendment protection.  This would necessarily include copyright protection, with broad and disturbing implications for the speech expressed in copyright-protected writing, art, music, film, and other content.

The Disparagement Clause Impermissibly Discriminates Based on Viewpoint

Having decided that trademarks are covered by the First Amendment’s free speech protection, the Supreme Court went on to find that the Disparagement Clause embodied an unconstitutional discrimination against speech based on its viewpoint.  Although the Court could not muster a five-member majority to agree on the exact reasoning, the Court unanimously disapproved the refusal to register trademarks based on their perceived offensiveness.

As four members of the Court explained, the Disparagement Clause impermissibly authorized the PTO to “favor some viewpoints or ideas at the expense of others.”  “Giving offense,” they wrote, “is a viewpoint.” Because the PTO’s refusal to register “The Slants” was to prevent offense, it ran afoul of “the heart of the First Amendment,” which protects “the freedom to express ‘the thought that we hate.’”  And because the Disparagement Clause impermissibly went further than necessary to achieve the government’s purported goal of preventing discrimination, it was unconstitutional.  A majority of the Court arguably went further, holding that because the Disparagement Clause impermissibly discriminated based on viewpoint, it was subject either to “heightened” or “strict” scrutiny and was therefore invalid regardless of whether it furthered the prevention of discrimination.

The Effects of Tam

The effects of Tam are likely to be comprehensive and wide-ranging.  In invalidating the Disparagement Clause, the Court ruled the PTO cannot refuse to register a trademark because it is disparaging.  This calls into question whether any viewpoint-based discrimination for a business’s trademarks or copyrights will pass constitutional muster.  Most prominently, it is good news for the embattled Washington Redskins, who were under fire when the PTO previously cancelled their registration based on their mark disparaging Native Americans.

You may know that “aspirin,” the word commonly used to describe acetylsalicylic acid, was once a trademark ­– i.e., brand name – for the acetylsalicylic acid made by one company: Bayer.  The word “aspirin” lost its trademark status because the public came to use the word to mean acetylsalicylic acid made by anyone, not just Bayer.  In trademark-speak, “aspirin” became “generic,” and Bayer’s “aspirin” trademark fell victim to “genericide.”  Other familiar victims of genericide are “cellophane,” “thermos,” and “xerox” (though “xerox” was resurrected through the efforts of the brand owner, Xerox Corporation).

Is “Google” the latest victim of genericide?  Two individuals in a lawsuit in federal court in Arizona claimed it is.  They argued that the public uses “google” as a generic word for the act of searching on the internet (as in, “I googled it”).  They sought to cancel Google’s trademark registration in an effort to defend their registration of hundreds of domain names containing the word “google.”

In Elliott v. Google, No. 15-15809 (9th Cir. May 16, 2017), the Arizona district court rejected the argument that “google” had become generic, and the Ninth Circuit Court of Appeals affirmed.  According to the court, the question is not whether the public sometimes uses “google” generically to refer to an Internet search.  The question is whether the primary significance in the public mind of the word “google” is to identify the act of searching on the Internet or a particular search engine provider.  As long as the primary significance is to identify “who” is providing the service – for example, to distinguish Google from Microsoft (which offers the “Bing” search service) – the mark is safe from genericide. The court held that the plaintiffs had failed to prove that “google” had become generic and rejected the effort to cancel Google’s trademark registration.

Proving genericide is difficult.  This case is a reminder, however, that trademark owners – especially those whose product or services become well-known – should be vigilant to ensure the public understands that their trademarks indicate the “who” that provides product or service rather than the product or service itself.