Borderless World of Internet Marketing Brings New Complexity to Trademark Clearance

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1 Borderless World of Internet Marketing Brings New Complexity to Trademark Clearance by Glenn A. Gundersen February 2001 Copyright 2001 Dechert. All rights reserved. Materials have been abridged from laws, court decisions and administrative rulings and should not be considered as legal opinions on specific facts or as a substitute for legal counsel.

2 Borderless World of Internet Marketing Brings New Complexity to Trademark Clearance By Glenn Gundersen Dechert Glenn Gundersen is a partner in Dechert s Philadelphia office and the co-chair of the firm s Intellectual Property group. The second edition of his book Trademark Searching was published this year by the International Trademark Association, and he is a contributor to the forthcoming book Intellectual Property in Mergers & Acquisitions. One of the biggest challenges for companies in the year 2000 is branding the task of deciding what to name a business or a product. Finding a mark that doesn t infringe a previously-established mark has never been simple, but the sustained economic growth of the last decade and the late 90 s.com boom has drastically increased the difficulty in clearing new marks. The problem starts with the basic math of trademark clearance today compared with 10 years ago -- the number of applications for U.S. trademark registration almost doubled between 1991 and 1998, and rose by another 30% in To decide whether a company s proposed mark is available in today s environment, trademark counsel has to wade through a much longer database report than ever, and the sheer number of new filings means that the odds are increasingly slim that a given mark will be available. Even more frustrating is the shortage of available.com names. Faced with a registration system that allows hoarding and piracy, companies find it extremely difficult to readily secure a.com name that matches the company s desired trademark. For most e- commerce ventures, having an easy-to-remember Internet address that matches the company s brand is a must. With almost every word in the dictionary already registered, companies are forced either to try to acquire an existing registration at a price, to create new words (FLOOZ.COM), or to arrange existing words in new combinations (BRAINSOAP.COM, UPROMISE.COM). The third hurdle in branding stems from the global nature of the web itself -- in clearing marks for U.S. use by U.S. companies, trademark lawyers have to be increasingly conscious of marks that are being used on the web in other countries. This is a fundamental change in the way trademark clearance is conducted, but it is dictated by the fact that almost any e-commerce business will employ a site that, as a practical matter, is accessible to users around the globe. Copyright 2001 Dechert. All rights reserved. Materials have been abridged from laws, court decisions and administrative rulings and should not be considered as legal opinions on specific facts or as a substitute for legal counsel.

3 U.S. courts have already spent a considerable amount of time grappling with the Internet s indifference to geography, of course, with a substantial number of cases addressing U.S. jurisdictional issues (i.e., the extent to which having a nationally accessible web presence does or does not make a company susceptible to jurisdiction of a court in a district which is distant from its place of business). In the coming years, however, the borderless nature of the Internet is likely to further reshape U.S. trademark law in ways that are only beginning to come into focus. Courts will inevitably have to address the substantive questions of whether a brand s Internet presence infringes a similar mark in other countries, and not just distant regions of the U.S. One of the first decisions of this type, Pro-C Limited v. Computer City, Inc., comes from Canada, with which the U.S. shares its most porous border. The issues raised in Pro-C are significant because trademark law has traditionally assumed that borders are not porous at all. A company s rights in a particular mark have been strictly limited by national boundaries. Thus, a trademark registration in one country does not, in and of itself, give the registrant any rights in that mark in another country. Such rules matched the reality of a world where oceans and political divides like the Iron Curtain hampered the flow of goods and information. It was relatively easy for famous marks such as BAYER for aspirin and BUDWEISER for beer to have different owners in different countries, and for the average consumer in a particular place to never be aware of the discrepancy. In recent years, of course, modern mass media and jet transportation have not respected those boundaries as neatly, and trademark law has already begun to adjust to the fact that people, products, and media messages travel more widely, frequently, and readily than they once did. Thus, trademark law and policy makers have recognized that well-known trademarks can and do gain notoriety in countries beyond those in which the product is sold, and many countries have adjusted their laws to give protection to foreign marks which have gained fame there. When companies in the modern global economy launch new brands, they are more likely than ever to be contemplating multinational use, and trademark counsel can conduct in dozens of markets at once to see if the mark measures up to those aspirations. Still, many U.S. companies initially set their sites on the domestic market alone, and restrict their clearance of new marks to the U.S. market. Today s U.S. trademark search report still focuses only on U.S. marks, but the Internet has nevertheless brought a definite international flavor to the process. The standard search report includes a section listing Internet domain names which resemble the proposed mark. These domain name listings frequently include domain name registrations held by non-u.s. companies, since many non-u.s. companies have a preference for.com domain names rather than national generic top-level domains like.co.uk. If the client only intends to use the proposed mark in the U.S., can counsel ignore the part of the search which reveals these foreign-owned domains? An offshore Internet site is accessible to U.S. users even if the offshore company is not doing business in the U.S. What if a search shows a foreign-held Internet address which matches the proposed U.S. mark? What if a visit to the web site reveals that the foreign Page 2

4 company is using a similar mark for goods or services which are similar or related to the U.S. companies products or services? Does the fact that the web site is accessible in the U.S. preclude adoption of the mark in the U.S.? Under traditional trademark principles, one would expect that the appearance on the Internet of a mark for goods or services sold outside the U.S. should not, in and of itself, prevent U.S. adoption of the mark -- trademark protection would only extend as far as the goodwill and reputation of the business, even though its website is accessible worldwide. However, one cannot discount the possibility that U.S. users visit the site, or ignore the impact that a U.S. company s adoption of a similar mark will have on foreign markets. In short, as the boundaries of e-commerce become more fluid, there is less assurance that trademark rights will respect national boundaries as rigidly as they have in the past, and trademark lawyers need to become more conscious of that fact. This point is exemplified by a new decision of the Superior Court of Justice in Ontario, Pro-C Limited v. Computer City, Inc. The defendant in that case, Computer City, adopted a mark identical to a Canadian company s mark and domain name -- WINGEN.COM. The court concluded that Computer City s U.S. use of the mark swamped the Canadian company s marketing efforts for its own WINGEN product -- and levied more than $1,000,000 (Can.) in damages. The decision is now on appeal, but the basic conflict is likely to appear in future disputes in the U.S. and abroad. The plaintiff Pro-C, an Ontario-based company that markets software to software designers, owns U.S. and Canadian registrations for WINGEN as a trademark for specialized computer programs used by software developers. Consistent with this, the company used the domain name WINGEN.COM. Computer City decided to launch a new line of personal computers for U.S. sale in 1998, and shortly before the launch conducted a search for the mark WINGEN. Computer City apparently discovered and visited the Pro-C web site at WINGEN.COM in the course of clearing the mark. The product was launched in the U.S. shortly afterward. In the wake of the launch, Pro-C s WINGEN.COM web site received a flood of consumer inquiries about Computer City s product. The heavy volume of caused Pro-C s computer system to crash and left Pro-C unable to service its own customers. Pro-C had a U.S. trademark registration of WINGEN, and one can surmise that the company could have filed suit against Computer City in the U.S., which is where Computer City was selling WINGEN computers. However, Pro-C filed suit in Canada. Although Computer City had stores in Canada, it was not selling WINGEN computers there and was not advertising them in media outlets based in Canada. Thus, the court had to grapple with the question of whether Computer City s U.S.-based promotion and sales and web usage were an infringement in Canada. Page 3

5 In deciding whether Computer City had used Pro-C s WINGEN trademark in Canada, the court noted that the standard for determining trademark use in this context was essentially the same as the standard for personal jurisdiction. Computer City s Canadian stores distributed sales literature which directed customers to the company s toll-free telephone number and to its web site at < where Canadians could access WINGEN advertising. The site was, as the court described it, a passive website for informational purposes only, but featured a store locator function that allowed users to find the Computer City locations nearest to their home. Citing American and Canadian cases on jurisdiction, the court held that Computer City s display of the WINGEN mark on its web site constituted trademark use under Canadian law despite the fact that the site was passive. The court reasoned that cross-border shopping is a reality and that the web site was part of Computer City s overall merchandising strategy in Canada -- a market Computer City seeks to develop and benefit from. Thus, even though defendant s WINGEN computers were not directly offered for sale to Canadian customers, the court awarded $450,000 (Canadian) in actual damages and $750,000 (Canadian) in punitive damages. The court noted that Computer City had been aware of Pro-C s trademark registrations prior to the launch of its personal computer line. In its view, Computer City s decision to go forward with the product launch despite the possible legal consequences was a manifestation of corporate arrogance arising from a dominant financial position. Pro-C was able to demonstrate that someone at Computer City had visited its WINGEN.COM web site, and that the company was therefore aware of Pro-C s use of the name. However, it would be a mistake for Canadian or American jurists to create a disincentive for companies and their counsel to conduct such investigations during the search process. U.S. companies would be best served if counsel or counsel s investigator do indeed review all relevant web sites, domestic and foreign, since it will better enable U.S. companies to judge whether the adoption of a mark is likely to create confusion with other web site owners domestically or in other jurisdictions where the client does business. The Ontario court in Pro-C believed that Computer City made the wrong choice in going ahead with the WINGEN mark, but companies should not put on blinders to foreign sites in an effort to avoid Computer City s fate. Page 4