Property, intangible

a blog about ownership of intellectual property rights and its licensing

Even an Exclusive Licensee Can’t Sue the Trademark Owner for Infringement

This might strike you as odd. An exclusive licensee of a copyright can sue the copyright owner for infringement, Essex Music, Inc. v. ABKCO Music & Recs., Inc., 743 F. Supp. 237, 241 (S.D.N.Y. 1990), and a exclusive licensee of a patent can sue the patent owner for infringement, Ortho Pharm. Corp. v. Genetics Inst., Inc., 52 F.3d 1026, 1030 (Fed. Cir. 1995). Not so for trademarks.

It’s a complicated licensing story that I’ll simplify. Since 2009 plaintiff Camelot SI, LLC has been a licensee of the brand SHARPER IMAGE. In 2013, Camelot and Icon NY Holdings LLC, the then-trademark owner, entered into a Manufacturing License Agreement granting Camelot a non-exclusive license to manufacture and/or source SHARPER IMAGE-branded products. At some point—the decision isn’t clear about the timing and whether it was before or after the Manufacturing License Agreement—Icon filed for bankruptcy. In 2014, the parties entered into a Website and Catalog Rights Purchase Agreement. While the Manufacturing Agreement was for the manufacture and sale of goods with the SHARPER IMAGE brand, the Purchase Agreement was for the branding of e-commerce and catalog services.

As part of the Purchase Agreement, Camelot was granted an exclusive license to use the mark for the e-commerce channel of trade and Icon could sell SHARPER IMAGE-branded goods only through non-SHARPER IMAGE branded online retail sales or marketing platforms. As summarized by the court, “For more than a decade, Camelot has been the only party authorized to sell SHARPER IMAGE branded products through SHARPER IMAGE branded online retail sales or marketing platforms. Camelot has operated the SHARPER IMAGE branded website since 2009 and has owned it since 2014.”

In 2016 defendant ThreeSixty Brands Group LLC acquired from Icon the SHARPER IMAGE trademarks, the Manufacturing Agreement, and the Purchase Agreement. Nevertheless, as described by the court on a motion to dismiss (that is, taking the plaintiff’s facts as true) “[d]espite ThreeSixty’s agreement to offer SHARPER IMAGE branded products only through non-SHARPER IMAGE branded e-commerce services, and in direct violation of Camelot’s exclusive license of the Trademarks in connection with e-commerce services, ThreeSixty is operating several SHARPER IMAGE branded online retail sales and marketing platforms, and has launched a second brand known as ‘Sharper Tomorrow.’”

One of ThreeSixty’s competing stores was a microsite on Amazon, which claimed that “Shaper Tomorrow” was the next iteration of Sharper Image, and directed all traffic from it to its own Amazon store. ThreeSixty also filed complaints with Amazon about what it alleged were counterfeit products on Camelot’s Amazon site, thus causing Amazon to remove the items and mark Camelot’s account as “under review.”

Camelot sued ThreeSixty for unfair competition under Section 43(a) of the Lanham Act and New York state law, as well as some supplemental state law claims. But, the unfair competition claims will not lie. Here is the problem:

To state a claim under the Lanham Act for trademark infringement, unfair competition, and false designation of origin, a plaintiff must establish that: (1) [plaintiff] owns a valid mark entitled to protection under the Lanham Act; (2) defendant used the protected mark in commerce, without plaintiff’s consent; and (3) defendant’s use of that mark is likely to cause consumers confusion as to the origin or sponsorship of the defendant’s goods.”

Camelot couldn’t get past (1). The court recharacterized the requirement as having “a valid commercial interest” in the trademarks. Relying on a similar fact pattern decided by the Court of Appeals for the Second Circuit over two television series called “Mutant X” and “X-Men,”

The [X-Men] district court dismissed the unfair competition claim premised upon false designation of origin. It reasoned that Marvel, the owner of the marks, is the “origin” of the series (and the film) within the meaning of trademark law (i.e., the source of the goodwill inhering in the trademarks that Marvel licensed to Fox). Because Fox did not own the marks, it could “claim no impairment of goodwill in the X-Men property associated with the X-Men trademark.”

Camelot, like Fox, cannot claim any impairment in the goodwill associated with the Trademarks. Indeed, the plain language of the Agreements shows the opposite: that all goodwill inures to ThreeSixty.

A theory of “unfair competition” just does not stretch this far:

Moreover, contrary to Camelot’s interpretation, courts have made clear that “under § 43 of the Act, there is no specific federal cause of action for unfair competition.” “Instead unfair competition under the Lanham Act is a category of claims consisting primarily of causes of action for false designation of origin and false advertising.” Accordingly, Camelot cannot escape the Lanham Act’s ownership interest requirement.

Additionally, case law makes clear that as owner of the Trademarks, ThreeSixty is the sole “source” that consumers associate with Camelot or MerchSource’s use of the marks. Thus, there simply can be no confusion as to their origin.

All is not lost for Camelot, though. The federal unfair competition count was the only one supporting federal court jurisdiction because Camelot had not pleaded diversity jurisdiction, but the parties later agreed there was diversity jurisdiction. Camelot had also pleaded breach of contract, tortious inteference with prospective economic advantage (for lost customers), tortious interference with contract (the Amazon contract), and unjust enrichment. The tortious interference claims were also dismissed, but with leave to amend.

Camelot SI, LLC v. ThreeSixty Brands Group LLC, No. 21 Civ. 8232 (ER) (S.D.N.Y. Sept. 30, 2022).
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.

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