PepsiCo: Serial Trademark Infringer or Coincidence?


On June 15, 2021, a food startup named Rise Brewing filed suit against PepsiCo in the U.S. District Court for the Northern District of Illinois. The startup has begun to make a name for itself by selling canned cold-brew coffee. Rise Brewing has alleged that the well-known company PepsiCo has infringed on their trademark with their recent launch of a Mountain Dew-branded energy drink called Rise.1

 

History of Infringement

According to Forbes, the notorious food, snack, and soda company, PepsiCo, is valued at an astounding $18.2 billion.2 PepsiCo has had its fair share of trademark infringement cases in the past, where they have been sued by brands such as VitaminWater, Polar seltzer, and Simply Orange Juice.

 

A more recent lawsuit was filed in the United States District Court for the Southern District of Texas, where a temporary nationwide restraining order had halted PepsiCo’s release of a Gatorade product called Gatorlyte. The order had been issued due to a sports beverage named Electrolit made by a Mexican company.

 

According to Laboratorios Pisa S.A. de C.V. v. PepsiCo, Inc., PepsiCo allegedly copied the Mexican companies’ product packaging. Before the issuance of the restraining order, PepsiCo shipped roughly $1.7 million worth of Gatorlyte after spending $1.3 million on media and $18 million of product development. 3 The Court considered three facts in determining whether recall of the product, which was already rolled out nationwide, was justified. These three factors were “(1) the willful or intentional infringement by the defendant; (2) whether the risk of confusion to the public and injury to the trademark owner is greater than the burden of the recall to the defendant; and (3) substantial risk of danger to the public due to the defendant’s infringing activity.”4

 

The Court reasoned that “recall is an extreme remedy” and “therefore they did not find sufficient indicia of willful infringement, confusion to the public that outweighs the onerousness of a recall, or a sufficient risk of danger to the public to justify a full recall of GATORLYTE” at the time of the case.5

 

The Court then turned to the balancing of the parties’ hardships. The Court stated that although PepsiCo’s investments were significant, the Court did not find that a temporary restraining order would affect the investments to such a degree that would be problematic. Additionally, PepsiCo decided to release their product line despite the initial issuance of a Temporary Restraining Order and the then-pending hearing on another Temporary Restraining Order. The Court turned to the Mexican companies’ argument that PepsiCo was aware of the rights in the Electrolit trade dress, so PepsiCo, therefore, accepted all risks of infringement. Trade dress is the look or feel of the product, in this case, Electrolit’s trade dress was their companies protected product packaging.

 

The two companies reached a confidential settlement earlier this spring, ending the case permanently and, therefore, lifting the temporary restraining order.

 

U.S. District Court for the Northern District of Illinois

 

On June 15, 2021, Rise Brewing Company (hereinafter “Rise Brewing”) filed a trademark infringement lawsuit against PepsiCo, alleging that PepsiCo has infringed on their trademark with their recent launch of a Mountain Dew-branded energy drink called Rise.6 The issue in the complaint arose out of the energy drinks use of the word “Rise,” written horizontally across the top of the can, in a fashion almost identical to Rise Brewing.

 

Rise Brewing created a canned caffeine drink that lacks the chemicals, dairy, fat, and sugar commonly associated with traditional energy and coffee drinks. The brand features the words RISE horizontally across the can, with Brewing Co. located just underneath. Shortly before the complaint was filed, PepsiCo released its own RISE-branded caffeine drink. Rise Brewing alleged the PepsiCo brand marketed itself as a morning caffeinated beverage to replace ready-to-drink coffee drinks such as RISE.

 

Rise Brewing alleges that PepsiCo’s actions are causing “reverse confusion” in violation of the Lanham Act. Traditionally, in a trademark infringement case, the defendant is the “junior user” of the mark, and the plaintiff is the “senior user.” This type of trademark infringement causes consumers to believe the defendant or its products are associated with the plaintiff or its products. Here, Rise Brewing alleges that it is the opposite. In a reverse confusion case, the consumer confusion for association goes the other way. Meaning, due to PepsiCo’s size, reputation, and power, consumers are confused into thinking that Rise Brewing’s RISE drinks are associated with PepsiCo.

 

The concept of reverse confusion was established in Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co.7 In that case, the Court stated that it was essential to recognize something other than traditional confusion to prevent “anyone with adequate size and resources [from] adopt[ing] any trademark and develop[ing] a new meaning for that trademark as identification of the second user’s products.”8 Rise Brewing alleges this case is a classic case of reverse confusion, demonstrating what the Big O court was trying to prevent.

 

Rise Brewing owns multiple valid registered trademarks with the United States Patent and Trademark Office (“USPTO”), as shown below.

 

 pepsiCo case header pepsiCo case details pepsiCo case full case

 

Chart demonstrating Rise Brewing’s registered trademarks

 

Rise Brewing’s trademark registrations are valid and in full force and effect. It claims to use its RISE Marks through extensive advertising, marketing, and sale of goods bearing the marks. Because of this, Rise Brewing claims that the RISE Marks have become invaluable assets of the Rise Brewing Company, serving as a symbol of their high-quality product.

 

Rise Brewing would like the court to enter preliminary and permanent injunctions restraining PepsiCo and all of its affiliates from the continued use of its trademark, to recover its costs and reasonable attorneys’ fees, in an amount to be determined, and various amounts of awards for damages and profits.

 

Following the guidance of previous cases involving PepsiCo’s trademark infringement, Rise Brewing will likely be granted a preliminary injunction and/or grant damages sought. Rise Brewing has built its company from the ground up, creating and protecting their ideas through the use of registered trademarks. PepsiCo’s power in the market is far greater than Rise Brewing’s. The ability for large companies to prey on the hard work of smaller companies should be carefully monitored and regulated by the courts. This fact pattern is remarkably similar to previous cases filed by smaller companies, like Gatorlyte, against PepsiCo, where the smaller company has almost regularly been granted an injunction. The timing of this case makes it quite difficult for Rise Brewing because of the sheer amount of money that was put into the launch by PepsiCo. Because of this, it is more likely that the court will grant damages from this case, or in the chance PepsiCo would like to settle, Rise Brewing could possibility recover at least a small portion of the money PepsiCo will have made from their product launch. In the event of a settlement, like previous cases, the terms will likely remain confidential. If PepsiCo would like to continue to use the word Rise, Rise Brewing could also offer license to PepsiCo. This case is another example that reverse confusion is still present, despite the Big O court’s precedent.

 

Conclusion

As the case continues, it is essential to remember how valuable intellectual property (patents, trademarks, copyrights, trade secrets) is. Intellectual property, and its protections, foster growth and discovery, allowing for expanding new technology and resources worldwide.

 

1 See RiseandShine Corp. v. PepsiCo Inc., Case No. 1:21-cv-03198.

 

2 FORBES (Jun. 29, 2021), https://www.forbes.com/companies/pepsi/?sh=24c9d6a2bc31.

 

3 CASETEXT (Jun. 29, 2021), https://casetext.com/case/laboratorios-pisa-sa-de-cv-v-pepsico-inc/?PHONE_NUMBER_GROUP=C.

 

4 Id.

 

5 Id.

 

6 See RiseandShine Corp. v. PepsiCo Inc., Case No. 1:21-cv-03198.

 

7 Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365 (10th Cir. 1977).

 

8 Id. at 1372.



Copyrighting Tattoos in Sports Video Games: Can LeBron James License His Image?


Tattoos are permanent, often complex, creative, and original pieces of work created by a tattoo artist. Recently, litigation has come up regarding tattoos on famous athletes. While most issues involving tattoos on athletes are more easily handled — such as J.R. Smith’s tattoo of the brand Supreme on his leg1 — there are questions of whether a tattoo is subject to copyright protection when it is prominently displayed and reproduced on a famous athlete in a video game. This question is at the center of a lawsuit filed by Solid Oak Sketches against Take Two Interactive Software as well as two other producers of the popular NBA 2K video games based on the video games’ reproductions of players’ tattoos, including LeBron James.2

 

 

NBA 2K videogame
Logo for the 2020 version of the NBA 2K videogame

 

A similar issue arose in 2011, in which tattoo artist S. Victor Whitmill claimed to have copyright ownership of Mike Tyson’s face tattoo, with the tattoo in question given to Tyson in 20033. Whitmill sued Warner Bros., claiming that the popular film Hangover 2 infringed on his work when they reproduced Tyson’s tattoo on a main character’s face4. While Whitmill’s complaint failed to temporarily enjoin the studio from releasing the film in theaters, the case was settled out of court and now leaves an underwhelming amount of case law on the subject.5

 

 

Mike Tyson tattoo
Mike Tyson with his famous tattoo displayed prominently

 

The Copyright Act of 1976 gives protection to artists that establish that: (1) their creation is the type of work that is protectable; (2) their creation is an original and creative work; and (3) the creation is affixed to a tangible medium for expression.6 Further, §  202 of the Copyright Act states that “ownership of a copyright… is distinct from ownership of any material object in which the work is embodied.”7 This means that a tattoo artist does in fact have copyright ownership over original and creative tattoos that they give, even when those tattoos are on another person’s body. However, there is an implied license that allows people to freely and publicly display their tattoos — for example, on television, film, and magazines — so for most people, this is not a problem. 8However, this issue has arisen because LeBron’s tattoos are not only being displayed, but they are being digitally reproduced in a video game, causing an issue for copyright infringement issue.9

 

The company Solid Oak Sketches obtained the copyrights for two of LeBron James’ four tattoos in question — the portrait of his child and the area code — before suing in 2016 because they were used in the NBA 2K series.10 Take Two argues a fair use defense, stating that the tattoos are covered under fair use and are not a critical component of the video games, seen only fleetingly or rarely.11 However, that argument may not hold water due to the time and energy put into recreating both the athletes and tattoos with incredible accuracy.12 Further, this argument did not survive the motion to dismiss, with Judge Laura Taylor Swain finding that the defenses presented by Take Two are fact-intensive and will require more evidence.13

 

Lebron James in NBA 2K 2014
Lebron James in real life (left) and Lebron James in NBA 2K 2014 (right)

 

New York University intellectual property law professor Christopher Jon Sprigman says to the New York Times that Solid Oak’s lawsuit “amounts to a shakedown and copyright trolling,” stating further that “[t]hey shouldn’t be allowed to tell LeBron James that he can’t take deals to license his likeness… the ability of the celebrity, or really anyone, to do that is an element of their personal freedom.”14 LeBron James states that his tattoos are a part of his “persona and identity,” saying that if he is not shown with his tattoos, it would not be an accurate depiction of himself.15 In a Declaration of Support for the defendants from LeBron James, he states that the four tattoos in question were “inked in Akron, Ohio,” and in each case, he had a conversation with the tattooist about what he wanted inked on his body. 16

 

The outcome of this case will set an important precedent on whether or not tattoo artists can demand monetary compensation every time a celebrity’s likeness has been reproduced. Since the rise of litigation, players’ unions and sports agents have been advising athletes to secure licensing agreements before they get tattooed, in order to protect their future interests.17 This way, the athletes have secured their rights while giving artists have an incentive to sign rather than pass up a celebrity client who could be a walking advertisement for their art18.

 

1 Cam Wolf, NBA Tells J.R. Smith to Cover Up His Supreme Tattoo Or Else, GQ (Oct. 1, 2018), https://www.gq.com/story/jr-smith-supreme-tattoo-nba?verso=true (in which Cleveland Cavaliers’ J.R. Smith was told by the National Basketball Association that they would fine him for every game of the season that he failed to cover up the Supreme logo on his leg, citing the League’s Collective Bargaining Agreement, which states that ‘a player may not, during any game, display any commercial, promotional, or charitable name, mark, logo, or other identification… on his body.’).

 

 2 Jason M. Bailey, Athletes Don’t Own Their Tattoos. That’s a Problem for Video Game Developers, New York Times (Dec. 27, 2018), https://www.nytimes.com/2018/12/27/style/tattoos-video-games.html.

 

3 Christie D’Zurilla, ‘Hangover 2’ Tattoo Lawsuit Over Mike Tyseon-style Ink is Settled, Los Angeles Times (June 22, 2011), https://latimesblogs.latimes.com/gossip/2011/06/hangover-tattoo-dispute-ed-helms-hangover-2-tattoo.html.

 

 4 Id.

 

5 Id.

 

6 1976 General Revision of Copyright Law, Pub. L. No. 94-553, 90 Stat. 2541.

 

7 17 U.S.C. §  202.

 

8 Jason M. Bailey, Athletes Don’t Own Their Tattoos. That’s a Problem for Video Game Developers, New York Times (Dec. 27, 2018), https://www.nytimes.com/2018/12/27/style/tattoos-video-games.html.

 

 9 Id.

 

 10 Id.

 

 11 Bryan Wiedey, Tattoos in Sports Video Games Face Legal Issue, Sporting News (Oct. 19, 2018), http://www.sportingnews.com/us/other-sports/news/madden-lawsuit-over-tattoos-nba-2k-lebron-james-ea-sports-2k-sports/16xvqkb1d2hbm1lzs6u3iljaap.

 

 12 Id.

 

 13  Thomas Baker, NBA 2K Tattoo Copyright Suit Offers Two Compelling Legal Arguments, but Only One Seems Practical, Forbes (Jan. 4, 2019), https://www.forbes.com/sites/thomasbaker/2019/01/04/lebron-smartly-sides-with-the-producers-of-nba-2k-in-tattoo-copyright-case-but-will-that-be-enough/#4e08f33c7663.

 

 14 Jason M. Bailey, Athletes Don’t Own Their Tattoos. That’s a Problem for Video Game Developers, New York Times (Dec. 27, 2018), https://www.nytimes.com/2018/12/27/style/tattoos-video-games.html.

 

 15 Solid Oak Sketches, LLC v. 2K Games, Inc. and Take-Two Interactive Software, 1:16-cv-00724, ECF No. 134 (Aug. 24, 2018). (Found at https://www.scribd.com/document/386980896/2018-08-24-Declaration-dckt-134-0#from_embed).

 

 16 Id., at 1.

 

17 Jason M. Bailey, Athletes Don’t Own Their Tattoos. That’s a Problem for Video Game Developers, New York Times (Dec. 27, 2018), https://www.nytimes.com/2018/12/27/style/tattoos-video-games.html.

 

18 Id.



Trademark Parodies – Flawed or Fair use?


The reworked “fair use” defense has provoked debate because it provides excessively broad immunity to certain types of parodies and other expressive uses of trademarks.1 This Article will explore whether the Trademark Dilution Revision Act (TDRA) promotes a flawed treatment of parodies with regard to sub-clauses that provide selective shelter, and exonerating some parodies from liability while impugning others.2 The principal flaw that is discussed in this Article relates to the parody provision and its application of the trademark use test for determining whether a parody is fair. The provision is pliable in that it can be both lenient and strict on parodies.

 

I. Trademark Dilution Revision Act

Trademark, Trademark Dilution Revision Act, United States Patent and Trademark Office, trademark parodies
Depiction of the registered trademark symbol

 

The language of the TDRA appears to implicitly divide parodies into two distinct groups: source denoting parodies and non-source denoting parodies. Non-source denoting parodies are artistic parodies- that are not used as trademarks and are treated with leniency, whereas source-identifying parodies generally receive strict treatment3. A plain reading of the provision appears to confer blanket immunity to all parodies as long as they are not being utilized as indicators of source(s) for goods or services4. On the other hand, it imposes liability on parodies that function as trademarks without suitable inquiry into the nature or impact of the parody in question.5,6 This parody approach fails to adequately assess forms of harm since it focuses exclusively on the classification of the parody’s status, rather than the effect.

 

The focus of inquiry should be on the effect of the parody in relation to the original trademark’s distinctive quality or reputation, with consideration regarding the investment to establish such distinctiveness, and not just on the status and presence of commercial or trademark use.  However, this is not the case because the TDRA’s fair use provision fails to appropriately distinguish parodies that convey an artistic or social message from those that tarnish a senior mark.7  The broad language of the exception allows tarnishing use to be exempt from liability so long as the parody in question is not utilized as a source indicator.8 The “fair use” provision appears to provide automatic immunity to non-source denoting parodies, as it stipulates that only these types of parodies that do not function as designators of source, are eligible for exemption under the provision.9 The exemption is justified by the First Amendment.

 

II. Exploring the TDRA Flaw

 

Parodies are expressive by nature.10 For this reason, some parodist choose to present their parodies as “works of art” to the public; such representations can be made without any connection to goods or services, and occasionally, without the expectation of commercial gains.11

 

Still, these parodies can be harmful to the original trademark owner when free-riding occurs, or some harm to the goodwill of the mark because of confusion or false misrepresentation. Free-riding occurs when the parodist receives a benefit from the association between their mark and the well-known mark12. Although some have argued these actions are permissible because they align with the First Amendment justification, and ensure that the original owner shall not be able to monopolize the famous creation, this view fails to consider the investment the original owner sacrificed to establish the identity of being “well-known” or “famous.” As a result, parodists can reap where they have not sown. 

 

Courts have confirmed that the TDRA applies different treatments to parodies based on their categorial status. The TDRA enactment amended the fair use defense by adding an expressed defense for noncommercial use; this plain language of the provision explicitly excluded source denoting parodies. Therefore, courts relied on the main dilution factors provided by the Act, instead of the fair use exception, to immunize source denoting parodies from liability. 13

 

In Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, the court confirmed that the parody clause in the fair use provision is not exhaustive in its coverage of non-dilutive parodies.14 This case set a precedent which allows parodies that are being used as a trademark to sell goods in commerce to be exempted from liability for dilution, in certain circumstances.15 The court’s analysis indicates that a parody does not necessarily need to satisfy the fair use provision in order to be exonerated from liability.16

 

Louis Vuitton, Trademark, trademark parodies
Depiction of the Louis Vuitton logo

 

The courts affirmations justify the concerns with the TDRA’s fair use parody clause, as it demonstrates that the provision is both too broad in some respects, but also too narrow in others.17 The provision is broad as it largely immunizes all non-source denoting parodies from liability without assessing the message communicated by the parody and its effect on the reputation of the mark. If the message promotes a negative impact on the goodwill of the original trademark owner or free-riding occurs, the original owner will have no claim against the parodist, and the First Amendment justification trumps the original owner’s interest or disfavored effects. On the other hand, the provision is too narrow because it excludes certain source-denoting parodies that may not be deserving of protections because of the extraordinary investments original owners take to establish a specialized distinction for the mark. 

 

Allowing protection under these circumstances, permits the parodist to take advantage of trademark owners marketing investments and efforts they may have taken years to establish. Further, the treatment permits free riding. Consequently, the approach to the treatment of parodies effectively ‘dilutes’ trademark owners of the right to obtain an appropriate remedy against parodist who have tarnished their marks by engaging in an unfair or offensive comparison, and parodist who has benefited from the original owner’s investments.

 

An example of these effects is demonstrated in Mattel, Inc. v. Walking Mountain Productions. In this case, the parodist is an artist who posed nude Barbie dolls in photographs that displayed Barbie getting attacked by vintage household appliances.18 Although the artist failed to use the term “Barbie,” the art itself irrefutably involved the trademarked doll and the titles reflected that fact.19 The message of the parody meant to diminish the Barbie persona that was established by Mattel through successful marketing.20 Mattel had purportedly established Barbie as “the ideal American woman” and a symbol of “American girlhood.”21 Is it unfair for a parodist to attempt to destroy the goodwill or reputation of the mark? The law certainly does not think so because such actions are viewed as an exercise of the First Amendment right. 

 

Barbie, trademark, fair use, trademark parodies
Image of a Barbie

 

But what if the only reason the parodist receives an audience or attention is because of “Barbie.” Is the original owner now entitled to a claim? Had it not been for the original owner, the parody would likely have never been created, nor would the parody have received the level of attention attained. But for the original owner’s investments toward establishing the mark’s goodwill, it is likely the parody would be non-existent, or at the very least would not have obtained the level of attention it received. If these photos only receive attention because of “Barbie,” does that mean the parodist is permitted to free-ride off of the famous mark owner’s marketing efforts and investments that may have taken the owner years to establish? Trademark law is permitting parodist to reap what the original owners have taken years to sow! It could take a trademark-owner years to establish a distinct attractiveness in the marketplace. However, a parodist need only use the famous mark under the guise of a parody and receive the same benefits of attractiveness through association, at a fraction of the time and monetary investment that was devoted by the original owner.

 

Under these protections lays the question of fairness, which arises when there is harm from the parodist belittling the reputation of the mark that is being ridiculed.22 Still, the current parody provision does not possess sufficient nuance to assess the type or extent of damage inflicted on the senior mark, caused by the tarnishing effects of the parody.23 Particularly, it fails to provide guidance on the level and quality of ridicule that is considered “acceptable” for a parody.24 This raises some concerns; virtually many cases of non-trademark expressive use would receive protection under the Act. The TDRA arguably tilts the balance too far in favor of non-trademark use parodies. 

 

 1 Eugene Lim, Of Chew Toys & Designer Handbags: A Critical Analysis of the “Parody” Exception under the U.S Trademark Dilution Revision Act, 35 CAMPBELL L. REV. 83, 90 (2012).

 

2 Id. at 92.

 

3 Id.

 

4 Eugene Lim, Of Chew Toys & Designer Handbags: A Critical Analysis of the “Parody” Exception under the U.S Trademark Dilution Revision Act, 35 CAMPBELL L. REV. 83, 92 (2012); Justin Gunnell, Evaluation of the Dilution-Parody Paradox in the Wake of the Trademark Dilution Revision Act of 2006, 26 CARDOZO ARTS & ENTERTAINMENT 441, 455 (2008).

 

Eugene Lim, Of Chew Toys & Designer Handbags: A Critical Analysis of the “Parody” Exception under the U.S Trademark Dilution Revision Act, 35 CAMPBELL L. REV. 83, 92 (2012).

 

It’s the courts duty to inquire about the nature or impact of the parody which is determined through the infringement factors discussed in the following section.

 

Eugene Lim, Of Chew Toys & Designer Handbags: A Critical Analysis of the “Parody” Exception under the U.S Trademark Dilution Revision Act, 35 CAMPBELL L. REV. 83, 93 (2012).

 

Eugene Lim, Of Chew Toys & Designer Handbags: A Critical Analysis of the “Parody” Exception under the U.S Trademark Dilution Revision Act, 35 CAMPBELL L. REV. 83, 93 (2012); Justin Gunnell, Evaluation of the Dilution-Parody Paradox in the Wake of the Trademark Dilution Revision Act of 2006, 26 CARDOZO ARTS & ENTERTAINMENT 441, 455 (2008).

 

9 Eugene Lim, Of Chew Toys & Designer Handbags: A Critical Analysis of the “Parody” Exception under the U.S Trademark Dilution Revision Act, 35 CAMPBELL L. REV. 83, 92-93 (2012).

 

10 Id. at 84.

 

11 Id. at 89.

 

12 Iowa State University, Trademark Legal Basics, (Apr. 1, 2019), https://www.trademark.iastate.edu/basics .

 

13 Eugene Lim, Of Chew Toys & Designer Handbags: A Critical Analysis of the “Parody” Exception under the U.S Trademark Dilution Revision Act, 35 CAMPBELL L. REV. 83, 99 (2012).

 

14 Id. at 97.

 

15 Id.  at 96.

 

16 Id.

 

17 Id. at 97.

 

18 Mattel Inc. v. Walking Mountain Prods., 353 F. 3d 792 (9th Cir. 2003).

 

19 Id.

 

20 Successful marketing requires a huge investment of time, money, and consistency over a period of time.

 

21Mattel Inc. v. Walking Mountain Prods., 353 F. 3d 792 (9th Cir. 2003).

 

22 Id. at 93.

 

23 Id.

 

24 Id.



Trademark Law Implications of AM General v. Activision


Video games have grown in realism since the days of pong on an Atari console.  As technology allows for higher resolutions and graphics, so does the need for attention to detail.  In certain cases, video game developers try to depict the real world.  There are legal implications when this real-world depiction goal includes trademark protected items, such as Humvees.

 

trademark law

 

The federal Lanham Act governs trademarks at the federal level.  There are two basic requirements: (1) that a mark be definable and (2) used in commerce. 1  You need to be able to know what the mark symbolizes when you see it and use it in business to get the Lanham Act’s protections.  However, these protections are not all-encompassing. 

 

Patent Law Firms
Corporate logo of Activision

 

The Call of Duty video game franchise remains one of the most popular entertainment products in the world, with millions of copies sold.  The “Modern Warfare” subset of that franchise depicts modern militaries in action.  These games try to immerse a player in combat.  The game attempts to do this through the depiction of actual military equipment, including Humvees.  Activision, the company making the games, was sued by the Humvee’s manufacturer (AM General) for their unauthorized depiction of the Humvee in the games. 2

brooklyn law firm
Corporate logo of A.M. General

 

 

The Humvee is a registered trademark of AM General.  Trademarks are an important component of business practices around the world.  Think the Nike swoosh, and how the swoosh is so identifiable and important to Nike as a business.  One might think that copying the symbol or mark would be a violation of the law.  AM General certainly thought so and sued.  The reality of trademark law is more nuanced than one may believe.  Having a Trademark does not necessarily mean that no one else can use it for any reason, as we can see from the results of A.M. General v. Activision.

 

It is a reasonable assumption that using someone’s mark in a profit-making enterprise would be a violation of the law.  Courts will weigh more than the commercial interest of the trademark holder when making decisions.  In A.M. General v. Activision, the court applied a legal test that allows for use of a Trademark so long as the origin of the trademark is not mistakenly identified.  In the video games in question, this misleading behavior does not occur.  In fact, the use of the Humvee is important to the experience of the game, even though the actual maker of the vehicle is not specifically identified in the game.

 

In their decision, a federal district court found that the use of the Humvee in the game did not violate the Lanham Act, and thus Activision was not liable to A.M. General.3  If A.M. General appeals to the Supreme Court, and the Supreme Court upholds the decision, there are significant implications for trademark law.  Artists, if they could prove that depiction of a trademark is essential to the artistic experience, and does not misrepresent that trademark too much, would be able to depict that trademark without fear of legal consequences.

 

1 15 U.S.C. § 1127 (1946). 

 

2 AM General, L.L.C. v. Activision Blizzard, Inc., No. 17 Civ. 8644, 2020 WL 1547838, at *1 (S.D.N.Y. Mar. 31, 2020).

 

 3 Id. at *5.



Prince’s purple: without rain or color trademark protection


In October 2018, Paisley Park Enterprises filed an application with the USPTO (U.S. Patent and Trademark Office) for the registration of a color mark for music, live performance, and museum-related uses [1]. Paisley Park Enterprises is known for being decedent Prince Rogers Nelson’s company. In August 2017, the Prince Estate and Pantone created a purple color called “Love Symbol #2” to represent Prince [2]. The Pantone Matching system is useful to define particular shades of color, and to ensure a consistent use of the same color for one company [3].

 

The custom color created by Paisley and Pantone
The custom color created by Paisley and Pantone

 

In 1985, U.S. courts held that colors could be protected under trademark law [4]. Owens-Corning was the first company in the U.S. to hold a color mark. The fact that colors can be protected by a trademark is a natural expansion of trademark law since trademark may protect words, logos, sounds, designs, smells, and other designations [5].

 

To be protectible under trademark law, a mark has to be distinctive. A mark can be inherently distinctive if that mark is fanciful (an example would be a made-up or invented word, such as Exxon), arbitrary (a mark having no relationship with the goods or services being sold, for example Apple for computers), or suggestive (it requires imagination from the consumer to reach a conclusion as to the nature of the goods or services, for example Mustang for cars). If a mark is descriptive, it is not inherently distinctive and a showing of secondary meaning is required in order to be protectible. In the Qualitex case, the U.S. Supreme Court held that colors could be distinctive and protected under trademark law, but the court specified that a color can never be inherently distinctive. Since a color cannot be inherently distinctive, the applicant for a color mark is always required to show secondary meaning [6]. To establish secondary meaning, an applicant must show that the consumers associate the mark to the source of the product or services, and not to the products or services themselves [7]. In other words, the applicant must show that the mark is a source identifier.

 

The secondary meaning requirement may be justified by the argument that the number of possible colors to be used by competitors could be greatly diminished if the courts and the USPTO were to give trademark rights too easily on trademark applications for color marks. A requirement of secondary meaning limits that possible depletion of the possible colors to be used. Courts may be reluctant to give trademark protection for color marks too lightly, since in some instances there might be underlying reasons behind the use of certain colors. An example is the color orange for safety-related companies and products. Another possible issue is the idea of shade confusion, courts may have difficulties in determining which colors are similar enough to constitute a trademark infringement, and which are not.

 

Prince’s cover for the Purple Rain Album
Prince’s cover for the Purple Rain Album

 

Functionality is a bar to trademark protection. If a mark is functional, it can not be protected under trademark law, even if the mark holder would have been able to show secondary meaning. The courts use two tests in order to determine whether a mark is functional or not. A mark is functional under the first test (known as the Qualitex test) if the exclusive use of the mark would put competitors at a significant non-reputation-related disadvantage [8]. Under the second test (the Inwood test), a feature is functional if it is essential to the use or purpose of the article, or if it affects the article’s cost or quality [9]. To be non-functional, a mark has to be non-functional under both tests. The concept of aesthetic functionality, absent from the statutes but recognized by virtually every court in the U.S., is also a possible barrier to the registration of a color mark. This concept applies in the case of features which have no functional utility, but that consumers want, often for aesthetic reasons. In most cases relating to aesthetic functionality, the first test of functionality is satisfied as an exclusive use would put competitors at a significant non-reputation-related disadvantage, and the mark is then deemed functional. A color mark may be functional in some instances according to this aesthetic functionality concept.

 

In a case opposing Christian Louboutin to Yves Saint Laurent, courts held the trademark protection on Christian Louboutin’s red sole to be enforceable, but that this protection only covered shoes when the red sole contrasted with the upper of the shoe [10]. That protection is thus limited and does not extend to the manufacture and sale of monochrome red shoes with a red sole, such as the red Yves Saint Laurent’s shoe at issue. This decision allowed Louboutin to benefit from trademark protection on its red sole without putting its competitors at a significant non-reputation-related disadvantage.

 

Louboutin, red sole
Louboutin’s red soles

 

The USPTO refused to register Paisley Park Enterprises’ “Love Symbol #2” mark because consumers do not perceive this color as a source identifier according to the USPTO. The USPTO noted that album covers from other artists such as Cam’ron and Kanye West also included the use of the color purple, and that the purple color was not distinctive of Paisley Park Enterprises’ products and services as it is a commonly used color in the sale of products and services in the same class. [11]

 

Patent Attorneys
Cam’ron cover for Purple Haze Album

 

Color is often used as a source identifier by companies. Tiffany’s Robin’s Egg blue color, which is used on their boxes, is protected by a trademark, the Tiffany Blue hue has been held to be distinctive through an acquired secondary meaning. UPS also registered its brown color as a trademark [12]. Paisley Park Enterprises may try to show that the particular purple color they are trying to register serves as a source identifier, and they may argue that consumers associate this purple color to Prince. If Paisley Park Enterprises manages to show secondary meaning, the USPTO will be likely to accept the registration of the “Love Symbol #2” color mark.

 

patent attorney firms
Tiffany & Co. famous blue box (robin’s-egg blue or forget-me-not blue)

 

[1] http://www.thefashionlaw.com/home/princes-estate-is-seeking-federal-trademark-protection-for-his-purple-pantone-hue
[2] https://www.pantone.com/about/press-releases/2017/the-prince-estate-and-pantone-unveil-love-symbol-number-2
[3] https://www.ipwatchdog.com/2018/07/14/can-you-trademark-a-color/id=99237/
[4] In re Owens-Corning Fiberglas Corp., 774 F.2d 1116 (Fed. Cir. 1985)
[5] Restatement of the Law (Third), Unfair Competition : §9 Definitions of TM and service mark
[6] Qualitex Co. v. Jacobson Products Co. Inc., 514 U.S. 159 (1995)
[7] https://tmep.uspto.gov/RDMS/TMEP/current#/current/TMEP-1200d1e10316.html
[8] Qualitex Co. v. Jacobson Products Co. Inc., 514 U.S. 159 (1995)
[9] Inwood Laboratories Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982)
[10] Christian Louboutin, SA v. Yves St. Laurent America Holding, Inc, 709 F.3d 140 (2d Cir 2013)
[11] http://www.thefashionlaw.com/home/us-trademark-body-says-prince-was-not-the-only-musician-to-make-use-of-the-color-purple
[12] https://www.ups.com/media/en/trademarks.pdf 



Recent Developments in Governmental Takings


Takings by the government have long been a murky area.  The Fifth Amendment of the U.S. Constitution does not proffer a great deal of insight into how takings were to be effected.  Recent case law adds some clarity to the murky sediment, but it remains a complex topic.  The Takings Clause of the Fifth Amendment exists to recompense private citizens in the event that government effects a taking of private property.  It states, “nor shall private property be taken for public use, without just compensation.”  The intent behind this was to limit government in its task of maintaining public interest rather than empower it, but it also serves also to give the private citizen recourse when government (local, State or Federal) takes physical possession of land for public use.  Over the years, use of the Takings Clause has evolved to include instances where the government regulates in a manner that reduces the value of private property or regulates such that it renders use of the land null.  These are the two types of per se taking: physical and regulatory. 

takings, house
Fenced-off house in Turner (August 2013)

Two recent cases have served to clarify previously muddy areas of takings actions: the 2017 U.S. Supreme Court case of Murr v. Wisconsin[1] and the later 2017 New York Second Department Appeals Division case of Matter of New Creek Bluebelt, Phase 3 (Baycrest Manor Inc.)[2].

Murr v. Wisconsin and the Denominator Problem

Murr v. Wisconsin concerned the children of the Murr family who had been devised two separate, but abutting, lots along the St. Croix River by their parents.  One lot was improved by a cabin while the other was undeveloped and smaller than 1 acre.  The children wished to sell the smaller lot to fund repairs of the cabin on the larger lot, but state ordinances prohibited the development or sale of adjacent plots under common ownership if they are substandard, i.e. smaller than 1 acre.  The Murrs sued the state and county claiming that they had been subjected to an uncompensated taking as the ordinance had deprived them of “all, or practically all, of the use of Lot E because the lot cannot be sold or developed as a separate lot.”  The case made its way to the Supreme Court which found for the State, that the two lots were to be treated as one lot.  The Court outlined a new three-pronged test for the “denominator question”, the question of what property or portion of the property has been taken, which has commonly been a difficult and fact-intensive analysis for the courts to make.  

The seminal case of Penn Central Transportation Co. v. New York City[3] gave the previous test which provided the courts broad discretion by considering the “parcel as a whole”, however, while it gave broad discretion, it did not offer much guidance in delineating the property for the purposes of analyzing a taking.  The Murr Court outlined the following considerations in determining what constituted the denominator: “(1) the treatment of the land under state and local law; (2) the physical characteristics of the land; and (3) the prospective value of the regulated land.”  Chief Justice Roberts gave a dissent that criticized the majority’s three-pronged test as one that would almost punish the private citizen as the test would perform a “clear double counting” of the government’s interest – in both considering the denominator and then the ultimate takings inquiry. 

St. Croix River
Dalles of St. Croix

The third factor of this new test requires an analysis of the concept of reciprocity of advantage which states that, despite the unequal givings and takings, a thing may benefit despite being burdened.  In this instance, the Murrs’ substandard lot was unequivocally burdened; it could not be developed or sold as a single unit, but it also benefited from the development restriction that protected the natural vista of the St. Croix River as it increased the value of the surrounding area.  Indeed, the value of the two lots together far exceeded their combined worth singly.  Murr is the first SCOTUS case to include this concept in its denominator inquiry, and it adds fairness and balance to the outcome by allowing the courts to consider the equitable benefit that the regulation in question has given to the property as opposed to considering only the burden.  Takings law is not a vehicle for compensation against every decrease in property value caused by regulations, it is a method of providing compensation when a regulation has gone too far.  So, even though Murr seems like a decision that favors the government over the aggrieved citizen, in actuality, it favors fairness and balance once all benefits and burdens have been considered.

Baycrest Manor

While Murr serves to clarify the initial takings inquiry, in New York, the case of Matter of New Blue Creek, Phase 3 (Baycrest Manor Inc.) (“Baycrest Manor”), serves to clarify parts of the final inquiry. It provides that subsequent purchasers with knowledge of stringent regulations on the purchased land are permitted to bring takings claims as it would be unfair for successors to title to be precluded from challenging unreasonably onerous regulations. This ruling follows the Supreme Court case of Palazzolo v. Rhode Island[4] and overturned four previous cases known as the Kim Quartet[5] wherein the New York Court of Appeals, in a single day, held that a purchaser with knowledge of restrictions cannot maintain a claim for a regulatory taking.  

Manhattan, Freshkills Park
Downtown Manhattan view over Freshkills Park

Baycrest Manor concerned an area of land that was condemned by New York State as 100% wetlands and therefore lacking any economic use.  Baycrest Manor, Inc. brought an action seeking just compensation and argued in the first that the land was unjustly deprived of all use due to the strict wetlands regulations, that the economic value of the land was decreased as a result, and also that a hypothetical future purchaser would pay more than the restricted-use price based on New York’s reasonable probability incremental increase rule.  New York, however, is a strange beast and wetlands areas do hold some non-economic value as was the case here where the owner was awarded higher compensation than the value of the land under a typical regulatory takings claim.  The New York Court of Appeals upheld this decision and outlined instances where departure from the Penn Central ad-hoc test for determining a taking would be considered.  The Penn Central test requires a court to analyze the economic impact of the regulation, the regulation’s interference with reasonable investment-backed expectations and the character of the governmental action, but the Court in Baycrest Manor realized that there are instances, such as here, when non-economic factors play a more important role.  This causes issues for the economic elements of the Penn Central test.  Instead, the Court found that there was a reasonable probability that a takings claim would succeed as the value of the property was reduced by 88% and the wetlands regulations prohibited practically all development of the land, thus removing all economically beneficial use of the property. 

After determining that a takings claim could be sustained, the Court moved on to consider whether the reasonable probability incremental increase rule could still apply.  The Court held that the rule applies when the Court finds there is a reasonable probability that the condemned land will be rezoned or the use restriction will be deemed invalid.  Then, the Court performed a calculation to determine the hypothetical value that a hypothetical future purchaser might pay given the continuing right to bring a claim and reasonable probability of success of that claim.  This figure is the just compensation awarded to the property owner. 

Baycrest ManorThis notice is much fairer than before where challenges to unreasonable regulations that cause a taking could only be brought by those who had purchased land before the enactment of the regulation.  It is wholly unfair that a subsequent purchaser not be able to challenge such a regulation merely because he had notice of it when he purchased the land, as it remains unreasonable no matter when a challenge is brought. 

Conclusion

While both cases focus on different elements of a takings inquiry, both add to the fairness of the outcome.  Murr ensures that the benefits provided by the regulation to commonly owned lots are fairly considered in determining the denominator, while Baycrest Manor ensures that, in New York, subsequent purchasers of restricted land are able to bring takings challenges and also that calculations for just compensation consider the price that a hypothetical purchaser might pay due to the maintenance of a takings claim and the reasonable probability of its success.  It can be argued that one case favors the government and the other favors the claimant, but both cases favor fairness overall, however, the complexity of takings law is only deepened.

 

 

[1] Murr v. Wisconsin, 582 US _ (2017)

[2] Matter of New Creek Bluebelt, Phase 3 (Baycrest Manor Inc.), ___ A.D.3d ____, 2017 N.Y. App. Div.

[3] Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978)

[4] Palazzolo v. Rhode Island, 533 U.S. 606 (2001)

[5] Kim v. City of New York, 90 N.Y.2d 1 (1997); Gazza v. Dep’t of Envir. Conserv., 89 N.Y.2d 603 (1997); Basile v. Town of Southampton, 89 N.Y.2d 974 (1997); and Anello v. Zoning Board of Appeals, 89 N.Y. 2d 535 (1997)



The Effect of Tax Laws on Commercial Real Estate


Recently the Supreme Court decided the case South Dakota v. Wayfair, Inc., in which they addressed whether remote sellers of goods and services can be required to collect and remit sales taxes imposed by the consumer’s State.[1] According to S. 106, 2016 Leg. Assembly, 91st Sess. (S. D. 2016) [hereinafter “the Act”], remote sellers are required to collect and remit sales tax to the State in which the goods are sold.[2] Plaintiff, the State of South Dakota, filed of an injunction requiring respondents to register for licenses to collect and remit sales tax.[3] Respondents Wayfair, Overstock.com, Inc., and Newegg, online merchants selling goods such as furniture and electronics, moved for summary arguing that the Act is unconstitutional.[4] The Supreme Court granted certiorari to determine how to interpret precedent cases “in light of current economic realities.”[5]

Wayfair, online shopping, e-commerce
Wayfair logo

 

In order to decide this issue, the court had to interpret and analyze the Commerce Clause and review the scope determined by two precedent cases, National Bellas Hess, Inc. v. Department of Revenue of Illinois and Quill Corporation v. North Dakota, which were decided in 1967 and 1992, respectively.[6] These cases determined that an out-of-state seller’s ability to collect and remit the tax depended on whether the seller had a physical presence in the State.[7] If the seller only permitted people to order from a catalog, it did not have a physical presence.

 

According to two key primary principles, state regulations cannot disfavor interstate commerce, and States cannot impose undue burdens on such commerce.[8] These principles, in combination with the

Commerce Clause, aid courts in determining outcomes in cases challenging state laws.[9] The Court laid out the guidelines for state taxation in Complete Auto Transit, Inc. v. Brady, where it held that a State can exclusively tax interstate commerce as long as the tax doesn’t create effects prohibited by the Commerce Clause. The Court determined that it would allow a tax as long as it applies to an activity with a significant connection to the taxing State, is fairly divided, doesn’t “discriminate against interstate commerce,” and is sufficiently connected to the services provided by the State.[10]

 

The concern about a significant connection arises from the established due process requirement that requires a business to have minimum contacts with the state in which they are selling goods or services.[11] Additionally, in Miller Brothers Co. v. Maryland, the Court held that there must be a connection between a state and the property or transaction it wishes to tax.[12]

 

The Court found that the physical presence rule is a flawed interpretation of the Commerce Clause in the ever-growing digital age as it gives online out-of-state businesses a significant advantage over companies with a physical presence in the state.[13] In addition, it creates market distortions.[14]

 

The issue of competition from online vendors has been an important one for South Dakota and the States more generally due to the fact that the States have lost revenue in the amount of $8 and $33 billion each year as a result of the rulings in Bellas Hess and Quill.[15] As a result, South Dakota residents had to “foot the bill” and pay the use tax on their purchases from other states.[16] These taxes constitute an important income source for South Dakota in funding state and local services, such as police and fire departments, as it has no state income tax.[17] Some states, such as Colorado, have imposed notice requirements on remote vendors just below collecting taxes. As a result, in the

future courts may encounter arguments regarding the meaning of physical presence.[18] Courts may also face the issue presented by small businesses seeking relief from tax collection.[19]

 

online shopping, e-commerce
Consumers have moved increasingly towards online shopping in the past few years due to convenience and efficiency

 

Ultimately the Court overruled Quill and Bellas Hess, finding that the physical presence rule was untenable.[20] Subsequently, the Court analyzed the tax under the Complete Auto test and found that the connection between the activity and the taxing State was sufficient, as respondents had significant economic and virtual contacts with the State. However, it remains to be seen whether another Commerce Clause principle could nullify the Act.[21]

 

In his dissent, Chief Justice Roberts argued that Bellas Hess was incorrectly decided and that deference should be given to Congress (rather than the Courts) to determine interstate commerce issues, citing the importance of stare decisis.[22] Further, Roberts argues that the harm caused by the physical presence rule, if there is any being done, is decreasing over time.[23]

 

Additionally, Roberts asserts that the Court’s decision will disproportionately and arbitrarily impose unjustified costs on various goods, which will burden small businesses. He opines that imposing taxes on each sale will harm the market by increasing costs for businesses and thereby decrease the variety of goods available.[24] Roberts argues that Congress is most suited to determine competing interests of businesses and analyze the Commerce Clause and might be able to avoid such a drastic policy change and determine any retroactive effect the change might have.[25]

 

This ruling is vital for commercial real estate and states as stiff competition from online retailers has injured sales.[26] It will have far-reaching implications for large online venders such as Amazon, which does not currently collect state sales taxes on products of third-party sellers (in all states except Washington and Pennsylvania). Following the publication of the decision, Amazon shares tanked. Stocks of other large online marketplaces are expected to show similar decline.[27]

Amazon, e-commerce, online shopping
Amazon

 

As a result of the decision, South Dakota can require online out-of-state vendors that conduct sales numbering over 200 transactions or generating revenues of over $100,000 to collect taxes on items purchased by South Dakota residents. It is anticipated that other states will change their laws regarding the physical presence requirement to align similarly with South Dakota’s new requirement. It is estimated that the decision could create as much as $13 billion in tax revenue.[28] As the online market grows and improves and more stores face bankruptcy, it will be important to keep an eye out for additional legal issues and tax policies that are likely to arise in the online marketplace arena.

 

[1] South Dakota v. Wayfair, 138 S. Ct. 2080, 2093 (2018).

 

[2] Id. at 2088.

 

[3] Id. at 2089; see U.S. Const., Art. I, §8, cl. 3.

 

[4] State v. Wayfair Inc., 901 N.W.2d 754, 759-60 (S.D. 2017).

 

[5] South Dakota, 138 S. Ct. at 2089.

 

[6] Id. at 2087-88. National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967); Quill Corp. v. North Dakota, 504 U.S. 298(199).

 

[7] South Dakota, 138 S. Ct. at 2089.

 

[8] Id. at 2084.

 

[9] Id.

 

[10] Id. at 2085.

 

[11] Id. at 2093.  See Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945); Burger King v. Rudzewicz,  

   471 U.S. 462, 476 (1985).

 

[12] Miller Brothers Co. v. Maryland, 347 U.S. 340, 344-45 (1954); South Dakota, 138 S. Ct. at 2093.

 

[13] South Dakota, 138 S. Ct. at 2092.

 

[14] Id.

 

[15] Id. at 2088.

 

[16] Id.

 

[17] Id. at 2097.

 

[18] Id. at 2098.

 

[19] Id. at 2099.

 

[20] Id.

 

[21] Id.

 

[22] Id. at 2101.

 

[23] Id. at 2103.

 

[24] Id. at 2104.

 

[25] Id.

 

[26] Erin Stackley, Supreme Court Ruling in Wayfair Case a Win for Real Estate and States, RISMEDIA (August 12, 2018), http://rismedia.com/2018/08/12/supreme-court-ruling-wayfair-case-win-real-estate-sales/#close.

 

[27] Erin Stackley, Supreme Court Ruling in Wayfair Case a Win for Real Estate and States, RISMEDIA (August 12, 2018), http://rismedia.com/2018/08/12/supreme-court-ruling-wayfair-case-win-real-estate-sales/#close.

 

[28] Jeff Mengoli, The Impact of the Supreme Court’s Ruling in South Dakota v. Wayfair, BigCommerce, https://www.bigcommerce.com/blog/south-dakota-v-wayfair/.



The Fashionable Supreme Court: Will They Say Yes to the Trade Dress?


Copyright Protection of Non-Utilitarian Designs under the Copyright Act of 1976

Designers in the high fashion industry face many obstacles in receiving intellectual property protection for the utilitarian aspects of their clothing. Congress has provided copyright protection only for original works of art, but not for industrial designs that embody utilitarian functions.  See 17 U.S.C. 101.  Copyright protection does not extend to utilitarian aspects of objects because it would open up a flood of litigation over exclusive monopoly rights that would “burden competition, raise prices, and also harm consumers.”  See Star Athletica, L.L.C. v. Varsity Brands, Inc., Brief for United States as Amicus Curiae 5-6.  This proves problematic, however, when art and industrial design are intertwined, especially in the fashion industry which combines aesthetic elements with utilitarian garments.  Under the separability doctrine, these pictorial, graphic, and sculptural works on the design of a useful article are copyrightable so long as they “can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article.”  See  17 U.S.C. 101.  But what happens when pictorial, graphic, sculptural works are inseparable from the utilitarian aspects of a garment?  See Star Athletica, L.L.C. v. Varsity Brands, Inc. provided fashion designers with newfound intellectual property protection for aesthetic aspects that are incorporated into utilitarian aspects of their garments.

Obstacles Designers Faced in the High Fashion Industry Prior to the Star Athletica Decision

It is without a doubt that fashion, namely high fashion, has now become a status symbol that relies heavily on its branding and aesthetic more so than any utilitarian value its designs may serve.  So much of the value that these high fashion designs derive is from its rarity and accessibility to only the elite and wealthy.  Accordingly, it is not too surprising that fast fashion powerhouses have copied these high fashion runway looks along with several other brand elements available to the more general public.  

Fast fashion brands, i.e. Zara or Mango, have often tried emulating high fashion ad campaigns by recreating the featured garments for an exponentially lower price.  For example, Celine’s ad campaign for the 2011 fall and winter collection consisted of models in a natural setting surrounded by aloe plants.  Zara later emulated this in black and white during the Spring and Summer 2014 season and again during the Fall and Winter 2015 season with a minimalist focus on a model in black and white and an aloe plant.

fashion, Zara, model
High fashion Black & White

A few other examples of this are pictured below where Zara emulated Balenciaga’s Fall and Winter 2016 collection with its red parka and comparable styling to Lotta Volkova or a cream colored trench coat with athletic zip up wear underneath for the Burberry Fall 2016 season, which was a distinctive look for that season featuring model Chris Wu.

fashion, models, couture
Balenciaga on the left and Zara on the right

The similarities between the campaigns are not entirely identical, and even if they were, there were not rigidly defined protections under the Copyright Act.  Zara and other fast fashion powerhouses such as Mango and Forever 21 have a legally cognizable right to provide their own independent expressions about their fashion ideas.  Accordingly, they continue to use these similarities with the intention that consumers create a psychological connection between the high fashion brand and the fast fashion brand.  Fast fashion powerhouses strengthen these connections by recreating the styling, colors, and design to produce the same high fashion look elite fashion designers were inspired by without infringing logos, patents, or trademark protected designs.  This leaves high fashion designers left fairly powerless and unprotected by copyright laws.  This all changed with the holding of Star Athletica, L.L.C. v. Varsity Brands, Inc., which provided high fashion designers with much more expansive intellectual property protection.

coats, Burberry, Zara, fashion, style, couture
Burberry coat on left and Zara coat on right
Gucci, Mango, high fashion, couture, models
Gucci on left and Mango on right

Star Athletica, LLC v. Varsity Brands, Inc.: Progress Toward Copyright Protection of Fashion Design

In March 2017, the Supreme Court established a test for determining the copyright eligibility of design elements in fashion in Star Athletica, L.L.C. v. Varsity Brands, Inc. Respondent Varsity Brands, Inc. obtained more than 200 copyright registrations for two-dimensional designs that appear on their cheerleading uniforms.  Respondent employed designers who sketched design concepts of uniforms consisting of “original combinations, positionings, and arrangements of elements which include V’s (chevrons), lines, curves, stripes, angles, diagonals, inverted V’s, coloring, and shapes.” 137 S. Ct. 1002, 1007 (2017).  Respondent Varsity Brands, Inc. sued Star Athletica, L.L.C., a competitor that also markets cheerleading uniforms, for copyright infringement for using 5 of Respondent’s copyrighted designs.  Id.  The District Court granted the petitioner summary judgment holding that designs could not be conceptually or physically separated from the uniforms, and therefore were not copyrightable designs.  Id.  The Sixth Circuit later reversed this and concluded that graphics “could be identified separately and were capable of existing independently” of the uniforms under 17 U.S.C. 101.  Id.  Specifically, they found that the graphic designs were separately identifiable because “the designs and a blank cheerleading uniform can appear ‘side by side’ and . . . are capable of existing independently.”  Id. The Supreme Court found these conflicting perspectives on the separability analysis warranted certiorari to resolve this widespread disagreement over the proper separability test.  Id

Varsity Brands, Supreme Court, copyright, fashion,
Appendix to Opinion of the Supreme Court

The Supreme Court relied solely on a statutory interpretation of 17 U.S.C. 101, rather than a free-ranging interpretation of the best copyright policy for the case at hand.  See Mazer v. Stein, 347 U.S. 201 (1954).  The Court looked at the “whole provisions of the law” to determine the meaning of 17 U.S.C. 101.   See United States v. Heirs of Boisdore, 8 How. 113, 122 (1849).  The statute provides that:

A pictorial, graphic, or sculptural feature incorporated into the design of a useful article is eligible for copyright protection if it (1) can be identified separately from, and 2) is capable of existing independently of, the utilitarian aspects of the article. 17 U.S.C. 101.

The Court focuses more on the second requirement, stating that the burden of proof for the first requirement is not that difficult to satisfy.  See Star Athletica, L.L.C. v. Varsity Brands, Inc., 137 S. Ct. at 1010.  The Court states that the trier of fact must determine whether the separately identified feature can exist apart from the utilitarian aspects of the article.  Id.  This means that it has to be able to exist on its own if its imagined independent from the useful article.  Id.  If it cannot be imagined separately from the useful article, then it is not a pictorial graphic or sculptural feature of the article itself, but rather as part of one of the utilitarian aspects of the garment.  Id.

The Copyright Act provides that the owner of the copyright can reproduce this work copies on any kind of article regardless of whether it embodies a utilitarian property.  See 137 S. Ct. at 1005.  The Court states that this is a mirror image of 17 U.S.C. 113(a) which protects an authorship fixed on some tangible medium that is non-utilitarian and then later applied to a utilitarian object.  Id.  On the other hand, 17 U.S.C. 101 protects the art that is first fixed in the medium of a useful article.  Id.  Accordingly, the Court holds that the copyright protection extends to pictorial, graphical, or sculptural objects regardless of whether they are affixed to utilitarian or non-utilitarian objects.  Id.

The Court held that this interpretation of the statute is consistent with a past holding in the Copyright Act’s history.  Id.  In Mazer, the Court held that the respondents owned copyright protection for a statuette that served as the base of the lamp and it was irrelevant if can be identified as a freestanding sculpture or lamp base.  Id.  The Copyright Office used the Mazer holding in the modern separability test to copyright law in section 101 of the 1976 Act. Id.

Using statutory interpretation and case law, this Court held that the surface decorations on the cheerleading uniforms can be considered separate under the separability test mandated in Section 101 of the 1976 Act.  See 137 S. Ct. at 1006.  They reasoned that if the decorations were removed from the uniforms and affixed to another medium, they would not copy the uniform itself.  Id.  They analogized that just as two-dimensional fine art are aligned with the shape of the canvas on which it is painted, these decorations are aligned with the shape of the uniform itself.  See 137 S. Ct. at 1012. Respondents may only prohibit the reproduction of these surface designs; however, the Court holds that they have no right to prevent others from manufacturing a cheerleading uniform identical in shape, cut, or dimensions.  See 137 S. Ct. at 1006

Ultimately, the design of the uniforms satisfy the requirements of Section 101 of the 197 Act because they 1) can be perceived as a two- or three- dimensional work of art separate from the useful article; and 2) would qualify as a protectable pictorial, graphic, or sculptural work either on its own or in some other medium if imagined separately from the useful article. 137 S. Ct. at 1016. Based on this interpretation, the Supreme Court affirmed the Court of Appeal’s judgment.  Id.

Now high fashion designers can turn to this holding when any aesthetic design is affixed to a utilitarian design.  This holding has revolutionized high fashion designers’ intellectual property interests for their designs in the high fashion industry that is victim to fast fashion’s intellectual property theft.

 



Landlord-Tenant Battle Over NYC Rent Stabilization


 

 

real estate lawyer brooklyn
Rent Stabilization

 

New York’s first step towards rent regulation can be traced back to the 1920s.[1]  The history of rent control in New York has been a battle between owners and tenants for quite some time.  In general, rent controlled apartments must be in buildings of three or more units constructed on or before February 1, 1947 and tenants must have occupied their apartment since at least July 1, 1971.[2]  Under rent control, the maximum rent is determined by statute, through the Maximum Base Rent formula.[3]  The Maximum Base Rent formula allows a landlord to increase monthly rent charges in order to recoup the costs of owning the building.[4]  In addition, hardship increases may be allowed in specific circumstances, including when there is substantial rehabilitation to the building, and to recover the cost of major capital improvements.[5]  When a rent-controlled apartment becomes vacant, it is subject to rent stabilization, or, if it does not meet the requirements of rent stabilization, it is deregulated entirely.  If a rent-controlled apartment becomes vacant, and the maximum legal rent exceeds $2,000.00 instead of remaining under rent stabilization, the unit is deregulated.

 

Under the NYC Rent Stabilization Law, rent-stabilized apartments are subject to certain statutory rent increases, including a 20% increase for a two-year lease upon vacancy.[6]  In addition, rent Stabilization Law §26-504.2 [a] provides for the deregulation of rent-stabilized apartments that reach a threshold of legal regulated rent.  Specifically, deregulation will apply to:

 

“any housing accommodation which becomes vacant on or after [April 1, 1997] and before the effective date of the rent act of 2011 and where at the time the tenant vacated such housing accommodation the legal regulated rent was two thousand dollars or more per month; or, for any housing accommodation which is or becomes vacant on or after the effective date of the rent regulation reform act of 1997 and before the effective date of the rent act of 2011, with a legal regulated rent of two thousand dollars or more per month.”[7]

 

Owners have been abiding by Rent Stabilization laws for years but, when Richard Altman decided to sue his owner for illegally deregulating the unit he leased in 2003 by counting the 20% rent increase allowed by statute to push his rent over the $2,000.00 threshold, uncertainty spread throughout New York.  For apartments involuntarily placed under rent regulation in New York City, those regulations were removed when a vacant apartment crossed a certain rent level. However, previously unresolved in the case law was whether, in order to effect deregulation, that rent level had to be reached during the tenancy of the last tenant prior to vacancy, or could be reached through implementation of various increases allowed to owners between two actual tenancies, such as the 20%.

 

Initially, in 2015 the New York Appellate Division for the First Department ruled in favor of Richard Altman, holding that although the owner was entitled to a 20% rent increase for Altman’s initial lease, that increase did not serve to deregulate the apartment because the rent was not over $2,000.00 at the time the prior tenant vacated the premises.  The decision by the Appellate Division caused mass uncertainty by owners and tenants who had been previously deregulated by the 20% increase. Tenants believed they had won and were ready to start filing lawsuits to return their units to rent stabilized and collect damages for over paid rent.  While tenants were excited about the court’s ruling the decision left landlords in a very difficult position because they had previously followed the law by including the 20% to deregulate the apartments and were facing potentially thousands of dollars in back-pay to tenants and thousands of apartments being re-stabilized. However, the Altman decision was appealed and heard by the New York Court of Appeals.

 

real estate attorney brooklyn
The Final Decision

 

April 26, 2018 was a monumental day for landlords who were facing potential re-stabilization of thousands of previously deregulated apartments.  The Court of Appeals introduced Altman with the statement that it must determine whether the 20% vacancy increase should be included in determining if the rent of a unit exceeds the $2,000.00 threshold.  To tenant’s dismay, New York’s highest Court ruled in favor of the landlords allowing vacancy rent increases to be used to boost a unit’s cost over the deregulation threshold.  Ultimately, the Court of Appeals ruled that the 20% increase should be considered when determining the legal regulated rent at the time of the vacancy.  The decision was a massive defeat for Altman and all other tenants hoping to re-stabilize their rent.  The Court of Appeals Chief Judge Janet DiFiore wrote in her decision that state law makes it clear the vacancy rent increase should be counted when figuring if any apartment has reached the deregulation threshold.  “The legislative history could not be clearer and leaves no doubt that the Legislature intended to include the vacancy increase,” DiFiore wrote.[8]  The unanimous ruling by the Court of Appeals prevents the unjustified re-stablization of thousands of apartments that were appropriately deregulated according to law.  It also prevents thousands of deregulated tenants from receiving a windfall in the form of a rent-stabilized apartment with a below-market rent.

 

commercial real estate lawyer brooklyn
New York City landscape

 

The New York Court of Appeals decision will continue to allow landlords to deregulate units and buildings that were once rent stabilized. In a city where rent is continuing to increase and become unaffordable, rent stabilized apartments will continue to decrease. Unfortunately, for tenants seeking rent stabilized apartments there are not many left and there will not be new rent stabilized apartments appearing on the NYC real estate horizon. The endless new construction taking place all over New York will continue to make landlords deregulate apartments and drive rent prices up.  Bear in mind if you are one of the lucky few living in a rent stabilized apartment, hold on to it for as long as you can.  Otherwise, it will be like looking for a need in a haystack of brand-new, highly-priced, luxury apartments.

 

 

 

 

 

 

 

[1] Peter D. Salins & Gerard C.S. Mildner, Scarcity By Design: The Legacy of New York City‘s Housing Policies, 120-21, 52-53 (1992).

[2] N.Y.C. Admin. Code 26-403(e)(2)(h).

[3] N.Y. Comp. Codes R. & Regs. tit. 9, 2201.4.

[4] Id.

[5] N.Y. Comp. Codes R. & Regs. tit. 9, 2201.4(b)-(c).

[6] Rent Stabilization Law §26-511 [c] [5-a].

[7] Altman v. 285 W. Fourth LLC, 2018 NY Slip Op 02829.

 

[8] Id. at 6.



Piece of Cake: What’s Behind Supreme Court Opinions?


On June 4, 2018 the United States Supreme Court issued a decision in the controversial case, Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission. The case concerned a baker, Mr. Jack Phillips, a devout Christian, who in 2012 declined to create a wedding cake for a same-sex wedding on the basis that doing so would require him to express himself artistically in a way that was inconsistent with his religious beliefs. At the time, gay marriage was not legally recognized in Colorado. However, the state had an anti-discrimination act regarding goods and services available to the public. See C.R.S. 24-34-601. The Commission determined that Mr. Phillips violated the anti-discrimination act. On review, the Supreme Court held that the Commission violated the First Amendment’s Free Exercise Clause by egregiously treating Mr. Phillips’ case with hostility towards his religious beliefs. The Free Exercise Clause requires that states not base regulations and laws on hostility towards a religious belief, but that they remain neutral. The Supreme Court reversed the lower court’s decision stating that Mr. Phillips had been “entitled to a neutral decision-maker who would give full and fair consideration to his religious objection as he sought to assert it . . . ” Masterpiece Cakeshop, Ltd. v. Colo. Civil Rights Comm’n, 201 L.Ed.2d 35, 46 (U.S. 2018).

Masterpiece Cakeshop, cake, Supreme Court
Jack designing cake

Critical to the effect of this decision on similar future cases is that the Court did not decide for the states the limits and boundaries between anti-discrimination and freedom of speech. Rather, the Court narrowly held that these disputes “must be resolved with tolerance, without undue disrespect to sincere religious beliefs . . . ” while avoiding “subjecting gay persons to indignities when they seek goods and services in an open market.” Id. at 50. In other words, the Supreme Court simply held that state courts must be neutral decision-makers who faithfully uphold the entire Constitution.

Nevertheless, the case was not decided without much disagreement among the nine Supreme Court Justices, despite the final 7-2 decision. With three concurring opinions (one such written and joined by two of the four liberal Justices) and one dissenting opinion, it is no wonder why the case has caused such controversy. What might cause even more shock is that Justice Kennedy, who wrote the majority opinion, also wrote the 2015 landmark decision which legalized gay marriage nationwide. Because of the different opinions, this case becomes an effective model for answering the following questions. How do Supreme Court Justices decide who writes each opinion? Why do they write concurring and dissenting opinions? What precedential value do concurring and dissenting opinions have?

The Majority Opinion is Assigned by the Chief Justice

After oral arguments, the Justices convene in a conference to express how each of them would decide the case; the conference is followed by a vote. Once the votes have been counted, the Chief Justice assigns a Justice in the majority to write the opinion of the Court or does so himself. However, if the Chief Justice is not in the majority, the most senior Justice in the majority has the authority to assign writing the opinion of the court. In Masterpiece Cakeshop, Chief Justice Roberts was a part of the majority and assigned writing the opinion of the court to Justice Kennedy. They were joined by Justices Breyer, Alito, Kagan, and Gorsuch. Often, a Justice in the majority will agree with the outcome of the case, but not with the majority’s reasoning for it. That Justice may write a concurring opinion, which can be joined by other Justices. Here, Justice Kagan filed a concurring opinion in which Justice Breyer joined. Justice Gorsuch filed another concurring opinion, joined by Justice Alito. Justice Thomas wrote an opinion concurring in the judgment, but only concurring in part as to the majority’s rationale. Any Justice who disagrees with the majority judgment can write a separate dissenting opinion. Here Justice Ginsberg, who was joined by Justice Sotomayor, filed a dissenting opinion.
Often, the opinions reference each other, each Justice arguing their reasoning in comparison to another’s. The following sections briefly describe the main points of each opinion and illustrate how the Justices agree and disagree with each other.

Majority Opinion:

Written by J. Kennedy; Joined by JJ. Roberts, Breyer, Alito, Kagan, Gorsuch

“While it is unexceptional that Colorado law can protect gay persons in acquiring products and services on the same terms and conditions as are offered to other members of the public, the law must be applied in a manner that is neutral toward religion.” Id. at 37. The commissioners made hostile comments about Mr. Phillips’ faith, casting doubt on the fairness and impartiality of the Commission’s adjudication of the case. Justice Kennedy compared this case to another where other bakers prevailed before the Commission despite refusing to create a cake for a client (because it depicted anti-gay messages, which the bakers opposed) while being willing to sell other products with a different message to the same customers. The cases are all too similar, he argues, and yet the Commission reached opposite decisions.

Concurrence:

Written by J. Kagan; Joined by J. Breyer

“[A] proper basis for distinguishing the cases was available—in fact, it was obvious.” Id. at 50. The three bakers, Justice Kagan argues, would have denied making the anti-gay cake for any customer, regardless of his religious beliefs. However, Mr. Phillips would have created a wedding cake for an opposite-sex couple, but refused to create one for the same-sex couple. Nevertheless the commission made their decision with hostility and bias.

Concurrence:

Written by J. Gorsuch; Joined by J. Alito
Pushing back against the Kagan and Ginsberg opinions, Justice Gorsuch argues that the different bakers’ cases were legally almost identical and should have resulted in the same determinations. He argues that the Commission treated them differently because they deemed Mr. Phillips’ beliefs offensive. The courts should not be deciding what is offensive. “[T]he place of secular officials isn’t to sit in judgment of religious beliefs, but only to protect their free exercise. Just as it is the ‘proudest boast of our free speech jurisprudence’ that we protect speech that we hate, it must be the proudest boast of our free exercise jurisprudence that we protect religious beliefs that we find offensive.” Id. at 55.

Concurrence:

Written by J. Thomas; Joined by J. Gorsuch
Justice Thomas addresses the freedom of speech argument that Mr. Phillips made. He believes creating a custom wedding cake for a couple is “expressive conduct” and should therefore be protected by the First Amendment. “States cannot punish protected speech because some group finds it offensive, hurtful, stigmatic, unreasonable, or undignified.” Id at 65.

Dissent:

Written by J. Ginsberg; Joined by J. Sotomayor

Justice Ginsberg argues that neither the commissioners’ statements about religion nor the commission’s prior treatment of other bakers amounts to hostility towards religion. The Court’s decision is therefore unjustified. She argues that the other bakers refused to make an offensive cake because of the cake itself, but that Mr. Phillips refused to bake the wedding cake because of their sexual orientation.

Precedential Value of Concurring and Dissenting Opinions

While lower courts must follow the Supreme Court’s majority opinion (under stare decisis), there are times when a concurring opinion, and even a dissenting opinion, can influence future decisions and the development of law. Overtime, the view of the courts might therefore shift drastically.

As for the Masterpiece Cakeshop case, it will take careful consideration by lower courts of the decision as they apply it to similar cases. Courts will need to balance applying the law in a manner that is neutral towards religion while protecting people from discrimination.